By Omodele Adigun
With a total value of $175 billion, a wilder investment is going on right now at bitcoin market as the digital currency is worming its way to change the global financial system.
In the U.S. and much of Europe, the fad now is to pay for items with cryptocurrencies. But in Nigeria, it is a taboo to do so and transact whatsoever business in the virtual coins. With this embargo.the raging question now is, when will Nigeria cozy up to digital currencies? Or will it be warming up for a catch-up game with the rest of the world, as the breathtaking moves in digital currency is invading the global market?
For instance, seeing how Bitcoin, a cryptocurrency, stormed past $11,000 last week, after starting the year at less than $1,000, a staggering jump of over 1,000 per cent, some experts have postulated that this blockchain technology will repeat the history of internet and probably be bigger than the internet itself. This means that that little spark may soon become an inferno that will consume the whole world.
What is digital or crypto currency?
Digital or cryptocurrencies are virtual “coins” that are “mined” by computers completing complex algorithms. The most famous and widely used cryptocurrency is bitcoin, created in 2009 by an unknown person using the pseudonym Satoshi Nakamoto. It exists on a shared data network called a blockchain and has no central bank or central authority, meaning that transactions can be done between people and entities directly. Payments in bitcoin can be made without traditional middlemen such as banks and without the need to give your name.
That made bitcoin popular with criminals and others who wanted to move money anonymously. But its price has taken off this year as mainstream investors joined the fray.
The biggest force pushing bitcoin prices higher, according to CNN Money, has been the higher prices.
Investors have been buying as they fear “they’re missing the party” or “losing out on a quick profit,” said Stephen Innes, head of Asia trading at online broker, Oanda. “Intense media coverage” in recent months has also convinced more investors to pile in, he added.
The sentiment has been backed up by indications that bitcoin is getting greater mainstream acceptance. Next month, investors should be able to start trading bitcoin futures via the Chicago Mercantile Exchange.That would give the virtual currency more legitimacy among professional investors.
Many are in Japan and South Korea, where recent regulation changes have made it easier to trade bitcoin, according to experts. Big institutional investors such as hedge funds and assets managers have largely stayed on the sidelines. But some experts predict they’ll move into the market in the coming months, despite skepticism from the likes of Warren Buffett and JPMorgan Chase (JPM) CEO Jamie Dimon.
‘Not legal tender in Nigeria’
The fear that consumers may lose their money without legal redress has been the major reason for outlawing digital currency in Nigeria. According to the Central Bank of Nigeria (CBN), transaction in virtual currencies are largely untraceable and anonymous.”They are traded in exchange platforms that are unregulated. Consumers may therefore lose their money without any legal redress in the event that these exchangers collapse or close business,: says CBN
As a result of this, the apex bank has vehemently warned banks and other financial institutions to have nothing to do with crypto or digital currencies.
In a circular dated January 12, 2017, the apex bank announced that digital currencies were not accepted in the country, adding that any institutions or individuals dealing in such currencies were doing so at their own risk.
This was contained in a memo titled, “Circular to banks and other financial institutions on virtual currency operations in Nigeria,” issued by its Director of Financial Policy and Regulation, Mr. Kevin Amugo.
It reads: “The attention of the banks and other financial institutions is hereby drawn to the above risks and you are required to take the following actions pending substantive regulation or decision by the CBN: Ensure that you do not use, hold, trade and/transact in any way in virtual currencies; and ensure that existing customers that are virtual currency exchangers have effective AML/CFT controls that enable them comply with customer identification, verification and transaction monitoring requirements.
“Where banks or other financial institutions are not satisfied with controls put in place by the virtual currency exchangers/customers, the relationship should be discontinued immediately; and any suspicious transactions by these customers should immediately be reported to the Nigerian Financial Intelligence Unit.
“The CBN reiterates that the VCs such as bitcoin, ripples, monero, litecoin, dogecoin, onecoin, etc and similar products are not legal tenders in Nigeria, thus any bank or institution that transacts in such businesses does so as its own risk.”
Explaining the risks associated with transactions in digital currencies, Dr Kabir Katata, the Deputy Director, Research, Policy and International Relations Department of Nigeria Deposit Insurance Corporation (NDIC), warned that cryptocurrencies could disrupt financial markets since they could be issued without the involvement or backing of a central bank or other traditional financial sector role players.
Quoting Accenture, he explained that cryptocurrencies represent loss of control, the emergence of a non-regulated environment, market fragmentation, and loss of revenue, among others.
Katata ,in his paper: Financial Disruption of Digital Currency & its Consequences on the Banking System and Deposit Insurance System recently in Kano at a workshop organized by NDIC for finance correspondents, rolled out more than 70 risks associated with digital currencies as issued by the European Banking Authority(EBA).These include risks to both the users and non-user market participants; financial integrity, such as money laundering and other financial crimes.
Existing payment systems in conventional currencies as well as regulatory authorities.
The risks include the fact that; users may lose their money on an exchange; their units may be stolen from their digital wallets; they are not protected when using virtual currencies as a means of payment;the value of digital currencies has been very volatile and that transactions in digital currencies may be misused for criminal activities.