By Caesar Keluro
Cryptocurrency holds the potential to support the growth process in developing countries like Nigeria by increasing financial inclusion, providing a better traceability of funds and to help people to escape poverty. An example here is cryptocurrency like Bitcoin which is technically, “an algorithm that records an ongoing chain of transactions between members of a decentralized peer-to-peer network and broadcasts these records to all members of the network. Bitcoin is the world’s biggest crypto currency with a market capitalization of more than $600 billion. It was invented by Satoshi Nakamoto in 2008 when he has published his white paper “Bitcoin: A Peer-to-Peer Electronic Cash System”.
As a result of the loss of power for nation-states’ government and the risk of terrorism financing, some countries have prohibited the use of crypto currencies, like Indonesia; Nigeria recently joined the ranks, opening itself up to sharp criticism from her massive youth who have created a flourishing economy vis-à-vis a stuttering formal economy that hasn’t been able absorb millions of jobless youths. Cryptocurrencies may not be supported politically but experts have argued that we can preserve financial sovereignty by issuing a central bank-issued digital currency.
Also, cryptocurrencies face these criticisms to its developmental potentials: the limitations of illiteracy, financial illiteracy, unstable political situations, unstable job markets and price volatility all gang up to slow the speed of development. Yet cryptocurrencies are very promising for remittance payments with the upside to lower transaction costs and most especially providing access to the global market, accelerating the gains of globalization for local populations across the world. It could help our internal systems in large organisations or governments by providing credibility to a level that our current tracking systems cannot provide.
A Nigeria digital currency?
China, the world’s largest mining and ICO market, is exploring the possibilities of a national cryptocurrencies. We see movement like this as fillip to the crypto age, probably promoting the longevity in cryptocurrencies while raising the fears of where the dominos will fall. It’s argued that the Chinese government and the People’s Bank of China (PBoC) obsession over control on capital outflows are driving it to deliver a Chinese Yuan cryptocurrency alternative to Bitcoin. The thinking in global, as well as, local regulatory headquarters is that banning cryptocurrency exchanges will force Bitcoin holders to move into national virtual currencies.
Disappointingly, such thinking faces a huge hurdle. Bitcoin has been recognized as legal tender by some countries, including Japan. That is going to make the reversal process to be difficult and even more turbulent for citizens who have taken to Bitcoin’s attractiveness to pass it for a national cryptocurrency. Tunisia (eDinar) and Senegal both have national digital currency, with Tunisia citing ease of money transfers in and out of Tunisia as a major reason, while Senegal wants a more effective and efficient trade amongst partners in the West African region. It remains to be seen what will be the Nigerian government strategy on national digital currency.
A Nigerian national digital currency strategy could help navigate the murky waters on regulating all types of finance-related tokens: securities, money, crypto assets, stable coins. These upcoming regulations may provide legal certainty; critically too, a legal fundament to create more dynamics in the public space (startups, investors, industrial corporations, financial organizations).
Workings of state-sponsored cryptocurrency
Deloitte described the workings of a state-sponsored cryptocurrency as much “like Bitcoin – individuals or companies would utilize computer-generated public “addresses” to send and receive payments. Payers could use an electronic wallet on a smartphone or computer to send money to the public address of the recipients. It said unlike Bitcoin’s current system, however, banks and other financial institutions, previously approved by the Central Bank, would be the custodians of a shared, distributed computer-based ledger (called a blockchain in Bitcoin parlance).
The currency in this distributed ledger would be existing fiat currencies (e.g., USD, CAD, Euro, GBP, etc.) rather than a new, unfamiliar digital currency like Bitcoin, and the digital currency would not necessarily have to supplant paper currency. A crypto-dollar would also need to have the same legal tender status as paper currency. Professor Nouriel Roubini, the famed economist has referred cryptocurrency as a “speculative asset bubble”. He went further to say that bitcoin fundamental value is negative as a result of its environmental impact. He compared bitcoin mining energy consumption annually as that of the Netherlands in 2019.
Despite Roubini’s criticisms, describing bitcoin as a bubble, it has soared higher, appreciating 333% over the past year; that an investor, who put in $100 in the coin 10 years ago, would be worth over $9.2 million today.
In all, we have to start preparing for an ultra-complex payment ecosystem. We see a more complex world of state-sponsored cryptocurrencies, bitcoin evolution and the arrival of more virtual currencies and the unyielding paper fiat currencies. Global and local regulators will have to be entrepreneurial and skilled managers of this mutating payment ecosystem. While regulators keep an eye on payment ecosystem innovations and safety, they must also gaze into the world of the philosophies driving these astronomical changes.
• Keluro is Co-founder/CEO, Nanocentric Technologies Limited. He leads ‘Make In West Africa’, a regional Think-tank. He tweets @kcaesar