Owen Odia, Luno Country Manager for Nigeria in an exclusive interview with FINTECH AFRICA speaks about the effect of Facebook’s Libra on Africa’s economy and other issues.
Cryptocurrencies has polarized opinion between sceptics and strong proponents, and to date, there has been little middle ground. What is a cryptocurrency and what is the underlying technology? What is the regulatory risk and why are the grassroots in Nigeria attracted to it?
A cryptocurrency is a digital asset designed to work as a medium of exchange that uses strong cryptography to validate and secure transactions and verify the transfer of assets. It’s underpinned by blockchain technology, which is a decentralised network that records transactions, much like a traditional ledger. These transactions can be any movement of currency, goods or secure data.
Regarding regulation, the position of the Nigerian government on cryptocurrencies is still unclear and it wouldn’t be an overstatement to say cryptocurrencies in Nigeria are currently unregulated. However, it’s important to state that just because something is unregulated doesn’t mean it’s illegal or dangerous. The fact that 69% of Nigerian respondents in our recent survey said money was important to them because it allowed them ‘to secure my family’s well-being’ or to ‘pay for my education’ (26%), compared to 50% and 8% respectively in the UK, suggests that money is more than just a ‘nice-to-have’ but vital to so many aspects of life.
As a result, people from emerging markets like Nigeria spend more time understanding it, managing it, preserving it and to an extent being creative with how to maximise the use of it. Therefore if a cryptocurrency can provide a secure and cheaper means of exchanging value, better than the existing system, it will be used.
Why should an organization adopt cryptocurrency? What are the realistic use cases for organisations? What is the nature of the business opportunities and risks that are involved?
Different people and organisations buy cryptocurrencies for different reasons, ranging from need (because it meets their needs better than existing options – i.e. safer, faster, cheaper, borderless) to greed (because they want to make money – as a high risk high performing asset) to diversify portfolio (they’re curious to see if the price will increase).
Cryptocurrencies have some fairly unique risks. It’s a brand new technology and, while it appears very secure and robust, there is always a chance it may fail. It’s also important to be aware that cryptocurrencies are exceptionally volatile. Price fluctuations can be violent and it’s important that users don’t risk inappropriate amounts of money. Do your research (Luno has a very rich portal where you can learn a lot about cryptocurrencies), and understand the risk before you think of investing
What is the current value and volume of transactions of cryptocurrencies in Nigeria? Who are behind the adoption of cryptocurrency in Nigeria?
It would be interesting to gather the value and volume of cryptocurrency transaction but the lack of regulation and transparency makes it a bit difficult to gather and validate the information we have access to. There are different players in the market and they don’t always share information on user activity, which is why we are calling for more adequate regulation. With adequate regulation, it would be easier to have access to information on the current value and volume of cryptocurrency transaction in Nigeria.
Google’s trend analysis shows that Nigeria currently has the most internet users searching for Bitcoin. Our recent Future of Money report also suggests that people from emerging markets are constantly looking for ways to improve their financial status and cryptocurrency provides an opportunity to do this.
Exchanges like Luno that provide an easy and safe way for Nigerians to satisfy their interest in cryptocurrencies also contribute to adoption. At Luno, we hold workshops throughout Africa to raise understanding around cryptocurrencies. It’s about ensuring this happens across the board for consumers, the media and broader stakeholders.
How is the cryptocurrency ecosystem evolving in Nigeria? How many exchanges do we have to handle cash-settlement? Are there possibilities of institutional ecosystem emerging?
There are about 12 exchanges in Nigeria and we also have global investors that do not necessarily have exchanges but are funding local exchanges. This has also helped to expand the market and increase adoption.
In Nigeria, there has been no clear guidance on virtual currencies from a regulatory perspective and the position of an important regulator such as the Central Bank of Nigeria [CBN] remains unclear. How is the ecosystem engaging the government?
The lack of guidance is not peculiar to Nigeria. It is the same position most governments around the world have adopted. Cryptocurrency is a new technology which is somewhat complex and they are still trying to understand how it works and how to use it. The good news is that the government is interested in the space and that is why a committee was set up to understudy it. We expect them to come up with a position very soon. Luno is proactively reaching out to regulators to provide guidance in any way possible as experts in the crypto world.
We are also collaborating with other stakeholders to come up with a framework that will guide every player in that market. We believe most of the innovation in the sector will come from where crypto companies, financial institutions and regulators work together. We welcome participation by or collaboration with the banks and other financial institutions. It’s about working with them rather than against them.
In the short run, banks are likely to provide access to crypto as an investment class only so while it will have limited usability to user experience, it will greatly enhance the trust in and demand for crypto. This will definitely have a huge positive knock-on impact for the industry.
With the decentralised technology underpinnings of cryptocurrencies, user identification and verification are huge challenges. What is your position on the management of KYC and AML compliance?
There’s often public misconception that cryptocurrencies are mostly used by criminals, but nothing could be further from the truth. This is mainly because many people think cryptocurrencies are anonymous, when in fact it’s the opposite – all transactions are transparent for the whole world to see.
People might not be able to link the identity to cryptocurrencies right away (that is also why it is sometimes called ‘pseudo-anonymous’), but once they do, they can track everything you’ve ever done on the network. This makes it a particularly bad tool for illicit use. Luno as an exchange is self-regulated and we always endeavour to take adequate and necessary information on all our customers
Are you excited with Facebook’s foray into cryptocurrency? Why?
A lot has been said about how decentralized cryptocurrencies (in particular, coins pegged to real-world currencies and assets) have unlocked an enormous amount of value to consumers in developing and impacting billions of lives in the process. With Libra and the universality of Facebook, there is the reason to believe that the new currency will bring these benefits to more people than ever before.
We recently surveyed 7,000 respondents from across the world and found that developing economies are more open to adopting cryptocurrencies than people from developed markets. When asked the question “Do you think a single global currency would make the current financial system better or worse?” almost three times as many respondents from Nigeria and South Africa said it would make it better compared to the UK.
The research also gives some insights into why FB Libra will find very open and expanding markets within Africa. Where traditional ways of exchanging value are very expensive, prohibited or subject to fraud, savvy people will love the distribution and the access that a FB coin provides. With this in mind, African markets may well be quicker to adopt the coin than developed markets.
What is Luno’s value proposition?
At Luno, our aim is to upgrade the world to a better financial system. We believe that decentralised cryptocurrencies like Bitcoin and Ethereum will fundamentally change how the world views and uses money. As early pioneers in this industry, we feel it’s our duty to bring this knowledge and excitement to the world as best we can.