Nigeria Crypto Adoption in 2024 and Beyond
The crypto scene in Nigeria is on the rise! Will 2024 be the year for Nigeria to take the crypto spotlight? Read this Creditcoin Special Edition to find out!
With the price of Bitcoin hitting new all-time highs in Nigeria during the Bitcoin Spot ETF launch day, its rapidly evolving cryptocurrency landscape presents a unique and compelling microcosm through which to understand the process of global crypto adoption.
Even as Bitcoin's searches are cooling off post Bitcoin Spot ETF (Largely due to declining prices), Nigerians are still searching for Bitcoin-related terms even as of today, January 26th, 2024!
It might surprise you to hear, but, according to Google Trends, as of January 2024, Nigeria ranks number one globally in search interest for Bitcoin-related topics. One might be tempted to think it would be a country like the United States, Hong Kong, or Singapore, sitting on top of the list, but no, it's Nigeria that takes the crown!
This article delves into the exact factors propelling crypto adoption in Africa's largest economy, examining the key trends, explaining the regulatory outlook, discussing the future prospects of crypto in Nigeria, and finally, suggesting how these lessons from Nigeria can also be applied to other global contexts.
What does Nigeria's Crypto Scene Look Like Today?
Despite a national internet penetration rate of only 40%, less than half the population having access to a bank account, and a government ban on banks from dealing with cryptocurrency that stood from February 2021 until late 2023, Nigeria is one of the world-leaders in terms of crypto adoption.
In fact, Nigeria sits in second place on the global crypto adoption index - behind only India - with a thriving, young and tech-savvy population increasingly turning to cryptocurrency to meet their financial needs.
As of mid-2023, Nigeria's volume of crypto transactions grew 9% year-on-year to $56.7 billion, bucking the global bear market trend. Whilst some of this growth is due to the weakening of the Naira increasing interest in cryptocurrencies as a store of value, cryptocurrency often serves a range of different financial purposes in Nigeria.
What makes Nigeria's search data (From January 2023 to January 2024) intriguing is the fact that, despite Bitcoin trading around the $20K range or experiencing more than a 20% drawdown on a daily basis, Nigerian searches remain within the 75-100 percentile range on Google Trends.
This is unlike other countries, where interest is heavily correlated with the daily price. In other words, it seems Nigerians are quite unbothered by the price volatility.
In many cases, crypto is simply the most efficient way of conducting financial transactions, unlike in developed economies, where speculation has taken the central role in driving adoption.
Indeed, Nigeria leads the world in terms of P2P transaction volume, with the wider sub-saharan Africa region having the highest proportion of retail transfers in the world, suggesting a high-level of grassroots cryptocurrency adoption for payments, remittances and more.
Overall, Nigeria's crypto scene is marked by a young, tech-savvy and entrepreneurial population eagerly adopting cryptocurrencies to solve their real-world problems. With a rapidly evolving regulatory landscape, Nigeria sits at the forefront of global blockchain adoption, with both great promise, and many challenges lying ahead.
Which begs the questions, against a backdrop of Naira devaluation, economic and regulatory uncertainty, why is it that Nigeria continues to spearhead global adoption? Let's explore some of the key crypto adoption trends and metrics below.
Nigeria Crypto Adoption Key Trends and Analysis
#1: $56 billion in Cryptocurrency Transactions
Nigeria saw its crypto transactions grow by 9% year-over-year to $56.7 billion between July 2022 and June 2023. This is despite the global decline in cryptocurrency popularity during 2022/2023 the bear market.
#2: 52% Fall in Naira
Since the liberalization of Nigeria's monetary policy, the Naira dropped by over 50% against the dollar last year. As a result, people are looking for new ways to hedge against currency devaluation and economic decline.
#3: Average Age: 17.2 years
With a median age of just 17.2, Nigeria's population is young, tech-savvy, and increasingly connected to the internet. With younger generations far more likely to own and use cryptocurrencies, the future for grassroots crypto adoption looks bright.
#4: 55% Unbanked
Despite efforts to bridge the gap and growing presence of digital finance, the majority of Nigerians today are still unbanked, offering fertile ground for more accessible financial tools within crypto to fill the void.
#5: 47% Have Used Crypto
According to Statista, a whopping 47% of Nigerians between 18-64 have used cryptocurrency before. This is the world's highest figure by a significant margin, eclipsing other countries like the United States (16%) or India (27%).
What does Nigeria's Crypto Adoption look like?
