Cryptocurrency in Nigeria: Challenges and Opportunities

by | May 3, 2021 | Cryptocurrencies

Nigeria is not only the most populous nation on the continent of Africa, it also has the continent’s largest economy. In addition, it is rapidly becoming the central hub of cryptocurrency activity in Africa. According to Coindance, a platform monitoring cryptocurrency trade worldwide, Nigerians traded up to about 1.13 billion naira (about USD 2.9M) in March 2021. 

Cryptocurrency Adoption in Nigeria

On January 5th, 2021, JP Morgan released a report asserting that Bitcoin is currently competing with gold as an “alternative currency’. In 2020, Bitcoin (BTC) trading volume in Nigeria doubled that of the entire Eurozone.
 

Cripto Country

Fintech companies and cryptocurrency companies have made the lives of many Nigerians better. Through Crowdfunding, Feminist Coalition, a rights advocacy group comprised mostly of Nigerians raised over N70 million ($180,000). They also distributed over N20 million to victims of social unrest. The Fintech company, Flutterwave was also instrumental in coordinating donations for victims of the Social unrest. They coordinated donations to the sum of N2 million ($5,000).
 

When U.S. payment giant Stripe acquired the Nigerian fintech startup Paystack for $200 million, it was more than another acquisition story. It gave credence to the value that African tech startups have created for businesses, investors, and the ordinary African. Fintech companies have continued to save the day for ordinary Nigerians. Through innovative services and design thinking, they have solved problems that affect many people. For instance, schoolable.co helps parents to save towards their children’s school fees and get loans. They also ensure payments are tracked and reconciled. Bundle Africa helps with funds transfer, Flutterwave helps with payment processing and remittances, and Telokanda helps university students share weather data, amongst others.

 

Cryptocurrency Adoption Chart

Source: https://www.statista.com/chart/18345/crypto-currency-adoption/

In February, Binance Africa sponsored over 1,000 African developers to learn the basics of building on the Binance Smart Chain. Truly, Decentralized finance (Defi) has revolutionized the way applications are developed on blockchain. 

Bitcoin in the Real Estate Landscape

Bitcoin has been making headlines for the past couple of weeks as it becomes more accepted by mainstream media, and  accepted by some realtors for the first time. The CEO of Bamboo Real Estate and Construction, Osayemon Ighodaloh said that “the need to innovate and provide options made him adopt smarter means of payment.” According to John Adelakun, a real estate analyst, “Digital currency helps to reduce barriers to ownership of property. As more people get familiar with it, they will start to realize that it has a lot of potentials to bring prosperity and freedom to many different aspects of our lives.”

At this time, Nigerian realtors are talking about accepting Bitcoin, but there has not been real traction as yet. The cheapest houses in Lagos cost up to 8 million naira, which is way out of budget for people below the upper class. With blockchain, housing units can be split into multiple fractions and people can own fractions of the property. 

Available Channels for Purchasing Bitcoin:
 

  1. Through the crypto exchanges 
  2. Peer-to-peer crypto trading 
  3. Joining membership clubs designed for crypto enthusiasts 

 

1. Through the crypto exchanges 

Cryptocurrency transactions usually involve an exchange platform as an intermediary. Notable exchanges used include LunoBittrex, BinanceBanxa and Coinbase. 

Through the crypto exchanges

2. Peer-to-peer crypto trading

With peer-to-peer trading, two people transact business directly without involving the bank. 

Peer-to-peer crypto trading

3. Joining membership clubs designed for crypto enthusiasts

There are clubs for crypto enthusiasts. Examples are Crypto Builder Millionaire’s Club and Blockchain Nigeria User group. Crypto Builder Millionaire’s Club provides mentorship for newbies wishing to benefit from cryptocurrency but find it difficult to navigate. There are perks for joining such as having first-hand information about developments in the crypto space, crypto giveaways and gifts, etc. Club Swan is also a membership club designed for cyptocurrency enthusiasts. Services include travel discounts, rewards, and virtual assistants. As of May 1, 2021, Club Swan is accepting qualified members from Nigeria.

Other Channels

Crypto P2P: Within the blockchain network, sellers put up their offer and interested buyers bid for it. This method introduces a delay in the transaction time because the buyer must be matched with a seller. As a result of this, it is not unusual that transactions remain hanging for 24-72 hours.

Naira P2P: Before the advent and popularity of crypto exchanges, individuals primarily bought cryptocurrencies by finding sellers and transferring the Naira equivalent to their bank accounts. Some new entrants into the cryptocurrency space fell victim of fraudsters who promised to help them mine and trade bitcoin and manage their earnings. The unsuspecting individuals fell for the tricks and lies. A suspect was arrested in Oyo State. 

Crypto Other channels

Use of other currencies: Because the main hurdle was trading crypto with the Naira, crypto exchanges devised a means where users can trade with other currencies. The available alternatives are dollar coins and stable coins. NGNT is a digital currency that represents the Naira. 1NGNT equals 1 Naira. 

Challenges Cryptocurrency users in Nigeria face

Speed of transaction

A fast crypto transaction can be as important as the speed of a Bitcoin or Ethereum block. Transactions often take hours to complete. Ideally, Bitcoin transactions can take anywhere between five minutes and one hour. However, most transactions are instant. According to Abolaji Odunjo, he prefers using Bitcoin because it “helped protect his business from currency devaluation and most transactions are instant.” This can take anywhere from five minutes to an hour, depending on the Bitcoin network.  

High and Inconsistent Charges 

To really compare the best options for fiat on-ramps, you have to look at the fees before and after conversion. Let’s say there are two fiat gateways that a user can use to buy Bitcoin for $1000: The first says it only has 2% but adopts a conversion rate of $21,000/Bitcoin. The second charges 3% as fees but uses a conversion rate of $20,000/Bitcoin.  

Fiat Amount to Convert  Fee  Conversion Rate  Bitcoin Received 
$1,000  2%  $21,000/Bitcoin  0.0467(3.7% More Expensive) 
$1,000  3%  $20,000/Bitcoin  0.0485 

 

While the first seems cheaper when only judging based on fees, the user would only receive 0.0467 Bitcoin, compared to the 0.0485 Bitcoin that the user would receive when using the second on-ramp. The first gateway is about 3.7% more expensive than the second while quoting a lower fee!

As a general rule, be wary of gateways that provide low fees but provide very poor conversion rates. 

Like it or not, the world of fiat (normal everyday government-backed currency like Naira, USD, AUD, or Euro) is still the king, and is likely to be for the foreseeable future. So, what if you only have fiat currencies, and want to participate in the crypto world? You will need to convert this money. Therefore, there is still a challenge that needs to be addressed in the issue of charges. 

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