Nigeria seeks share from $11.5 trillion global digital economy

By Editor 

Central Banks in the world were actively against the use of cryptocurrency from its inception. Recent developments show that most central banks now see the need to drive their traditional fiat currencies from physical to digital, thereby creating a digital form of currencies like Dollar, Naira, Pound, Euro, Rand, etc.

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“We are committed and I can assure everybody that digital currency will come to life even in Nigeria.” That was the statement made by the governor of the central bank of Nigeria on Digital currency. This clearly shows that Nigeria is also joining the train of countries attempting to create their own digital currencies.

It is no news that earlier in the year, the CBN issued a ban on the trading of cryptocurrency and digital currency in Nigeria. Now, a few months later the governor of the CBN has stated that Nigeria has room for digital currency since it will be launching hers.

In this article, we will be discussing things you should know about the CBDCs, their advantages and disadvantages, and their relationship with Bitcoin.

Read about the effect of the crypto ban in Nigeria.

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Introduction to CBDCs
Thousands of years ago, trade by barter was the acceptable way to make transactions. Thereafter, the coin was used as its substitute, the Chinese then invented the first paper currency which was used for many years till the late 19th century where there were so many attempts to create the first cryptocurrency but wasn’t successful until 2009 when the first cryptocurrency called Bitcoin was created.

People liked the idea of Bitcoin decentralization and anonymity and saw it as an opportunity to make transactions without the close monitoring of the government or any other third party. People learned how to mine bitcoin, buy Bitcoin and use it for transactions and also as a store of wealth.

Central Banks across the world saw it as a threat to their currencies and then, some countries issued a ban on it. However, people still buy Bitcoin regardless of their government ban and since one of its benefits is anonymity, the government couldn’t find out.

While countries were banning it, China found a way around it. They mint cash digitally eliminating the need for bills and cash thereby turning their legal tender into a series of codes. This was a very smart move by the Chinese government. Instead of the government telling its people not to buy Bitcoin they provide a close alternative for them which has the same function as the cryptocurrency with little differences.

Interestingly, Nigeria is also planning to follow suit by creating its digital currency which is scheduled to be released before the end of 2021.

CBDC is an acronym for the Central Bank Digital Currency. It uses a digital token and electronic record to represent the virtual form of the fiat currency of a country. Unlike Bitcoin and Altcoins, CBDCs are centralized, monitored, and issued by the Central Bank of the country. It has the same functionality as the traditional fiat which includes the store of value, unit of account, and will have a monetary reserve.

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Advantages of CBDCs
The Central Bank of Nigeria won’t adopt new technology if it isn’t in the best interest of Nigerians. This means that CBN has successfully scrutinized the advantages, disadvantages, and risks of having a CBDC. The central bank of Nigeria is tasked with the protection of the financial security of Nigerians. Some advantages of the CBDCs includes:

1. Interoperability
2. Increase technical and functional opportunity
3. Reduction in the cost of having to mint and print physical currency
4. There will be a more efficient means of settlement since there will be no need for intermediaries.
5. Increase in financial inclusion of citizens since it will become very easy and cheap to create an account.
6. Reduction in fraudulent activities, counterfeit money in circulation, and armed robbery since there will be increased oversight of movement of funds.
7. And the most important advantage for the central bank is increased transparency. The government can monitor transactions of its citizens and the citizens can monitor the transactions of the government.

Disadvantages of CBDCs
It is almost certain that what has an advantage must surely have a disadvantage. Same for the CBDC, there are surely some disadvantages and they include:

1. It might result in heavy centralization by the Nigerian government
2. There will be close monitoring of Nigerians transactions
3. The use of CBDCs might widen the gap between the rich and the poor
4. A huge percentage of Nigerians are not versatile with technology
5. The number of people with a bank account is less than half of the population of the country
6. It can result in massive pumps and dumps.

The relationship between Bitcoin and CBDCs
Should you still find out how to buy Bitcoin or even actually go ahead to buy Bitcoin when there is the alternative of the Central Bank Digital Currency? Well, this brings us to the similarities between Bitcoin and CBDCs. Both are indeed digital currencies that can be stored electronically and be used to carry out transactions remotely. However, an important difference between the two is decentralization.

The CBDCs will be issued by a government body and will be regulated and monitored which means transactions done with it will be closely monitored. This makes CBDCs centralized and totally goes against what Bitcoin and altcoins stand for. Another is the issue of anonymity. Anyone can buy Bitcoin of any amount without ever being noticed. All you need is your wallet address and the seller’s wallet address. However, it is important for us to mention that Bitcoin and other altcoins are riskier than the CBDCs.

In conclusion, the fact that the federal government of Nigeria might create its digital currency is a huge plus for crypto enthusiasts in Nigeria and is an indication that the federal government is looking to tap into the opportunities that come with the use of digital currencies. This can in turn lead to an increase in the adoption and use of cryptocurrency in Nigeria. Regardless, the introduction of CBDCs does not stop you from finding out how to buy bitcoin and then investing in it.