Best Bitcoin Exchange for Nigeria
Interest in Bitcoin seems to be exploding in Africa’s largest economy. The government of Nigeria prevents competition in remittances and is unable to stop the devaluation of the national currency Naira. But dubious investments and possibly the infamous Nigerian princes could also play a role. The central bank has therefore imposed a partial ban on Bitcoin as a preventive measure.
Anyone who has looked at the Google trends for Bitcoin in recent months has always found one and the same country at the top: Nigeria. Not San Francisco, not Toronto, not London, but Lagos, Nigeria’s largest city, is the region on earth from which most googling to Bitcoin takes place.
The search volume began to increase in August 2016. In September it exploded, in January 2017 it reached a peak. Most search queries were somehow about buying Bitcoins (“Buy Bitcoin”, “Bitcoin exchange”) or how to get Bitcoins mined or for free.
If you look at the number of real Bitcoin nodes, Nigeria looks quite thin. There’s just one that radiates in Lagos; by the way, the only one on the whole continent outside South Africa and the Maghreb states. On the other hand, there seems to be a lively trade via LocalBitcoins in all cities, with thousands of traders, and again with Lagos at the top.
In addition to LocalBitcoins, Nigeria has two Bitcoin exchanges, Nairaex and Nairaswitch. Upon request, someone from Nairaex writes to me that interest in Bitcoin has indeed exploded in the country: “Bitcoin’s activities have increased significantly over the last six months; the monthly trading volume has increased by more than 1,000 percent”.
Demand is therefore growing enormously. The big question that the rest of the article will be about is: Why?
Bitcoin and digital currencies are most commonly used for remittance across borders. These cross-border remittances have helped make Bitcoin popular with a significant number of workers who come from Nigeria and work in countries like South Africa or the United Arab Emirates.
And indeed, the timing in which interest has increased – August and September 2016 – is no coincidence, but coincides with a new policy on international remittances. It’s like reading the Google charts to see the political events.
But from the beginning: remittance – the transfer of guest workers to their families at home – is quite a big deal in Nigeria. By 2014, 17.5 million Nigerians were travelling as guest workers; they sent home about 21 billion dollars, which is about 6.7 percent of Nigeria’s national income. These remittances are not only an important source of income for many Nigerians, but also for the companies that process them. Service providers such as Western Union, which also accept and send cash, charge relatively high fees, which is why many Nigerian guest workers now use the much cheaper online providers.
However, in August 2016, the Central Bank of Nigeria (CBN) decided to change the rules for remittance providers. This was in a way that significantly restricted competition, as it imposed rules that, in principle, could only be met by the major players.
Since only three companies – Western Union, MoneyGram and Ria – are in a position to continue operating, Nigerians in the diaspora have to pay the high fees that these companies demand. This oligopolistic behaviour is a major concern for Nigerians at home and abroad who have to send money across borders.
At the end of August, however, the CBN reversed its decision, issuing less stringent guidelines and licensing more remittance providers. But by that time the ghost had already hatched from the bottle; interest in Bitcoin had awakened.
With Bitcoin, we no longer have to worry about local and international regulation affecting international transfers to and from Nigeria, as Bitcoins allows you to send ANY amount to ANY part of the world at ANY time in usually less than FIVE minutes at virtually no cost.
The FinTech start-ups will probably be able to be cheaper than Bitcoin in the big markets, on the wide transaction corridors from the US or UK to Nigeria. Bitcoin, however, has the advantage of being able to reach all locations without a change of service, whether Saudi Arabia or South Africa or Ghana – and that, in addition to the Remitta
The FinTech start-ups will presumably be able to be cheaper than Bitcoin in the large markets, on the broad transaction corridors from the USA or Great Britain to Nigeria. Bitcoin, however, has the advantage that it can reach any location without changing services, be it Saudi Arabia, South Africa or Ghana – and that, in addition to remittance, it can also be helpful in connecting Nigerians with other African economies.
The properties of Bitcoin as a means of transaction are, however, only one side of the coin. As in most cases, the interest in the crypto currency is also based on its function as a means of preserving value.
Financial security and inflation
Let’s go back to Aleppo, who explains why Nigerians are interested in Bitcoin: ” … financial stability. The Naira has become too volatile over the last year due to falling oil prices and economic instability. For many, Bitcoin is a stable and secure alternative means of preserving value”.
Nigeria’s economic situation is interesting, but also tragic. With a national income of about $500 billion, an annual growth rate of about 8 percent, and several billion dollars of foreign investment, Nigeria seems destined to be an economic and rapidly growing center of the African economy.
However, some things have gone wrong in recent years, which has plunged the country into a relatively severe crisis. A central problem seems to be the money, the naira, which no longer functions properly. As Aleppo says, the currency has become too volatile. One of the reasons for its devaluation is undoubtedly the collapse of oil prices. It has not been seen to the same extent at petrol stations, but between 2014 and 2016 crude oil has lost two thirds of its value. As the largest crude oil producer in Africa and one of the ten largest oil producers in the world, Nigeria was of course hit hard.
But that’s not the whole story. Another important, perhaps even the most important factor in the devaluation of the Naira is the flight of capital. In February 2015, the Nigerian magazine Vanguard-ngr wrote: “A study by the central bank revealed that a total of 22.1 billion dollars has flowed out of the country, an average of 4.5 billion dollars per week.” An enormous sum. As in most African countries, capital flight causes serious problems, accounts for a significant share of national income and puts development aid from the first world far in the shade.
