Since the Bitcoin whitepaper was introduced to the world in 2008, the asset class has served as a source for generating continued controversy and news. Bitcoin maxis have praised the asset class’ launch as the advent of a new and equitable money system. But critics of the cryptocurrency have pointed to its role in criminal evade detection. Another reason Bitcoin —and other cryptocurrencies— has been looked at with an angry eye and refused to be recognised as a legal tender by the governments of many countries is the fact that it has proven difficult to regulate.
Because of this, citizens of a country undermine the authority of the government by finding ways around capital controls. And by removing the middleman and intermediaries (which are by extension the elements of a government’s system) in financial transactions, Bitcoin is throwing a wrench in the existing infrastructure of the financial system and this is causing destabilizing the sector.
With cryptocurrencies, central banks are no longer required because the currencies can be produced by anyone with access to a full node. Transfers between two parties (aka peer-to-peer) on Bitcoin’s network has also meant that there’s no longer the need for intermediaries to manage and distribute currencies.
This has made major economies, like the United States and China, refuse to recognize Bitcoin as a legal tender. The latter has moved against the asset class on several occasions by placing bans on the mining and trading of the currency in the country. The most recent being ten top agencies, including the central bank, the securities, the foreign exchange and the financial regulators, vowing to work together to crack down on “illegal” cryptocurrency activity. On September 24, these top regulators banned crypto trading and mining for the umpteenth time in the country and have been the norm, that action sent bitcoin prices tumbling.
China had already banned financial institutions and payment companies from providing crypto-related services in May. It had also issued similar bans in 2013 and 2017. This continuous attempt at banning crypto-related activities shows the challenges involved in closing loopholes and identifying bitcoin-related transactions.
The Central Bank of Nigeria (CBN) in similar steps had in February issued circular warning banks and financial institutions to refrain from “facilitating payments for cryptocurrency exchanges” and that they needed to identify and close banking accounts that are associated with crypto transfers. In March, The CBN came back to clarify that directive by saying it didn’t outrightly ban cryptocurrencies. The apex bank instead said it was only reiterating an already imposed 2017 ban on institutions facilitating cryptocurrency transactions. Speaking on behalf of the bank’s Governor, Godwin Emefiele, Deputy Governor Adamu Lamtek said, “The CBN did not place restrictions from use of cryptocurrencies and we are not discouraging people from trading in them.” Later went on, “What we have just done was to prohibit transactions on cryptocurrencies in the banking sector.”
In an apparent U-turn on the part of the CBN, it has decided to launch its own digital currency, the e-Naira. The e-Naira, which is set to be launched by the Central Bank on October 1, 2021, will be governed by Proof of ownership (PoO). Owners of the currency could either keep them in a bank account, or in an e-wallet that contains an “anonymous” private key from the CBDC’s tokens.
Nigeria’s central bank isn’t the only one looking at accepting cryptocurrencies or having one of its own. The Tanzanian central bank is also looking in that direction after its president urged it to start preparing for the adoption of cryptocurrencies. El Salvador has gone a step further by becoming the first country to adopt Bitcoin as a legal tender and that action is looking like a game-changer as more countries consider the asset as a means of carrying out everyday transactions. Other countries like Paraguay and Panama are considering following in El Salvador’s footsteps.
The realization that outrightly banning Bitcoin and other cryptocurrencies wouldn’t stop people from continuing to use them is gradually dawning on governments. There is now a visible effort in finding ways to either regulate the currency or outrightly adopt them and this is what it would have eventually gotten to. So now is a great time to start that process. Bitcoin backed by blockchain technology is a disruptor to the global financial framework and only acceptance and adoption would ensure central banks still have any form of control whatsoever in this decentralized future.