Unlike many developed economies, where speculation takes a central role in driving adoption, in Nigeria, cryptocurrency adoption is much more multi-faceted. In many cases, crypto is simply the most efficient financial way of conducting financial transactions.
In this section, we'll be exploring the various use-cases and factors explaining crypto's widespread adoption in Nigeria, including currency hedging, international trade, remittances and more. Let's dive in.
Hedge against Currency Devaluation
Inflation in Nigeria currently exceeds 22%. At the same time, the Naira has depreciated by 40% against the dollar since June. Consequently, small retail investors are looking for alternative ways to preserve their wealth to counteract local currency devaluation and economic downturn.
Throw in a growing cash shortage and the worsening situation has pushed many Nigerians towards cryptocurrencies. Although cryptocurrencies are not traditionally associated with stability, the industry's growing maturity is slowly changing global perceptions.
Bitcoin has been a primary beneficiary, perceived as a form of "digital gold" that's immune to seizure or government mismanagement due to its decentralized nature.
Stablecoins, whose value is tied to stable assets, especially the US dollar, offer Nigerians a less volatile option compared to other cryptocurrencies. This has made them a favorite tool for preserving wealth in Nigeria.
As digital assets become more easily accessible, they are increasingly viewed as a simple method to guard against global currency devaluation and economic instability. This trend is also noticeable in countries like Turkey and Argentina, where economic instability and inflation have pushed grassroots adoption of cryptocurrency to record levels.
Cross-Border Trade and Settlements
Africa currently receives around $49 billion in remittances every year. But with remittance fees in Nigeria often reaching as high as 20% when using traditional banking systems, that's a lot of fees for users to be losing every year.
To avoid these fees, many Nigerians are turning to cryptocurrency to send their funds across international borders. Even blockchains considered expensive by today's standards, such as Bitcoin and Ethereum, still offer considerable transactions savings for most users.
According to Adedeji Owonibi, founder of a Nigerian-based blockchain consultancy, many smaller companies are also using cryptocurrency as a means to conduct international trade.
With Nigeria's capital controls making it difficult to access international markets and settlement rails, Nigerian merchants are now turning to crypto to solve their payment needs. In particular, when trading with counterparties based in Eastern Europe as well as China.
Access to On-chain Financial Services
With the majority of Nigerians today remaining unbanked, DeFi is filling the void for Nigeria's huge unbanked and underbanked population, encompassing a wide array of different financial services ranging from payments, investments, savings, borrowing and more.
Given crypto's permissionlessness and decentralization, anyone with an internet connection can now access to everything DeFi has to offer. These services range from DeFi loans to to fund their businesses, accessing tokenized asset markets for bonds and other financial products, or earning interest by depositing their funds on various DeFi protocols.
In particular, the lack of a well developed banking system has long plagued the countries vast sector of small to medium enterprises, with the OECD noting that SME’s lack of “credible financial records” represents their primary obstacle to accessing credit.
With crypto services accessible to anyone, Nigerians are using crypto to achieve financial inclusion where the traditional banking system has failed them.
Trading and Speculation
Of course, there can be no crypto without at least a little speculation, and with a youth unemployment rate of up to 50%, it's no surprise that millions of young Nigerians are turning to crypto trading as a means of increasing their wealth and escaping poverty.
Driven by factors such as economic uncertainty, the growing prevalence of mobile technology, and the desire for alternative investment opportunities, crypto trading offers the potential for significant gains. Still, it also carries significant risks due to the volatile nature of crypto prices.
Indeed, fears over the potential risk to consumers has driven many of the regulatory concerns in Nigeria. Nevertheless, as long as trading continues to offer people the chance of life-changing gains, in what many now consider to be a rigged global economy, we can only expect speculation to continue to grow in Nigeria, as well as the wider world too.
Crypto Regulation and eNaira in Nigeria
Crypto adoption isn't just coming from the grassroots of society anymore. The new government led by Bola Tinubu has shifted the country's regulatory approach from one of hostility, to one of growing support.
The new president is aiming to kickstart Nigeria's digital footprint and get millions of young Nigerians into the industries of the future. At the corse of this vision is a new national policy to support the creation of a vibrant "blockchain-powered" digital economy.
In this section, we'll be provide a timeline of Nigeria's crypto regulation, discuss the bumpy rollout of Nigeria's eNaira CBDC, and provide an outlook for the future of governmental regulation in Africa's largest economy.
Policy Timeline
2021
- The CBN (Central Bank of Nigeria) issues a letter to commercial banks outlining prohibition of all cryptocurrency transactions. As a result, many crypto-focused services in Nigeria are forced to shutter their operations.
