The last few days have seen the CBN's letter prohibiting financial institutions from facilitating payments for cryptocurrency exchanges receive wild reactions from the general public. The content of the letter itself isn't new and meant only to reiterate the Apex bank's position on cryptocurrency exchange and related activities expressed as far back as 2017. According to the recent letter non-compliance with this directive will incur severe sanctions. The ban is perplexing considering just recently in September 2020 the Nigerian Securities and Exchange Commission announced plans to formulate a legal framework for cryptocurrencies.
A lot has been speculated and espoused by various media outlets about the government's motivation for the ban. But let’s assume the best-case scenario, that the Nigerian government is doing this in the best interest of its citizenry, a ban is still not the answer. Even worse, it is counterproductive.
At this point, no one can deny the dark side of cryptocurrency. It has played a huge role in crimes of all sorts. From its use in financial crimes including Ponzi schemes and money laundering to terrorist financing, cryptocurrency has been a desired tool for men of the underworld.
But is this enough justification for a ban? The objective answer is No. That is the stance of many first-world countries like the United States, Canada, Japan, and Australia who have taken steps to engage or legitimize cryptocurrency in their countries. A country like Nigeria with all its potential for economic and technological dominance in Africa and beyond must do the same.
For an instance on why formulating laws that prevent innovation in the crypto space isn't the answer, look no further than Fiat currencies. If cases of illicit transactions in Fiat currency do not attract a permanent blanket ban, why should cryptocurrency?
A crypto ban is counterproductive
Of course, there are broader arguments why a ‘cryptocurrency ban’ is counterproductive to any country. Recall, Cryptocurrency since its inception in 2009 has proven to be a truly revolutionary invention. Built on the back of blockchain technology, cryptocurrency allows borderless transactions with no need for a third party amongst other benefits of decentralized systems. This technology has seen further applications in other industries: land verification in real estate niche, effective digital voting, etc. Indeed Blockchain-based solutions can help improve several sectors in Nigeria. Stifling the growth of cryptocurrencies in the country will have a domino effect on other blockchain-related innovations too preventing healthy growth of the space.
Again, technology and innovation like cryptocurrency are cornerstones of the fourth industrial revolution, and any country that wants a seat at the table should not meet innovation with inexplicable fear. As is often the case early adoption of new technology could pave the way to influence the development of the technology and reap financial and economic benefits. Cryptocurrency and blockchain are no exception. This is why countries like Japan have moved to create a positive regulatory climate for cryptocurrency. A crypto ban will stifle investment which could have contributed to the growth of the Nigerian economy.
At a time when Africa is hoping for a seat at the table in matters of technology and innovation, this ban will only set Nigeria back. This, considering the interest in cryptocurrency, has been incredibly high in the country. In fact, based on data from Google trend Nigeria ranks as the most interested in cryptocurrency globally. Record from active crypto countries in Nigeria also witnessed transaction volumes surpassing the 1 billion dollar mark. With such huge demand, investors all over the world will be looking to do business in Nigeria's cryptocurrency and blockchain market leading to a boon in the economy. If there's any country in need of a magic wand to resuscitate its economy, it is Nigeria – a country that might face its worst recession in years as a fall-out from the still ravaging COVID-19 pandemic. This ban preventing banks from doing business with cryptocurrency companies couldn’t have come at a worse time.
Can a crypto ban be effective?
Nigeria is not the first to implement laws that will outlaw cryptocurrency. The country needs to learn from other countries that have hastily implemented such bans and have had to rescind their decision years later. If cryptocurremcy has taught us anything, it is the fact that it cannot be stopped.
The past decade of its existence has seen it survive several unflattering labels by crypto naysayers. It was called a bubble, a Ponzi scheme, a currency for criminals, and many more. But none of this has slowed its growth and now it has the attention of the world.
Resistance against technology and innovation isn’t new. The U.S once resisted the adoption of the internet. Even paper currency wasn’t immediately embraced. Yet these inventions changed the world forever. But only because what was considered status quo was jettisoned and new innovations were embraced in the face of objective reasons.
Cryptocurrency is far too useful to be ignored. Nigeria should not be deprived of such once in a generation opportunity.
As a fall-out from the ban, many top-tier crypto exchanges will now be forced to restrict Nigerians from many of their services.
But a ban cannot stop cryptocurrency growth in Nigeria. Sadly, it also cannot deter misuse of cryptocurrencies. Banning banks from doing business with crypto exchanges only increases the chances of individuals being forced to buy and sell crypto outside any legitimate platforms like DafriXchange. Because of the pseudonymous nature of crypto transactions, detecting violations of the CBN directive will be difficult without involving exchange platforms.
Cryptocurrency exchanges like DafriXchange serve as gatekeepers of the cryptocurrency industry by providing a structure to engage with the cryptocurrency market safely. Prohibiting their existence will be disastrous for everyone. Without exchange platforms, peer to peer transactions will skyrocket and the government's greatest fears about the currency will be actualized- illegal activities will be rampant. According to Paxful, Nigeria is already the second-largest market in the world in P2P behind only the U.S.
One of the differences between fiat and cryptocurrency is regulation. When it comes to preventing cryptocurrency misuse, regulating cryptocurrency is a far better alternative than a ban. Partnering with top exchanges (e.g DafriXchange) can help facilitate this. Most transactions happen through cryptocurrency exchanges. Ensuring they maintain a detailed KYC and proper documentation of all their users can help the government track people using cryptocurrency to facilitate illegal activities. Genuine Exchanges like DafriXchange are ready to cooperate with the government of any country in fishing out fraudulent users of cryptocurrencies. There is no reason to punish everyone for the activities of a few which is what an outright ban achieves. The Nigerian government should reach out to exchanges for dialogue towards risk-minimization for users engaging in crypto-related activities.
More solutions. A legal framework for cryptocurrencies must be defined. This will help allay the government’s fears about cryptocurrency. It will also protect Investors' interest. Other grey areas such as tax implications and the use of cryptocurrency as a legal tender must also be clarified.
The reality is whether anyone likes it or not, cryptocurrency is here to stay. In light of this, regulation is the only answer worth considering in the best interest of everyone. Any permanent ban on cryptocurrency by the Nigerian government will only indicate a lack of understanding and preparedness for the force for positive change cryptocurrency embodies.
At DafriGroup PLC (with subsidiaries including DafriXchange, DafriBank, DafriEstate, etc.), we believe the Central Bank of Nigeria will do the right thing by rescinding this ban.