For centuries, fiat currencies have served as the lifeblood of the global economy. They embodied the vehicle in which people drive savings and investments, initiate payments and keep accounts, and constitute a scale of measurement for Nations’ wealth and geopolitical power. However, in recent times, a new form of currency has emerged as a subset of fiat currencies and has become a widespread obsession, inspiring its counterculture and attracting billions of dollars in investment. This currency is known as “Cryptocurrency”. Representing money in digital form, cryptocurrencies differ markedly from conventional currencies and digital payment services or mediums. While some countries have permitted the use and trade of cryptocurrencies, some have restricted them or proscribed them outrightly, and others are yet to define their attitude towards them. It is against this backdrop that this article seeks to analyse the global emergence of cryptocurrencies and their stakes in Nigeria’s economy.
Definition And Evolution of Cryptocurrencies
Cryptocurrency is a medium of exchange created and stored electronically, using encryption techniques to control the creation of monetary units and to verify the transfer of funds. It is a medium in which consumers digitally connect directly through a transparent process, disclosing the financial amount, but concealing the identities of the people conducting the transaction. Cryptocurrencies operate on a database known as the “blockchain”. The blockchain is a public record that is verified by many different “nodes”, which makes counterfeiting coins extremely difficult or impossible while making the tracing of a specific transaction between anonymous individual accounts or “wallets” possible.
Although the concept of digital currency dates back to the late 1980s, Bitcoin, launched in 2009 by Satoshi Nakamoto, is the first successful decentralised cryptocurrency and has provided the foundation for the development of numerous other cryptocurrencies. In founding Bitcoin, Nakamoto formulated the philosophy thus:
What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party. Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms could easily be implemented to protect buyers.
World-Wide Analysis of Cryptocurrencies
On Wednesday, 19th May 2021, the world’s largest cryptocurrency, Bitcoin plunged by 12% to a dwindling USD37.00 from USD65.00, with other cryptocurrencies such as; Dogecoin dropping more than 40% and Ether, 20%. Furthermore, cryptocurrency-linked stocks slumped in their market value with Coinbase Global Inc. falling below 5.2% in the US market trading and, Marathon Digital Holdings Inc. to 12%. With the hearts of many crypto-investors shattered and prospective investors now in doubt, the volatility surrounding cryptocurrencies becomes more real and somewhat confirms the suspicions of many crypto-sceptics.
Before this time, precisely in 2019, the global cryptocurrency market size stood at USD792.53 million and was projected to reach USD5,190.62 million by 2026. Interestingly, on 7th January 2021, the total cryptocurrency market hit an all-time USD1 Trillion for the first time even exceeding the earlier projection for 2026. The popularity of cryptocurrencies sparked interests or backings from different countries and entities in the world. For instance, the Philippines’s Central Bank approved several crypto exchanges to operate as “remittance and transfer companies” in the country and installed a Bitcoin ATM. Australia and Singapore released guidelines for the taxation of cryptocurrencies with Canada, France, the United Kingdom and the United States equally clarifying tax treatment of cryptocurrencies. Similarly, several companies around the world are expanding their businesses by offering cryptocurrencies’ services. For instance, in June 2019, Facebook Inc. introduced a digital currency called “Libra” to enable customers to buy or transfer money to people. In February 2021, Tesla bought USD 1.5 Billion worth of Bitcoins and until recently, announced its acceptance of cryptocurrencies as a payment method for its products or services.
In Nigeria, according to a 2020 report issued by Paxful, Nigerians traded 60,215 bitcoins valued at more than USD566 million in the previous five (5) years, making the country the largest cryptocurrency market in Africa and the second-largest in the world, only after the United State of America. Also, data emanating from Coin Dance shows that from the beginning of May 2015 to the middle of November 2020, the bitcoin trade in Nigeria increased yearly at 19% in volume. The highest spike was during the national lockdown in 2020 where a total volume of 20,504.50 was traded with over 137% new registrations. When Government shut out Nigerians from using local payment platforms to support the “End SARS” protests, cryptocurrencies saved the day with nearly USD400, 000 raised through cryptocurrencies. These statistics show the tremendous impact and revenue’s opportunities cryptocurrencies afford Nigeria. However, Nigeria’s government, especially the Central Bank of Nigeria (“CBN”), feels differently.
CBN’s Circular To Commercial Banks On Cryptocurrencies And Other Regulatory Responses
The Banks and Other Financial Institutions Act (BOFIA) empowers the CBN to issue regulations, guidelines and policies to protect the interests of consumers of products and services of banks, and to protect public trust in the use of financial services in…click to continue reading
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