The Bitcoin community in Nigeria has witnessed remarkable growth over the past two years. Several startups have come up as well as social groups. Additionally, top Bitcoin companies Luno and ICE3X have taken a keen interest in the Nigerian market.
This year has seen the interest grow even much more, evidenced by the number of "Bitcoin" queries on Google in Nigeria and record trading volumes on localbitcoins. Moreover, the Bitcoin exchange rate on some Nigerian exchanges reached highs of 500,000 NGN (1390 USD).
A large share of the people uses Bitcoin for investing while a relatively smaller percentage uses it for remittance purposes.
Interestingly, one of the reasons behind Bitcoin's popularity was MMM, a Pyramid scheme that had over three million participants in the country.
Founded in 2016 by Bashir Aminu, Cryptogene educates Nigerians about the cryptocurrencies and blockchain technology. The community as the founder describes it; aims at making it easier for people to understand the usage and implementation of the blockchain. The goal is to create an environment that will push members to become a part of the disruptive technology. Luno, Africa’s biggest Bitcoin exchange also runs a similar program through a learning portal on its website.
Economic instability and ongoing oil crisis are fueling the demand for Bitcoin in Nigeria. The crisis has led to 40% depreciation of the Naira. Furthermore, exchanging the Naira to foreign currency has been a challenge for both individuals and enterprises. This had led to the rise of a black market, an invariably illegal activity punishable under criminal law, for foreign currencies.
Nigerians are opting for Bitcoin to hedge their wealth against the volatile Naira. Bitcoin transactions remain untaxed and therefore cheaper and safer.
The financial crisis began in late 2015 blowing up in 2016. This has led to the worst recession to hit the country in decades. The crisis is a result of low oil prices and declining crude output after attacks on pipelines in the Niger Delta region by rebels. Nigeria with a GDP of about $500 billion is among the top ten oil producers worldwide. Crude oil accounts for 70% of the government's revenue and is Nigeria’s main export product.
The crisis has further been aggravated by the shortage in foreign currency, leading to the growing demand for dollars to pay for imports. Consequently this has driven demand for dollars on the black market. Moreover, the constant demand for the dollar as a result of financial outflow has weakened the exchange rate of the Naira.
Much like other African nations, Nigeria heavily relies on money transfer services. Many of this services are however expensive and these costs is one of the factors driving Bitcoin adoption in Nigeria. Most of the companies charge users exorbitant transaction fees.
Many Nigerians living in diaspora who send money back home consider cryptocurrency as a better option. Bitcoin is borderless and much cheaper compared to the Western Union, Ria or MoneyGram. Western union, for example, charges a minimum fee of 1 dollar (359.50 NGN) which is subject to additional charges depending on the exchange rate.
Nigeria has 11 Bitcoin exchanges with 7 of them are based in Nigeria. The largest Bitcoin and most prominent Bitcoin exchange in Nigeria is NairaEx. NairaEx comes highly recommended as it offers the most profitable exchange rates. NairaEx facilitates purchase of cryptocurrencies using either credit cards, debit cards, bank deposits or local currency and offers an integrated remittance competition.
Just like a number of countries, Nigeria does not have an official legal framework for Bitcoin and cryptocurrencies. However, the Central Bank of Nigeria has banned all bank transactions in Bitcoin and other cryptocurrencies.
The Central Bank of Nigeria acknowledges the potential of Bitcoin and Blockchain technology and at the same time admits it cannot really regulate the currency. Nonetheless, the CBN has warned against the use of bitcoin, disregarding it as it as a legal tender.
Besides concerns on the impact the technology will have on traditional banks, the CBN is wary of possible fraudulent activity. A narrative promoted by many governments.
About 60% of Nigerians do not have access to the electricity grid and those that do, have an extremely unreliable supply. Much of the power in Nigeria is from diesel-powered captive systems. As of August 2017, the country was generating approximately 7000 megawatts of electricity. Nigerians currently pay 11 cents per kilowatt-hour, and the price is increasing rapidly. Compared to 12 cents per kilowatt-hour in the US, this is very expensive.
There are no crypto mining rigs in Nigeria, and much of the Bitcoin is obtained through exchanges. Apart from lack of knowledge in crypto mining, residents are struggling with hard economic times and cannot afford expensive equipment. Furthermore, the supply and cost of electricity do not make mining viable.
The bitcoin network runs at approximately 340 megawatts, an average of 200 kilowatt-hours for each Bitcoin transaction. There are currently over 300,000 transactions per day. A household on average consumes about 1.2 kilowatts of power, meaning the amount of energy used in mining could power close to 200, 000 homes. That is a lot of energy, more than the current power grid can handle.
Nigeria is interesting country when it comes to financial matters. Bitcoin, given time, can grow to remarkable heights and have a great impact. Many misconceptions regarding cryptocurrencies and association with Ponzi schemes, however, need to be addressed.
A legal framework albeit not in line with the ideals of cryptocurrencies will certainly fuel massive growth. Bitcoin is a driving factor for change, Nigeria is on the right side of the future. Centralization breeds corruption that is quite rampant in Nigeria, blockchain can potentially transform the environment and have equally distributed resources. Nigeria has the building blocks for a Bitcoin embedded economy.