Princes looking to give away massive fortunes are synonymous with Nigeria, but now there is a fresh, interesting tale emerging from the country. Entrepreneurs are now more willing to accept Bitcoin over the native Naira. But fear not, as this isn’t another scam, it is actually a dire situation of a devaluing currency forcing locals to seek alternatives. While inflation is actually falling, so is the value of the Naira. This isn’t good news for local business owners who deal with companies internationally.
Why is the Naira Falling?
Unlike in Venezuela, the Naira isn’t falling because of inflation. In fact, the Central Bank of Nigeria (CBN) limits how many countries list the Naira on their exchanges. This combined with low liquidity means forex investors are steering clear of the currency. All of these factors create a currency that is less desired overseas – as so few places accept it and it’s hard to offload it – driving the price even lower. The reality is that the Naira is now inching closer and closer to a state of disrepair.
How Is This Affecting Local Businesses?
The falling value of the Naira affects local businesses that mainly deal with overseas suppliers. These suppliers could be hosting providers or goods manufacturers. The Naira’s price drop means the goods and services Nigerian business owners buy/rent from foreign companies become more expensive – eating into their profit margins heavily. This often means that local Nigerian companies have to increase their prices to stay afloat, and this puts off potential customers.
Bitcoin to the Rescue
Local businesses in Nigeria are turning to a modern solution to fiat-related issues – that being cryptocurrency. Whilst cryptos suffer from immense volatility, they do appreciate in value a lot more frequently than the Naira. Bitcoin gives business owners a way to avoid the falling value of the Naira. These locals will purchase Bitcoin – or only accept Bitcoin for their goods or services – then sell them for the items they require overseas. Commonly, Nigerian business owners will sell the bitcoin for Chinese Yuan so they can purchase stock from Alibaba. They can then save costs on bank transfers and mitigate against risks of the Naira’s value struggles.
Crypto Continues to Open Doors
Many international businesses – such as hosting providers – don’t accept Naira. So, by having a stockpile of Bitcoin, business owners can then pay for these services with Bitcoin or exchange it into local currency at a fraction of the cost of exchanging Naira. In Venezuela, the government have been using their state-backed crypto – the Petro – to provide new homes for homeless people. It is allegedly backed by the price of oil. Nigeria is a large oil exporter, and the government could create a cryptocurrency tied to the value of a barrel of oil to try and mitigate the falling value of the Naira. Or, they could just allow more exchanges to trade Naira and to provide the enhanced liquidity needed.
Nigeria provides another excellent opportunity for crypto to be trialed as a replacement for the national fiat. As the value of the Naira falls, more and more locals will start adopting Bitcoin and other cryptos as a way to stay afloat. This could create a de facto crypto-state. It would be interesting to see how various issues – such as taxation and payments – would be handled. Currently, the Lightning Network is still in beta 0.4, but it’s worth noting that BTCPay have launched a working Bitcoin payment processor that could be used by Nigerian businesses. If the Lightning Network goes live soon, Bitcoin could potentially replace the Naira, creating the first country to run solely on Bitcoin.