2022:
- The Nigerian SEC issues a final regulatory framework for cryptocurrencies, effective January 2023. The framework establishes SEC registration requirements (including a $72,000 registration fee) for digital asset offerings, custodians, and exchanges, as well as classifying several digital assets as securities. The move signifies an effort to find a middle ground between outright prohibition and unregulated use.
2023:
- The SEC begins processing applications for crypto exchange and custodian licenses. However, many popular exchanges such as Binance have not currently received their licenses. Despite this, many P2P exchanges operate in Nigeria today.
- The SEC sets up a new eight month regulatory sandbox for various crypto service providers and signals support for RWA tokenization efforts, with the exception of cryptocurrencies.
All in all, crypto regulations continue to operate in a regulatory grey zone despite the governments attempt to improve regulatory clarity. Whilst crypto trading and usage is not banned, neither is it supported by current regulations.
E-Naira CBDC
While Nigerians have increasingly turned to crypto to meet their financial needs, the government also launched its own central bank digital currency (CBDC) as an alternative in order to help boost financial inclusion.
In October 2021, the Central Bank of Nigeria (CBN) launched the eNaira, a digital currency designed to complement cash and promote financial inclusion. The eNaira was initially met with excitement, as it was seen as a way to modernize Nigeria's financial system. However, the eNaira has struggled to gain traction, and its roll-out has been marred by a number of technical and other adoption challenges.
As of today, the government's CBDC wallet has been downloaded by less than 1% of the country's population, with 98.5% of those users being inactive, representing a national penetration rate of less than 0.1%. So why is crypto succeeding where the eNaira failed?
Reasons for the eNaira's failure
- Competition from incumbents: Nigeria already has a number of popular mobile payment platforms, such as M-Pesa and Paytm, or indeed, crypto, which make it difficult for the eNaira to compete as a payment platforms.
- Technical problems: The eNaira has been plagued by technical glitches and poor UI, which have made it difficult for users to access and use the platform, especially during its launch window.
- Lack of trust: Some Nigerians are hesitant to use the eNaira because they do not trust the CBN, government, or the currency behind it. This, in particular, is where crypto shines.
- Limited Functionality: The eNaira is currently restricted to payments only, with other services and platforms (including DeFi) offering better access to financial services such as remittances, credit, insurance and more.
Despite this, the CBN is committed to making the platform a long-term success. The CBN is currently working to address the challenges facing the eNaira. For example, the CBN is developing a plan to increase awareness of the eNaira and is working to improve the platform's infrastructure.
In addition, the CBN is exploring ways to expand the eNaira's use cases, such as by using it to make payments to the government and for use in remittances, as well as exploring possibilities of connecting eNaira to various blockchain solutions.
What’s next for Nigeria's crypto economy?
Nigeria's crypto economy is poised for growth, buoyed by a global shift towards digital currencies, technological advancements, and potential improvements in it’s regulatory approach. This combination of factors indicates a promising future for cryptocurrency adoption and innovation in Nigeria.
In this section, we’ll outline our predictions for the future of crypto in Nigeria.
Continued Crypto Growth
As its young population becomes more tech-savvy, more users come online, and DeFi continues to evolve, crypto will likely play an increasingly major role in Nigeria’s economy, especially if Nigeria’s economic difficulties continue.
The expanding DeFi sector will provide increasingly accessible and sophisticated financial services, bridging the financial gap for Nigeria’s unbanked population. The increasing range of services offered by non-bank financial platforms and fintechs can also accelerate adoption though direct integrations with various crypto services.
However, regulatory clarity will be crucial in shaping this landscape. If the government can provide supportive policies, it would further boost the confidence and adoption rate among Nigerians, potentially transforming the nation into a global leader in crypto adoption.
Emergence of RWA Tokenization
As the Nigerian government pushes for a blockchain-powered economy, we can expect a surge in asset tokenization.
This technology could revolutionize sectors such as real estate, agriculture, and oil (Nigeria’s largest export product), by making these assets more accessible and liquid. It could also enable fractional ownership and lower barriers to investment, fostering economic growth and financial inclusivity across Nigeria.
Indeed, some local governments, such as Lagos State, have already agreed partnership agreements with blockchain companies such as Gluwa in anticipation of the growing economic opportunities for real-world asset (RWA) tokenization.
Improved Regulatory Clarity
The Nigerian government is likely to continue developing a more favorable regulatory environment for blockchain, driven by its goal to create a "blockchain-powered" digital economy. The exact role of cryptocurrencies in this revolution however, remains ambiguous.
