In Feb-2021, the CBN’s circular instructing banks to close any bank account operating on cryptocurrency exchanges or stop the facilitation of all transaction in relation to cryptos, coupled with the bitcoin (the most popular and widely accepted) rally, pushing the cryptocurrency conversation further into the mainstream.
So, what exactly, is a cryptocurrency (or Crypto)?
A cryptocurrency is a decentralized digital asset (or coin) designed to work as a peer-to-peer transaction version of electronic cash by allowing users to conduct transactions without the need of a third-party financial institution.
Digital coins are enabled by Blockchain technology, a decentralized public ledger system in which all cryptocurrency transactions are publicly announced, with the help of cryptography, to ensure there is no need for third party financial institutions on the systems.
The pioneer cryptocurrencies(coins) are Bitcoin, Ethereum, Litecoin and OTA.
In today’s high-tech and fast-changing environment, blockchain and cryptocurrencies offer potential advantages that could improve our financial systems, such as lower transaction fees and quicker transaction processing time.
Also, because blockchain is a public ledger system, transactions are based on proof and not
trust. Some start-ups in more developed markets have used Initial coin offerings to raise capital.
Cryptocurrencies have also been adopted as a store of value against extreme inflationary pressures in some countries. However, the regulatory risk remains the biggest concern for cryptocurrencies.
Justifiably, digital coins pose legitimate concerns to regulators because; they could facilitate illicit transactions with ease due to their anonymity feature (names do not show, just wallet IDs are revealed).
Also, monetary policy autonomy of the apex banks is weakened as coins become increasingly accepted/used- a central bank could lose some control of the money supply if citizens use less fiat currency.
Like most innovations, there are upsides and downsides; the optimal destination can only be achieved by constant stakeholder engagement between operators, regulators and customers to build a robust ecosystem.