The importance of Bitcoin to Nigeria's Economy
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August, 22 2023
2020 will no doubt go down in history as one of the most eventful years in living memory. Of all the eventful occurrences, however, COVID-19 stands out. Not only for the terrible loss of life it has caused, but for how it has changed the world; exposing a lot of vulnerabilities in our existing systems.
We could talk about how the health system was shown to be ill-equipped to handle a global pandemic with a fast spread-rate, or how unnecessarily reliant we had been on working from a physical location for decades after we should have dumped it for a more sustainable model. But the most challenging and perhaps the one whose impact we had failed to consider was how much it would affect the global financial system.
It is not immediately apparent to what extent the ordinary citizen would be affected by the pandemic if we only look at its impact on the West, but when we look closely at Africa and even more closely at Nigeria, we can clearly see that a Nigerian losing her job during this pandemic does not compare to an American in the same plight. Nor can we expect a global crisis to have the same impact on the US dollar as it would have on the Nigerian Naira.
Because they are worlds apart.
Why fiat currency is no longer the answer
Like many African currencies, the Naira is pegged to Western currencies, and that sets African economies several miles behind.
An economy such as Nigeria’s is majorly dependent on crude oil. When COVID-19 struck earlier this year, sending the world into lockdown, the shocking reality of mismanaged systems and myopic planning that was void of diversity hit Nigerians too hard all at once.
As if that was not terrible enough, as people began to pull together funds from a not so strong savings culture, they found out rudely that the banking system is not capable of helping them make the most of the little they have.
It’s not that the system is inherently evil and only thrives on the misfortunes of the hard-working citizen, but just like in every other sector that has been exposed due to the pandemic, it is that the system is outdated.
Money came to be because it solved a problem with transacting. It replaced trade by barter at the time because of the value it provided beyond equal exchange. At that time, it was the perfect solution to the problem.
That’s where cryptocurrencies come in.
Fiat vs Crypto
When fiat currency came into existence, its value was immense. For instance, it facilitated trading between countries and territories. It didn’t really matter then that there was no physical commodity backing it because the government was in charge of moderating it. And with a country with a relatively stable government, fiat was just enough.
Over time, the government got less reliable and fiat didn’t seem to be the perfect solution anymore. Again, let’s consider Nigeria. Incessant inflation is a major issue that has affected the Naira over and again which has left Nigeria’s economy struggling. Apparently, a hurting economy primarily affects the citizens.
So when bitcoin, the foremost and most popular cryptocurrency started gaining traction and saw a price hike between August 2016 and August 2017 by about 733%, one of its selling points was its resistance to hyperinflation. What that meant was that since it was a decentralised digital currency, no government or its central bank could decide its fate. This gave digital currencies an edge over fiat.
While that might not mean much to a country such as the US with a relatively stable fiat currency, it offers vast opportunities to countries with struggling economies, like Nigeria.
Read Also: A Beginner's Introduction to Cryptocurrency
Benefits of Bitcoin to the Nigerian Economy
While Bitcoin is not without its challenges (e.g. its high volatility), we have seen the potential it offers to the Nigerian economy as its adoption rate rises rapidly across the country and the continent at large. We will mention the most impactful ones here:
- Enables international transactions: Since it is purely digital, bitcoin makes trade easy and money can be moved around for the purpose of trade . Beyond trade, even, Bitcoin makes it easy for Nigerians in the diaspora, for instance, to send money back home without exorbitant charges by money transfer companies. In essence, Bitcoin erases boundary lines and truly transforms the world into a global village.
- Eliminates the need for middlemen: Right now, financial institutions such as banks serve as mediators between two or more parties transacting with fiat currency. What that means is delayed transactions because of the many hoops that have to be gone through. But with Bitcoin, its decentralised nature means it is not regulated by any central bank and transactions are validated automatically by design.
- Independence from the US dollar: the Naira, like many African currencies and, indeed, many world currencies are connected to the US dollar. This gives the US authority to place sanctions on other countries. But since Bitcoin is not a US-regulated currency, it frees its users from unnecessary sanctions and gives them the freedom to grow their economy and contribute to the global economy without fear of US economic policies.
- Robust savings culture: Investing in fiat currency is unattractive to Nigerians for several reasons. A case in point is the most recent devaluation of the Naira - the second time in 2020. Anyone saving in dollars, for instance, would have lost money due to the devaluation. Wealth stored in Bitcoin is immune to this, thus providing an opportunity for Nigerians to control their wealth.
By turning to Bitcoin and cryptocurrencies, Nigerians are finally taking their savings into their own hands - and quickly learning how valuable a protection against currency instability bitcoin can be.
It is not so much of a surprise then to see that Nigerians are swiftly adopting the use of Bitcoin in the unstable economy that is their reality. As a company whose mission is to bring financial freedom to every African, we at Yellow Card are excited that Nigerians are finally ready to take the next step with the currency of the future, Bitcoin.
And we are making sure that every Nigerian has access to the financial freedom cryptocurrencies bring by ensuring that they can buy bitcoin in Nigeria easily anywhere in the country.