Nigeria Shows Bitcoin Can Be A Force for Good, Banning Crypto Unworkable

At the same time, the Nigerian naira is suffering from substantial inflation, while the government has attempted to cut off funding for protest groups. Taken as a whole, Nigeria’s example therefore highlights three important facts about that Bitcoin and crypto:

1. Bitcoin will almost always be desirable in countries where the currency is weak and alternatives are scarce
2. Bitcoin genuinely does offer financial freedom in more authoritarian countries
3. Banning bitcoin or cryptocurrency is pretty much unworkable.

Everyone Agrees: Nigeria Leads the Way in Crypto Adoption

In fact, Nigeria can lay claim to the highest proportion of cryptocurrency ownership in the world, according to a March survey from Statista, which found that 32% of people in the African country use crypto.

Source: Statista

Data from P2P exchange Paxful reveals that Nigeria has been its biggest market for quite some time. Back in July 2020, the platform celebrated hitting $4.6 billion in trading volume, noting that its “leading markets are Nigeria, the USA, Ghana, India, and Kenya.” And on April 27 of this year, it announced enjoying more than $5 billion in all-time volume, with the accompanying press release having the following to say about country rankings:

“As of April 2021, the top 5 countries by volume on Paxful are: Nigeria, China, the U.S., India and Kenya.”

In other words, Nigeria has been the busiest market for Paxful for two consecutive years, and data from other sources backs up the suggestion that Bitcoin and cryptocurrency really are big in the African nation. For instance, Chainalysis’ Geography of Crypto Report 2020 found that Nigeria ranked eighth for cryptocurrency adoption worldwide,

Source: Chainalysis

Again, Nigeria-based financial information website Nairametrics found that, in 2020, Nigeria accounted for the highest volume of bitcoin trades in Africa, claiming $34 million in volume for Q2 2020 alone (South Africa was the next highest, at $15 million).

Why Nigeria Loves Bitcoin, and What This Tells Us About BTC

You may be thinking: so what? So what if Nigeria is one of the biggest countries in the world for Bitcoin and cryptocurrency? Surely some countries have to rank among the top, so what difference does it make if Nigeria is one of them?

Well, Nigeria ranks at or near the top of adoption for a variety of particular reasons, and together, these reasons undermine the claim that Bitcoin and cryptocurrency in general aren’t useful.

First of all, Nigeria is suffering from serious inflation, which has been comfortably above 10% since 2016, and which has worsened this year, rising as high as 18%. At the same time, it’s suffering from a foreign currency shortage, with the Nigerian central bank restricting access to US dollars for importers (i.e. buyers) of a growing variety of goods from other countries (e.g. wheat, sugar, milk, and other produce).

Source: TradingEconomics

As you can imagine, a weak national currency and limited availability of alternatives creates a very big opening for something like bitcoin, which is increasingly making a name for itself among investors as a store of value. This is a big part of the reason why it has been adopted so readily in Nigeria, which is heavily reliant on incoming remittances, having received some $17.2 billion in 2020 alone.

Source: Statista

On top of this, Nigeria’s economy contracted by 6.1% in Q2 2020 (compared to Q1 2019), as the Covid-19 pandemic took its toll, resulting in a general decline in economic activity and also a fall in oil prices (Nigeria is the 15th biggest producer of oil in the world).

Basically, Bitcoin has provided a reliable store of value and medium of exchange (compared to available alternatives), and its volatility has provided a (sometimes inconsistent) source of income in a major economic downturn.

Just as impressively, Bitcoin and other cryptocurrencies have also provided a degree of financial freedom. Back in October 2020, the Central Bank of Nigeria began instructing commercial banks to freeze the accounts of organizations and individuals involved in protests against the government. Some of these groups began accepting donations in bitcoin, with the Feminist Coalition raising nearly $400,000 in BTC by the end of October.

Other groups have spoken anonymously to the Guardian of their growing reliance on cryptocurrencies for funding, revealing a shadow financial network that is actually being used for good, to fight government corruption and brutality.

And speaking of the government, Nigeria’s love affair with Bitcoin teaches another important lesson about cryptocurrency. That is, it’s more or less futile to ban it.

In February, as it became increasingly apparent that much of the population was using cryptocurrency to get around the government’s capital controls, the Central Bank of Nigeria issued a letter to all banks and financial institutions in the country. In it, it informed them that “dealing in cryptocurrencies or facilitating payments for cryptocurrency exchanges is prohibited.”

It also asked all banks and financial institutions to “identify persons and/or entities transacting in or operating cryptocurrency exchanges within their systems and ensure that such accounts are closed immediately.”

However, despite effectively banning cryptocurrencies, the government hasn’t stopped Nigerians from using Bitcoin and other coins. In fact, quite the opposite, since data from LocalBitcoins (another P2P platform) shows that bitcoin trading volume (against the naira) was up in the first half of 2021, as compared to H1 2020.

So while the government and central bank may have made it a little trickier to access cryptocurrency, the decentralized nature of crypto means that it’s nigh-on impossible to prevent all access. Particularly if you have a population that really wants and needs crypto, and has few other alternative means of preserving their wealth and transacting.

This is why Nigeria is a lesson most governments, central banks and regulators would do well to learn from.