As the government recognizes the potential of blockchain technology to spur economic development and financial inclusion, it is already introducing new policies that encourage innovation and adoption in the crypto sector, such as a recent eight-month regulatory sandbox for blockchain startups, as well as clearer clear guidelines for crypto asset classification and taxation.
However, a balanced approach will be favoured, as the government to address risks related to fraud, money laundering, and consumer protection. The future of crypto regulation in Nigeria holds promise, but it will require careful navigation.
Renewed eNaira Adoption Drive
As the government recognizes the growing importance of accessible digital currencies for financial inclusion and economic growth, we can expect renewed efforts to promote eNaira adoption.
This will likely involve enhancing eNaira's features and functionality to make it more attractive to users. In particular, the government could also explore avenues to integrate eNaira with various blockchain solutions and financial platforms to extend its global reach and usability.
However, the success of these initiatives will depend heavily on user trust and acceptance, as well as technical robustness and regulatory clarity.
Global Lessons from Nigeria's Crypto adoption
This segment delves into the lessons of crypto's adoption surge in Nigeria, and explains how these factors can be extrapolated onto various different global contexts.
#1: Economic Volatility, Declining Trust, & Falling Fiat
Crypto's rapid rise must be seen within the context of Nigeria's various economic challenges, ranging from inflation, currency decline, high unemployment rates, and local cash shortages.
As trust in local Fiat declines, so does crypto emerge as one of the premier alternative stores of wealth, particularly in countries facing severe economic challenges around the world.
#2: More than just Speculation
The crypto industry today represents far more than just speculation. This trend is most visible in emerging markets such as Nigeria. In these countries, crypto is often a practical and accessible means of accessing a wide variety of financial services, including payments, remittances, investments, lending, borrowing and more.
As such, we can expect crypto adoption to accelerate faster in countries where existing financial tools cannot meet the needs of its users. In developed economies, where banking is more developed and accessible, the factors driving crypto adoption may be less powerful, with complicated UX disincentivizing users from wider adoption.
#3: Limited Impact of Regulation
Given crypto's inherent accessibility and decentralization, placing restrictions on crypto's has not slowed down adoption in Nigeria, but rather pushed users into more decentralized solutions outside the government's sphere of influence, as seen in Nigeria's thriving P2P crypto market.
Adopting negative policies towards crypto is not only bad for innovation and economic growth, it's also just ineffective in an increasingly globalized and decentralized world. After all, when there's an economic will, there's always a way.
Nigeria's situation highlights the delicate balance needed to integrate new financial solutions, capture new opportunities for economic growth, and implement pro-innovation and pro-consumer protections, all within an increasingly decentralized global financial market.
#4: The Demographics of Crypto Adoption
Nigeria's impressive adoption figures are in large part driven by its incredibly young population, with an average median age of just 17.2.
Indeed, as the pace of technological progress picks up, the world is increasingly becoming dividing along generational lines, with younger users far more comfortable, familiar and confident in new technologies including crypto.
Moreover, as generational wealth divides become increasingly entrenched, crypto is seen by many younger users as a shortcut to achieving financial independence. Therefore, we can expect cryptocurrency usage to accelerate faster in country's with a younger population.
#5: Growing Global Decentralization
The adoption of decentralized financial solutions is on the rise everywhere you look, fueled by the desire for financial inclusion, freedom from traditional banking systems, and the ability to have complete control over personal finances, irrespective of local borders, governments or bank accounts.
Blockchain technology, being the backbone of these solutions, provides the necessary transparency and security.
As the sophistication of decentralized solutions continues to increase, now offering services as diverse as loans, savings, insurance, investments and more, all of which were previously monopolised by traditional financial institutions, this trend will only continue, taking power away from government’s and centralized institutions, and increasingly placing it in code alone.
Conclusion
In conclusion, the story of cryptocurrency adoption in Nigeria is a testament to the transformative power of decentralized finance. Despite economic volatility and regulatory uncertainties, the people of Nigeria have embraced cryptocurrencies as a means to overcome their financial challenges.
The lessons learned from Nigeria can inform other nations grappling with similar circumstances, underscoring the importance of creating supportive regulatory environments and recognizing the diverse utility of cryptocurrencies beyond mere speculation.
Looking to the future, the continued growth and innovation in the cryptocurrency space present exciting opportunities for not just Nigeria, but the world at large, as we navigate towards a more decentralized and inclusive global financial system.
Joshua Yap
Benedict Clark