The biggest misconceptions of Nigeria’s crypto debate
With over $1.5bn worth of cryptocurrencies traded domestically this year, Nigeria’s crypto fascination is still well and truly alive and is showing no signs of slowing down despite the recent ban.
However, as increasing numbers of the mainstream public become introduced to this relatively new technology, either directly as users or distant observers of the current regulatory discussions, it is vital this is done from a well-informed perspective as cryptocurrencies continue to dominate conversations across Nigeria.
With this in mind, here are some of the common misconceptions that often require more clarification when deciding to invest.
Cryptocurrencies are for criminals
As Nigeria becomes more digitally-led, cybercrime has been a focal point for many. In turn, many have been led to believe that cryptocurrencies are developed by and for criminals. This is one of the major misunderstandings that often arise because many people think cryptocurrencies like Bitcoin are anonymous, when in fact it’s the opposite – all Bitcoin transactions are transparent for the whole world to see.
People might not be able to link the identity of a person to their cryptocurrency transactions right away, but once they do, they can track everything you’ve ever done on a blockchain network, which makes it a particularly bad tool for criminal use.
However, whilst cryptocurrencies might actually turn out to be one of the safest ways to use money, it doesn’t mean that criminals don’t use it. Just like normal money, they do.
But it’s important to note that as more data becomes available in the industry, it’s becoming increasingly clear the number of bad uses is extremely minute. For example, according to Chainanalysis, less than 1% of cryptocurrency activity is illicit and cryptocurrency scams are not as prevalent in Africa as they are in other regions.
Clearly, the risk of criminal activity can never be fully eliminated – it can only be merely mitigated, however, the core properties of cryptocurrencies mean they have some of the best tools in the world for achieving this.
Cryptocurrencies are too volatile to be taken seriously
The prices of cryptocurrencies are not only driven by short-term demand but more specifically, by people who understand how cryptocurrencies could benefit the world and believe they will become more widely adopted in the future. However, the scale of their belief is liable to change in the short term due to certain events having temporary impacts on prices.
For example, a negative article in the mainstream media may put people off and the price of cryptocurrencies could experience a dip. On the other hand, news of a major company investing in cryptocurrencies or adopting it as a form of payment could help it go on a rally. However, the key is to analyse the prices of cryptocurrencies in the long term. For example, despite the fact it has been declared “dead” on numerous occasions, the price of Bitcoin has historically increased due to its continued adoption and belief in its value.
Equally, it is worth noting that not all cryptocurrencies face issues of high volatility. For example, stablecoins are cryptocurrencies pegged to stable assets such as gold and more stable fiat currencies like the US Dollar. As well as offering the low volatility that comes with familiar stable assets, they also provide the low transaction fees associated with using local currency, enabling users to receive the best of both worlds.
Cryptocurrencies have no intrinsic value
The entire concept of money boils down to perceived value and people’s faith in using it. Unlike fiat currency, where value and legal status are enforced by each country’s government, the value of cryptocurrencies like Bitcoin comes from their code, infrastructure, scarcity, and adoption. Due to the economic impact caused by COVID-19, individuals, institutions and even some governments have looked to Bitcoin as a hedge against pervasive currency devaluation.
Bitcoin’s fixed supply of 21 million coins also attributes value in the sense that scarce assets tend to appreciate over time as demand goes up. In the past year, we have seen the price skyrocket and its market cap cross a major milestone, surpassing $1 trillion in February 2021. With over 100 million wallets with active balances globally, it is clear that a lot of individuals and corporations are viewing bitcoin as a credible innovation.
Equally, the value of cryptocurrencies like Bitcoin also lies in its core utility in areas such as remittances and payments. Currently, thousands of merchants globally accept Bitcoin as a means of payment, thus proving its growing use. If more people start using cryptocurrencies and understand them, the more useful and ultimately, valuable they will become to everyone else.
Nigeria needs safe innovation
Whilst it’s easy for most of these misconceptions to slip under the radar, there is some information every Nigerian cannot afford to be unaware of – especially when investing in cryptocurrencies for the first time. For example, don’t invest more than you can afford to lose, only deal with reputable exchanges and only invest in what you understand, are just a few. Ultimately, cryptocurrencies represent a shift towards digital money for a digital age but as this transition occurs in Nigeria, it must be done safely and the best way to achieve this is not only through sharing more information with the public but more specifically, sharing the right information.