The Central Bank of Nigeria ordered banks and financial institutions to identify and close accounts of cryptocurrency entities with "immediate effect" on Friday, February 5.
The Central Bank warned those who did not apply by this directive that they would face "severe regulatory sanctions" in the letter that circulated to the relevant parties.
Nigeria's hostility to cryptocurrencies is not new as the country put out a warning in 2017 regarding the risks associated with transacting in crypto.
While initially having left out a comprehensive explanation for this move, the Central Bank eventually released a statement claiming that cryptocurrencies are a threat to the Nigerian financial system.
“The recent regulatory directive became necessary to protect the financial system and the generality of Nigerians from the risks inherent in crypto assets transactions,” the central bank said in a statement.
They even referred to a quote by Warren Buffet who called Bitcoin "rat poison squared" and a "gambling device" in their explanation that they don't believe it is being used for genuine payment purposes.
The statement particularly pointed to the dark side of crypto and its use for money laundering, terrorism financing and drug trafficking as a result of its anonymous nature.
The bank insists that this position is not new but rather a reiteration of their 2017 mandate. However, cryptocurrency exchanges have been operating in the country since 2017, without any issues until this new statement was released.
Exchanges such as Binance and Luno have been working with customers to make sure they are not badly affected by this sudden change.
Use of crypto in Africa
While the whole continent cannot be considered as one entity, issues present in many African countries are being addressed by the use of cryptocurrencies. The big two are currency instability and remittances.
Currency instability has plagued different nations across the continent at different times and cryptocurrency has found its place as an alternate form of payment, saving and investment for those whose local currency is volatile.
Zimbabwe, the country most well-known for its hyperinflation and currency collapse, has seen growth in cryptocurrency trading and payment, especially in Bitcoin.
By having invested in crypto, the risk of losing all of your personal wealth due to inflation or collapse is removed. Although the unstable nature of currencies like Bitcoin and Ethereum, means they could lose some value as well, it provides another option.
Remittances are the second area where cryptocurrencies thrive across the continent. Due to failing economies, lack of jobs and persecution, many people work outside of their home country. As a result, sending home money is one of the biggest financial transactions happening across African nations.
While there have been ways to send this money across borders, these were often expensive and took major cuts out of the amount being sent back to the family. Cryptocurrencies have helped people avoid these high fees and conversions, making it a bit simpler but also a lot more beneficial as a means of sending money.
Not without issue
This doesn't mean that there aren't risks and problems when it comes to cryptocurrencies on the continent. In line with the use of cryptocurrencies across the rest of the world, banks in African countries and governments have had to deal with its use for criminal activity and a growing concern for Bitcoin scams.
Recently, South Africa made headlines because of its biggest ever cryptocurrency Ponzi scheme, Mirror Trading International. The company alleged it was trading with a sophisticated "bot" using AI which resulted in great return on investment for those who signed up, but ultimately the scheme crashed and its leader disappeared with the money.
In other regions, similar pyramid schemes and outright scams attempting to access cryptocurrency accounts have left some people robbed of their money with little recourse.