A few months back, the Central Bank of Nigeria (CBN) banned the exchange of cryptocurrency by financial institutions and instructed banks to close the accounts of crypto users—a decision that seems counterproductive in light of the government’s stated commitment to build a digital economy and facilitate national blockchain adoption.
Although subsequent statements from the CBN walked things back, among Nigerians, the move elicited anger and confusion as to how a leader in digital innovation could take such a stance. However, when you consider that at its core, crypto is a social movement manifesting as technology, such actions start to make sense. If social movements grow large enough in size and intensity, most eventually come into conflict with existing power structures.
The Nigerian landscape
The CBN crackdown on crypto is, of course, one piece of a larger story. Nigeria is a demographically young country and known as a regional tech hub. Its local currency, the Naira, recently experienced significant inflation. It also has a large diaspora community looking for efficient ways to send money home. In combination, these factors have driven crypto adoption and innovation in the country for many years. Indeed, Nigeria is the world's second-largest Bitcoin market after the United States.
Although the country appears to be easing out of its latest recession, economic conditions are difficult, and alternative sources of income and alternative currencies are appealing. Nigerian activist groups have also used cryptocurrency. In 2020, participants in the #EndSars movement against police brutality had their bank accounts frozen and turned to Bitcoin as a workaround.
It then comes as little surprise that this attempt to cut the line between crypto users and exchanges has added more tension to an already fraught situation — fueling further government distrust and strengthening the argument for an open, censorship-resistant way to exchange value.
Censorship is one issue, access is another. Crypto has long been touted for its ability to extend financial services to the estimated 1.7 billion people without them. And Africa invariably comes up in that conversation due to large unbanked populations, young demographics, and high mobile penetration rates. In Nigeria, access to financial services is less of a problem than elsewhere in Africa, but still, one estimate puts the number of unbanked citizens at nearly 37%.
Generally, these are the conditions that allowed Safaricom’s M-Pesa to become Africa’s fintech powerhouse. M-Pesa was one of the earliest movers in terms of mobile money, and by 2020, it has over 41 million users. But M-Pesa is centralized. It has executives that government officials can lean on. It also operates proprietary technology and has value capture mechanisms that benefit a select few. In 2020, M-Pesa generated $784 million in revenue.
The unbanked fallacy
Banking the unbanked is a noble goal, and expanding access is a vital step in helping impoverished populations rise up. But getting a smartphone in the hand of a user and allowing them to set up a savings account is just the start. Unchecked assumptions about financial inclusion often paint infrastructure as the problem and technology as the ideal solution. In reality, the problem is more complicated.
In Nigeria, the monthly minimum wage in 2020 was 30,000 Naira. A worker with this earning power is unlikely to have the income needed to save money, repay loans, and invest in financial products. So the issue is as much about income generation as access. Being unbanked is not the problem. It’s the effect of another, much bigger problem. The answer isn’t simply more fintech. What we need are fundamental improvements that enable scalable social value to be unlocked.
To a decentralized future
Given the new scrutiny cryptocurrency is undergoing in Nigeria, blockchain solutions that do not fall into the securities realm need to be pushed and amplified, and the burgeoning blockchain industry in Africa’s largest economy needs support. This is because blockchain is more than a cheap way to send remittances. It enables new methods of human coordination — allowing more people to protect their wealth, become investors, start a business, or earn a better wage. It’s because it facilitates social innovation.
Many companies, projects, and individual developers are building technology solutions to feed into holistic social innovation. One example of this is Bundle, a Nigeria-based social payments app for cash and cryptocurrencies backed by Binance. Bundle’s goal is to become a super-app with a native digital wallet that supports crypto and cash, serving as a gateway to the decentralized economy. By offering such an onramp, Bundle aims to drive adoption, make economic freedom and prosperity a reality for more Africans while also fostering more daily use cases for the tech.
Another example is KamPay, an African blockchain initiative focused on lottery and gaming use cases with the goal of building a unified mobile ecosystem for over one billion people. By integrating existing infrastructure and licensing with a standardized currency for gaming and payments, KamPay will instantly offer a better experience to users all across Africa.
There’s also Hello Tractor, an Abuja-based social enterprise that, in partnership with IBM, has developed a blockchain-driven platform to improve tractor access for small farmers. A leading ag-tech innovator, Hello Tractor is focusing on connecting tractor owners and farmers via an equipment-sharing application. At the heart of this project is an “agriculture digital wallet,” a blockchain-enabled and AI-based decision support platform that captures, tracks, and shares data while creating end-to-end trust and transparency for all participants in the agribusiness value chain.
Smartphone penetration is set to grow in Nigeria to around 60% by 2025, and given its vibrant, youthful, and tech-savvy society, it seems in a pole position to reap the rewards of blockchain adoption. But recent events have brought that narrative into question.
Ultimately, the action of the CBN is an early clash between a state-level actor and everyday crypto users. More of these clashes will surely follow. And when they do, the more alternatives people have to resist corruption and earn a livelihood in a depressed economy, the better.