For many years, economic activities worldwide were done with paper currency. This currency, which is usually the legal tender, differs from one country to another. The same way it differs in look is how it differs in value.
For Nigeria, this legal tender is the Naira note which has been fluctuating in value ever since. With the Naira, you can transact without stress within Nigeria, provided you have the equivalent value to carry out the desired transaction.
However, if you want to transact with someone outside Nigeria, there is a challenge. First, you have to convert the Naira you have to the equivalent value of the country's currency you want to transact in. For example, if you want to buy an item from the United States and have it shipped to you in Nigeria. You will have to find out the price of that item in USD, convert it to Naira, and determine its value in the Nigerian currency.
Paper currency was the trend for many years, and its transactions which include minting, savings, and withdrawals, among others, are primarily governed by the activities of clearly defined structures. In Nigeria, for example, the CBN is the chief body that oversees the activities of financial institutions and exchange apps.
These financial institutions include the United Bank of Africa, Guaranty Trust Bank, Zenith Bank, Access Bank, First Bank, and many other Microfinance Banks. We have also seen the rise of digital banks in Nigeria like Kuda Bank and VFD Microfinance Bank. Very recently, there is a move by the federal government of Nigeria to adopt digital currencies.
Transacting in paper currency is not without its drawbacks, and this perhaps is why a group of tech-savvy individuals came together with an innovative idea called cryptocurrency. With the many activities around cryptocurrency, it is one word that will surely ring a bell in the ears of virtually every Nigerian.
With cryptocurrencies, you can store and use your money electronically regardless of where you are in Nigeria or anywhere else in the world. You don't need the activities of the structured bank system nor the regulations that come with it to transact using cryptos.
While the idea of cryptocurrency may already sound amazing to you, it is important to have a comprehensive idea of what it is before deciding that. So, what is cryptocurrency? How does cryptocurrency work? What are the different types of cryptos that exist, and why are they grouped so?
All these and more are what we will examine in this article. Here, you will find out what cryptocurrency is and get an answer to the question - how does cryptocurrency work in Nigeria.
Read on how to invest in cryptocurrency!
Understanding What Cryptocurrency Is
Cryptocurrency is not a new concept. Some people believe that it is an idea that had long existed even before it was eventually manifested. Digital currency remains one of the notable innovations of this digital age. It's almost not surprising that we have a digital currency considering the pace at which we are moving in this digital age.
With the Covid-19 pandemic taking a sweep globally in 2020, many people in Nigeria started looking for alternative means of transactions and sustenance. Then, they resorted to investing in cryptocurrency for sustenance and trading it because it is a virtual currency that doesn't need a physical presence.
Due to the growing interest Nigerians generated in virtual currency during the pandemic, the global market witnessed a surge in value. No doubt, big players in the global cryptocurrency market continue to outline the major roles Nigerians play in the increased value of cryptocurrency.
Nigeria appears to be at the center of this global digital renaissance. In that case, you'd not be wrong to ask the question - what exactly is cryptocurrency or crypto as some people refer to it as? In the simplest term, cryptocurrency is a digital currency that is uniform in value globally.
Cryptocurrency is entirely different from the standardized currency that we know because it is secured through a system known as cryptography.
Cryptography, what is that? Cryptography is a system of protecting communications between two or more persons by passing information using codes. Only individuals who are a party to the communication can access and understand what is written. From this, you can understand why cryptocurrency appears to be safe and impossible nut to crack.
Unlike standardized paper money, virtual currency is impossible to counterfeit and is not subject to many shortcomings attributed to traditional currencies and exchanges. There is no centralized structure like the CBN that issues or produces this cryptocurrency.
There is no government anywhere in the world that can interfere with or manipulate the workings of cryptocurrency. The best that can be done is to try to regulate it, as seen in the Nigerian setup.
Another thing that is worthy of note about cryptos is their decentralized nature. Cryptocurrencies work largely on blockchain technology, which is a digital way of keeping a ledger as against the central traditional system. Blockchain technology is also used to securely and uniquely document and transfer information.
Information is added to the roster or ledger in blocks. New blocks as created when existing block spaces are filled.
Transactions that are carried out using cryptocurrencies are difficult to trace back and copy. No one can alter them because they are stored on a distributed network. The security, versatility, and long-term profitability of cryptocurrencies are what make Nigerians interested in them.
The 5 Major Types of Cryptocurrencies
Now, you already know what cryptos are, or at least have an idea. While that is great, it is not enough. You have to know what types of coins exist and the cryptocurrency mining process. Yes, cryptocurrencies are indeed uniform globally. That is not to say there is only one crypto out there.
Going by the recent statistics, it is said that there are over 4,000 virtual coins in existence and a possibility of more springing up in the coming years. Considering many of the different types of cryptocurrencies that exist, it won't be easy to know all cryptocurrencies by their names.
However, we shall be examining some of the popular cryptos in the Nigerian trading environment. To develop this list, we shall be considering the following of these cryptocurrencies, their trading value, and investor backing. With these factors, the five major types of cryptocurrencies are:
When it comes to crypto exchanges in Nigeria, Bitcoin is a central and household name. Like, who hasn't heard about buying and selling Bitcoin or the fees it generates? Perhaps the younger ones who are not aware of the world around them or the older ones who don't seem interested. Invented in 2009 by Satoshi Nakamoto, Bitcoin is the cryptocurrency with the highest market value and volatility.
Almost as popular and central as BTC, Ethereum is an open-source cryptocurrency powered by the blockchain. It is second to Bitcoin in terms of popularity and market value, even though there is still a long way to become as valuable as BTC.
Everyone who has crypto in their virtual wallet appears to have XRP. Designed explicitly for global payments, this cryptocurrency is integrated into several e-commerce platforms. If you have international clients you want to transfer to, then you should be considering XRP.
Cardano was founded in 2015 by Charles Hoskinson, who doubles as the co-founder of Ethereum. This cryptocurrency operates on Ouroboros - a system that doesn't require banks at all for the movement of funds. This is rated as one of the best types of cryptocurrencies because of how protected it is.
Finally, we have Tether, making it to this list because of the similarity it shares with the United States Dollar in terms of value. Many people prefer this cryptocurrency because of its low volatility compared to the others listed here.
The Best Ways to Use Cryptocurrencies
Of what benefit is having crypto when you don't know how to use them? You can use your virtual currencies in several ways depending on the current market circumstances or your preference.
A quick chip-in is that there is a current ban on the use of crypto by the CBN all over the news. Until this ban is lifted, some of the ways you can use cryptocurrencies include:
As an investment channel
Though highly volatile, several market forces and activities of users on different exchanges are responsible for the increasing value of Bitcoin. In the year 2020 alone, there was a massive increase in the value of virtual currencies. Yes, projections exist of a possible drop in value and exchange, but it is only for a while; it will always come back up. It is best to sell when it is high and invest when it is low to enjoy the value.
For online purchases
In this digital world, online shopping seems to be the order of the day for users. With online shopping, buying from different countries has been made easy. If you're into online trade, especially if you trade from foreign marketplaces, you can make payments for your purchases using virtual coins directly from your wallet.
For peer-to-peer trading
Until the news of the ban placed by CBN on cryptos is lifted, you can trade your cryptocurrencies and stack the gains. The rule for this is simple, buy when there is a dip and sell when the market value is high to make profits.
Having an online wallet and account with an exchange platform like Luno or Binance is vital to using virtual currency in Nigeria. However, you have to ensure you are using an online trusted to stack your cryptos. When that happens, you're setting yourself on the path of financial excellence in the future!
The platform that connects tutors and students