One of the more remarkable instruments of freedom and prosperity that has emerged over the last two decades is the internet. It has shrunk our planet by connecting humans across thousands of miles and helps us to explore more.
In the spirit of this, an anonymous computer scientist (group) named Satoshi Nakamoto created bitcoin in 2009: a way for computers to communicate with each other—on behalf of humans—about financial transactions without a central authority.
Over the last three years, there has been a lot of global and local excitement around bitcoin. Individuals, corporations, and nations have slowly started to store some of their wealth in the cryptocurrency as it emerges to take on the role of “digital gold”.
Nigerians have not been left behind. The country is the largest market for bitcoin trading in Africa. Recently, Reuters showcased how it has helped to grow and protect businesses against currency devaluation. BuyCoins’ internal estimates put the country’s total trading volume across all channels at well over $200 million per month.
The need for bitcoin
The most common and rising use case of bitcoin in Nigeria today is for cross-border transfer of value.
It is reasonably easy and fast to exchange your naira for bitcoin in Nigeria and send it to a vendor in China who ends up selling bitcoin for yuan. Or, to have a friend in the US who uses her dollars to buy bitcoin and sends it to you to convert to naira in Nigeria.
To foster these types of transactions, crypto businesses act as middle parties. People trying to exchange money don’t even have to engage with bitcoin.
For instance, these businesses take your local naira, buy bitcoin in the Nigerian market, and sell this bitcoin to someone or a company in your destination country. Then, they make the transfer to the recipient in the currency you desire. A lot of this operates outside of legacy financial institutions and networks that have held a closed monopoly over cross-border transfers.
Deepening the use of cryptos
While the crypto space is growing, Nigerian enthusiasts are building better infrastructure and getting involved with educating users to improve the onboarding experience.
The first infrastructure layer being built can be called layer 1, or the marketplace. They are the exchanges, a website, or an app where you can sign up to buy or sell bitcoin with fiat currency, e.g. naira.
Some of the more prominent trading platforms include locally-built exchanges like BuyCoins, Busha and Quidax, as well as international exchanges like Binance and Luno.
There are also notable peer-to-peer exchanges (p2p)—which are more semi-formal—like Paxful, Remitano and LocalBitcoins, where you can trade directly with other people. Although the user experience (UX) is often clunkier, peer-to-peer trading volumes are still as high as $18 million per week within Sub-Saharan Africa, with Nigeria representing 50% of these volumes. These p2p trade dealings can be compared to transactions on formal exchanges like Luno that transact over $6 million daily, albeit in several countries.
Interestingly, the majority of bitcoin trading that happens in Nigeria does not take place on these formal channels.
There are the less organised or informal seller networks trading in WeChat or Telegram groups which make up more than half of the $200 million volumes traded across all channels monthly in the country. Users also engage via Instagram and WhatsApp shops—apparently, some economic structures just don’t change.
This is the challenge for crypto enthusiasts and exchanges. They need to understand and build for this informal and highly fragmented network.
The informal markets are often economically inefficient. They have daunting challenges such as security, non-centralised liquidity, discoverability (of the true price, of traders, of reputation, etc.). For example, if a business needs to conduct a large transaction, using an informal market place could mean engaging five different vendors instead of one exchange. All the work of aggregating and sourcing suppliers would have to be done by that business.
But exchanges are uniquely built to solve this challenge through the existence of their networks.
So, to make the crypto space truly useful for solving financial and transactional problems, crypto exchanges need to integrate these isolated pockets of liquidity pools seamlessly. To do this, there are the apps which aggregate the attributes of the marketplace.
The most famous examples of this in Nigeria are remittance-focused solutions like Sendcash, Afriex, and Bitsika. There are also apps like Bundle and CoinProfile.
They do not provide services that are directly solving the exchange problem (i.e. market making and liquidity provision), but rather use infrastructure from the marketplace to help with different things like fast movement of money across borders or social payments.
These apps are essential because they are built to be discrete. Users hardly know that it is the exchange of cryptocurrencies—which happens behind the scenes—that facilitates their foreign exchange transactions. So these apps have built a framework that represses the need for end-users to be crypto-conscious as some people still struggle with accepting or understanding cryptocurrency.
Then there is the last category of productive activities, which are community and experimental crypto projects, such as tokens, decentralised applications, etc.
Some of these include stablecoins which are non-volatile cryptocurrencies but still carry the advantages of the blockchain (e.g. immutability, transparent ledger and permissionless transfers). Imagine being able to see all naira donations made to your favourite non-profit on the blockchain).
Some of the notable examples here are NGNT and the applications built on it (e.g. win.ngnt, an anonymously-built decentralised blockchain system). Others include demo blockchain voting systems like Univote used for elections at the University of Jos. Many online communities have put in a lot of effort to push the learning and growth of crypto—for example, the Blockchain Nigeria User Group (BNUG), the Stakeholders in Blockchain Technology Association of Nigeria (SiBAN), and Alpha Training Lab.
Are we there yet?
There is a lot of aggressive building in the crypto space. Yet, we are only in the early stages of the cryptocurrency revolution all around the world. There is still a great deal to be done to onboard users effectively and to build the kind of user experiences that solve their problems.
One prominent example is private payments: as crypto emerges, we will see interesting use cases like anonymous donations to non-profit organisations. Or funding the fight for justice towards victims of violence; people who are also concerned about spamming and selling their financial data to third parties will be able to side-step some of those concerns more easily.
With all of this rosiness, there are still a lot of things we need to figure out to be ripe for success.
For instance, more effort needs to be put into developing better security models and making onboarding much simpler for users. The user experience of crypto today is very broken.
Crypto onboarding needs to be as sweet and as easy as using WhatsApp. It’s still very difficult for a lot of people to buy their first few satoshis (fractional units of bitcoin), use bitcoin for payments, or self-custody their own bitcoin (a big appeal of bitcoin is that you can store bitcoin yourself without needing a third-party like a bank).
Today, there is a lot of risk around these processes, and even tech-savvy individuals shy away from engaging.
The need for educational and technical efforts
There is also the challenge of education. A lot of people don’t know where to start with crypto and quickly get overwhelmed. This makes them easy victims of hacks and scams and reinforces a culture of distrust. The crypto community also gets easily siloed and distanced from engaging with regular people. For instance, the vast majority of crypto communities right now are only semi-organised, existing in Telegram groups, and making themselves relatively tricky to discover.
There needs to be a lot more concerted effort in generating educational content and pushing them in the public domain. Some good free rudimentary efforts around this for people to start learning more about crypto include this BuyCoins Learning course and Binance Academy.
Finally, there is a need for growing the technical development talent. There is still a shortage of solutions that can merge the needs of informal businesses to best practices.
For instance, informal businesses cherish the flexibility of their business models and struggle with acquiring Know Your Customer (KYC) requirements typically expected in financial transactions. Solutions that can simplify the KYC process and ensure the legitimacy of such businesses would go a long way in boosting the sector.
The talented and skilled people who can solve problems like this should be encouraged to learn the technical details of the space.
Having core competencies around blockchain development and cryptography expertise can begin to position us for opportunities to build better solutions for our people and the world.
If crypto will be an important part of the financial infrastructure of the world tomorrow, today is when we prepare: get developers, economists, and a broad range of youths involved and thinking about how to apply themselves to solve some of these challenging global problems.