Why Nigerian Entrepreneurs Prefer Bitcoin
Silas Okwoche is a self-taught engineer in Lagos, Nigeria. He was the co-founder of a cell phone company called Nerve Mobile, which used Android smart phones from Shenzhen, China. Silas found a Chinese partner via the e-commerce platform Alibaba.
Nerve Mobile's venture was profitable for a time, but ended for a reason that had nothing to do with Silas’s product. The Nigerian Naira fell against the Chinese yuan by over 15%, and the hardware became too expensive. Silas’s story is not exceptional: Nigerian business people struggle with currency volatility every day.
Lagos is one of the fastest growing cities in the world. You can find a skyscraper next to hand-constructed sheet metal shelters. Nearby will be a Kentucky Fried Chicken, a burning trash pile and a gleaming, hyper-modern bank. Hundreds of languages are spoken here. Lagos is shared by Christians and Muslims, Togolese and Lebanese, millionaire businessmen and hustlers chasing a bus to sell a 10-cent bag of plantain chips.
And all of these people must contend with the Naira, which can depreciate without warning. This adds another layer of uncertainty to businesses that purchase goods or components from abroad. That’s why Nigeria presents the perfect use case for cryptocurrencies like Bitcoin. Bitcoin and Ether are electronic “tokens” that, thanks to distributed blockchain technology, are very difficult to counterfeit. Blockchain technology is what makes these tokens different from any other random strings of code floating around the internet. It is the core of what enables them to have value.
Bitcoin is famous for its price swings, appreciating 2000% in value over the course of 2017 only to plunge back to earth this year. But the Naira takes volatility to a whole new level. To give just one example, on August 2, 2017, the US dollar to Naira exchange rate depreciated about 18% against the dollar nearly overnight. The accompanying chart shows the levels of volatility of the Naira, Bitcoin, and Ethereum. As you can see, at many points the Naira is more volatile than either of the two major cryptocurrencies.
And Nigeria isn't the only country where citizens consider cryptocurrencies more stable than the national currency. In Venezuela, for instance, where annual inflation rates hit 24,600% in May, many people are turning to Bitcoin -- even mining it, since electricity is heavily subsidized -- as an alternative to the Venezuelan Bolivar. Cryptocurrency is also becoming popular in other developing countries with unsteady financial markets, such as South Africa and Zimbabwe.
In Nigeria, some are turning to Bitcoin as a way to enable everyday business activities. Use of Bitcoin isn’t widespread in Nigeria, but it’s not rare either. Its use is occasionally visible even in the large outdoor markets where much of the commerce in Lagos happens, like in this photo from Ojuelegba.
Temo, who asked that his real name not be used, lives in Lagos and runs a technology company focused on media distribution. He also works on hardware ventures and he buys his components from China. When he does this, the most convenient option is to purchase Bitcoins on LocalBitcoins.com or another peer-to-peer marketplace using Naira, and then sell them for Chinese yuan. It is much faster than using normal channels, and costs a fraction of the price. If he uses a normal bank transfer, he will be charged huge fees by both the sending bank in Nigeria and the receiving bank in China. Also, it can take up to a week for the wire transfer to move the money.
Other entrepreneurs use Bitcoin in their day-to-day activities. Take Soji, a Lagos-based web designer. He said, “I can use Bitcoin for anything now [...] It means I can invest and also pay anybody currently, except old people, I will send them Bitcoin. But some people think it is a scam to deal in Bitcoin and they also fear being hacked, as many people do not know how to protect themselves online.” Soji uses Bitcoin in his web-design practice, for instance, to purchase hosting from overseas sites that rarely accept Naira.
When the price of Bitcoin is less volatile than the Naira, people like Temo, Silas or Soji can use it to purchase things from abroad, either by finding vendors that accept Bitcoin directly, or by using Bitcoin as a foreign exchange mechanism.
Lately, people all over the world (including in Nigeria) have been speculating with Bitcoin, using it just as an investment or engaging in constant buying and selling. This activity makes the price of Bitcoin very volatile, and makes it too risky for Nigerian entrepreneurs to use it. If the price drops suddenly, they may lose their hard-earned capital, and when the price is skyrocketing suddenly, people charge them exorbitant rates to purchase the asset. More speculation means more volatility, and that volatility makes Bitcoin less useful than an actual currency.
Nigerian entrepreneurs would clearly benefit from a less speculative Bitcoin market. Toyosi, an independent cryptocurrency trader and investor in Lagos said, “Currently, most Ponzi scheme traders are out of the market as they were only there for profit only, now that Bitcoin is stable and the profit margin is small, we will witness a gradual growth and diverse application of blockchain tech solutions.”
Toyosi brought up SureRemit, a company that reduces the cost of remittance payments. SureRemit uses a cryptographic token as an alternative for sending money home from abroad. When people are using cryptocurrrency for normal transactions and the value is more stable, SureRemit can provide a more useful service.
In other words, it is hard for a cryptocurrency to act as both a speculative asset and a currency. Countries like Nigeria that suffer from high volatility or institutional uncertainty actually need Bitcoin to act as a medium of exchange.
Jeremy Kirshbaum is a researcher, strategist and entrepreneur working focused on emerging technologies and business models.
Pelumi Oguntemehin is a technology researcher and practitioner based in Lagos, Nigeria.