Almost all of the countries worldwide are making use of cryptocurrencies. Even though the adoption of digital coins, including Bitcoin, has been questioned over and over again, they are getting used across industries. However, the adoption of Bitcoin still remains relatively low in most economies, prompting the need for regulatory change sooner rather than later. Recently, a number of countries have taken action to make Bitcoin more accessible. This includes El Salvador, where Bitcoin has been announced as a legal tender.
More recently, Nigeria has been taking positive actions to drive the adoption of Bitcoin, and as a result, made some regulatory changes. The government, in July 2023, agreed to make blockchain technology legally usable in Nigeria. The Minister of Communications and Digital Economy has given approval to the National Blockchain Policy for Nigeria, which aims to foster the integration of blockchain technology into the country's economy, thereby promoting its growth and development.
This initiative is also expected to play a vital role in safeguarding data integrity in companies. Following the ban on cryptocurrencies in 2021, this noteworthy development paves the way for innovation in the region, allowing African countries to explore new approaches to digitalization.
Although Nigeria is now striving for the widespread adoption of Bitcoin, the government in 2021 banned banking institutions from facilitating transactions in Bitcoin or any other cryptocurrency. During the same year, the government also launched a centralized digital currency e-naira, and built a policy framework direct at token-issuance platforms. Despite the ban on banking institutions using Bitcoin, the National Blockchain Policy is a welcomed development for technology advancement in Nigeria.
With government bodies such as the National Information Technology Development Agency and the National Universities Commission overseeing the process, the institutionalization of cryptocurrency adoption fosters the establishment of a regulated environment. This approach ensures that the adoption and utilization of cryptocurrencies are conducted in a controlled manner.
The overall cryptocurrency market has a strong growth potential across the African region. However, only a smaller part of the sub-Saharan area formally regulates cryptocurrencies. Many of the countries have placed restrictions on cryptocurrency transactions, dampening the growth prospect of the market. But consumers have shown great interest in the commercial use of cryptocurrencies, especially in markets like Nigeria, South Africa, and Kenya, where people are using digital coins for payments.
Although Nigeria is seeking to further drive the uptake of Bitcoin among its citizens, it is crucial to understand the various risks involved in making the digital coin a legal tender. El Salvador, since making Bitcoin a legal tender, has experienced a substantial downfall in its economic growth. While making cryptos the national currency, there is a need for substantial investments in the first place. This can further deepen the debt crisis, which can be harmful, especially amid the current macroeconomic environment. Furthermore, the highly volatile nature of cryptocurrencies means that there is a huge economic risk while making Bitcoin the legal tender.
But at the same time, there are advantages as well to it. In comparison to Visa and Mastercard transactions, Bitcoin transactions are cheaper and faster. Furthermore, Bitcoin has an anti-inflationary system, which is often a headache for the financial system of most countries globally. The block-rewarding halving system of Bitcoin is intentionally designed to be deflationary, thereby greatly reducing the likelihood of future inflation.
The adoption of a new regulatory framework by Nigeria on blockchain technology certainly opens new growth prospects. Industries, across verticals, can use the technology that might lead to widespread adoption of Bitcoin and other cryptocurrencies from the short to medium-term perspective. Even though banking use of Bitcoin transactions is currently banned by the government, the digital coin launched in the country can serve as a temporary solution for the increasing number of crypto investors across the region.
With the adoption of cryptocurrencies growing rapidly in many of the African countries, TechInsight360 expects more nations to adopt blockchain and crypto-friendly policies to drive innovation in the sector over the next five years. This will also aid the economic growth and development across the African continent from the short to medium-term perspective.
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