Regulation
Under Nigerian law, the main body responsible for regulating all financial transactions is the Securities and Exchange Commission (SEC). In September 2020, the SEC began recognizing crypto-assets as securities, with the wording “unless proven otherwise.” Consequently, every crypto-asset is considered a security and is subject to mandatory registration. The registration process is conducted by the crypto-asset issuer. It can be carried out in the following ways:
- applying for an initial valuation of the asset;
- applying for registering the crypto-asset;
- applying for registering the crypto-asset without an initial evaluation.
So, all individuals and entities owning crypto-assets were required to complete the registration process within three months of the SEC ruling. Moreover, foreign companies and startups were obliged to establish a branch office in Nigeria.
However, in February 2021, the Central Bank of Nigeria (CBN) issued a directive banning all cryptocurrency transactions. The CBN also banned local banks from providing financial services to users and companies interacting with the cryptocurrency sector.
Local crypto experts believe that one of the main reasons for the CBN’s restrictions is the sharp decline in traditional remittances sent to Nigeria in 2020. Notably, remittances are one of the important sources of foreign exchange earnings in the region. According to Nairalytics, the total volume of traditional remittances sent to Nigeria during 2020 fell from $2.05 billion in January to $54.4 million in September.
Yet, the restrictions have raised questions from the Nigerian parliament. As a result, representatives of the Central Bank clarified in late March 2020 that the restrictions only applied to financial institutions, and residents weren’t prohibited from using cryptocurrencies. Since then, the situation remained unchanged until May 2022, when the SEC issued new cryptocurrency regulations. Now in Nigeria, digital assets are once again considered equivalent to securities, treated as the equivalent of stocks or the issuer’s debt claims.
Crypto Transfers as a Counterpart to Traditional Transfers
Severe constraints by the CNB haven’t led to a decrease in crypto transactions. On the contrary, users continued to make transfers, protecting their assets from inflation and the falling value of the naira, the country’s national currency.
According to analysts at Chainalysis, Nigeria’s total dollar equivalent turnover of crypto-assets grew throughout 2021 and 2022. While in December 2020, it was approximately $680 million, the figures reached $2.4 billion in May 2021. Below are the most popular crypto exchanges and services used by Nigerian users to conduct transactions.
- Luno. A decentralized cryptocurrency exchange and a crypto wallet, through which you can make transactions in BTC and ETH.
- Remitano. A P2P platform operating in 30+ countries. Users have access to six cryptocurrencies: BTC, XRP, USDT, LTC, BCH, and ETH.
- Paxful. A P2P platform and cryptocurrency wallet for BTC transactions. More than 300 trading pairs for buying and selling BTC are available.
- Quidax. An African service for BTC, XRP, USDT, LTC, and ETH transactions.
- LocalBitcoins. An online service for buying and selling BTC. Trading can be done directly with other users.
Digital Naira
On October 25, 2021, the President of Nigeria, Muhammadu Buhari, announced the launch of the CBDC, the digital naira. Note that the local CBDC isn’t a crypto-asset and is fully regulated by the Securities and Exchange Commission and the Central Bank of Nigeria. The exchange rate of the digital naira is identical to its physical counterpart.
One of the main advantages of the digital naira is the ability to carry out financial transactions without necessarily opening a bank account. Therefore, to buy or transfer the CBDC, you need to download the eNaira Speed Wallet app on your mobile device (for ordinary users) or the eNaira Speed Merchant Wallet (for businesses).
Experts believe that the digital naira’s launch is the Nigerian authorities’ attempt to reduce uncontrolled transactions in digital assets, which continue to increase. A report by Chainalysis analysts found that in 2021, Nigeria ranked sixth in the world in terms of crypto turnover among ordinary users.
Due to high inflation and the volatility of the naira, it can be assumed that Nigerians’ interest in cryptocurrency transactions will skyrocket. The first BTC ATM has already appeared in Nigeria. Citizens remain strongly interested in crypto because of its accessibility and minimal fees, and they also consider digital assets as an investment. At the same time, the SEC and the CBN continue to look for the best solutions to regulate cryptocurrency at the state level.