A paper on the impact of capital flight on Nigeria’s economy, published in 2012, explains the effect on the Naira’s exchange rate: “The ongoing demand for foreign currencies, especially dollars, resulting from the outflow of capital puts pressure on exchange rates. In other words, as capital flight increases demand for dollars, the naira devalues. Capital flight is doubly harmful. It not only deprives the economy of money, but also robs the money that remains of its value.
In recent years, the government has, after all, stepped up its efforts to stop capital flight. The result, however, has been above all that some corridors of money flows have been closed and some financial instruments banned – which, at the end of the day, will probably do more harm to the legal economy than to capital flight. The consulting firm ICEF notes in spring 2016: “The government of Nigeria has added study abroad to the long list of expenditures for which the central bank no longer provides foreign exchange. This means that Nigerian parents are no longer able to buy foreign currencies through official channels in Nigeria to pay international tuition fees.
Since 2015, according to ICEF, “the central bank has extended capital controls. A list has been published of 40 types of transactions (rice, cement and many others) that should no longer have access to foreign currencies in Nigerian forex markets. Later that year, it restricted the use of Nigerian bank cards quoted in foreign currencies. In December 2015, the CBN finally began to ban the use of Nigerian bank and debit cards nominated in Naira for cross-border transfers and withdrawals.”
So while the flight of capital continues to put pressure on the Naira’s exchange rate, the measures taken by the central bank mainly restrict international trade with Nigeria – and make the Naira itself a worse money, as it becomes less useful for the exchange of values. Like any restriction on the transferability of money, this regulation itself becomes a reason to use Bitcoin, since, as Aleppo said, Bitcoin transactions cannot be obstructed.
But that is not all. Because even the actions with which the government tries to stabilise exchange rates are backfired. The central bank has tied the price of the naira to the dollar; in March 2015, for example, it decided that one dollar should be worth 197-199 naira. In order to push through this course, the government has limited the import of various products (otherwise one would have to buy too many dollars) and closed some markets between the banks. All this has significantly reduced the liquidity of the currency markets in Nigeria and led to general problems in importing goods and commodities.
In addition, it was once again shown that the market cannot be manipulated. It always finds a way. In the course of 2016, the gap between the official price of the Naira and the price on the black markets has widened. In March, when the official price was around 200 Naira per dollar, it was already 300 on the black markets; in June, the CBN adjusted the official rate to these facts and increased it to 300 Naira. Shortly thereafter, however, the Naira continued to fall, and a little later one dollar was enough to put down 500 Naira. The value of the Naira against the dollar has more than halved within a year.
The government’s reaction was again to expand regulation. The central bank was given the power to control capital flows more closely in order to support official rates and prevent the dollar from leaving the country. A law was proposed that a two-year prison sentence be imposed for keeping dollars in cash for more than 30 days.
Crimes and punishments
Let’s now come to something that many Bitcoin fans like to hide: To the crime. Bitcoin is used for cybercrime all over the world, and there are few countries that are as famous for crime as Nigeria. KnowYourCountry writes:
Nigeria is an important hub of international drug smuggling, a centre for criminal financial activity. Corrupt officials, businessmen, terrorist organizations and Internet fraudsters – they all take advantage of the country’s porous borders, lax laws and endemic corruption.
And as the country with the highest Internet usage rate in Africa, Nigeria is also a hotspot of cyber crimes: “Cyber criminals are using increasingly sophisticated techniques, such as hacking e-mails or using social media …”. With crime so flourishing, it is no wonder that money laundering in Nigeria, according to KnowYourCounrty, “takes many forms. Transfers to offshore banks, donations to political parties and campaigns, deposits with foreign banks. Exploiting professional service providers such as lawyers and consultants. The resale of imported goods, such as jewellery or used cars, textiles and electrical goods purchased with criminal money”.
And while the government of Nigeria is trying to fight corruption and crime – albeit unsuccessfully – and the central bank is trying equally unsuccessfully to stop capital flight and money laundering, isn’t it possible that the infamous Prince of Nigeria is starting to use Bitcoin? However, there is no evidence of this, and one can assume that if it happens, it is quite insignificant compared to remittance and value retention.
- The MMM Nigeria project has been running a pyramid game with international reach for some time now. It has accumulated more than 3 million users in Nigeria alone, making it one of the largest pyramid games of its kind.
- MMM Nigeria advises its users to pay with Bitcoins and gives discounts or extra interest for them. On the website it even explains how to buy Bitcoins in Nieria.
Such criminal uses – or their possibilities – have already alerted the central bank. On 19th January btc.ng reported that the central bank “officially banned digital currencies for financial institutions, especially banks”. The CBN bases this decision on money laundering and terrorist financing. It prohibits banks from using, holding or transferring virtual currencies and requires them to ensure that “existing customers trading in virtual currencies carry out effective AML/KYC controls”.
Btc.ng called this partial ban a “significant setback for the ban of Bitcoin”, but remains optimistic: “Alternative methods such as online exchanges will remain an option for those who want to buy crypto currencies. Even if financial institutions will not be able to work with crypto, online wallets will still provide a secure and available solution to store virtual currencies. Banks don’t have to be the answer.”