In this email interview with EVEREST AMAEFULE, Mr Mayowa Owolabi, a financial market expert, trainer, trader and investor, dissects cryptocurrency and challenges the Central Bank of Nigeria to conduct enough research in order to come up with appropriate policies to guide the currency’s operations in the country
In simple terms, what is cryptocurrency and how does it concern the man on the street?
Cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are built on decentralised networks based on Blockchain technology. The strength of cryptocurrency is in the structure model, which is Blockchain technology. To a man on the street, it is a value storage asset and exchange. For example, I may have a shoe to exchange for your car. A means of exchange enables us to make transactions. It is a payment option. As a currency, it is used.
Bitcoin is the most popular cryptocurrency. However, there are so many of them, including the Trump coin. How come every other person can issue digital coins?
Bitcoin was created as a project to become a digital currency with the aim to move money around without restriction. The same way a group of people can come up with a digital currency project. However, the project’s purpose determines the attractions, the growth and the currency longevity.
Ethereum, for example, is a decentralised platform to build apps, run smart contracts and generally act as a supercomputer. Its platform aims to be censorship-resistant and open for all. Ethereum’s purpose is smart contract and app development.
Who are those in the chain of cryptocurrency? That is, who does what?
It’s a system thing. It is digital. Until people understand Blockchain itself, they won’t understand crypocurrency.
So, what is Blockchain technology?
Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system. A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the Blockchain. Microsoft created the operating system and they can control it. Those who create projects on Blockchain can’t tamper or disrupt with it once it’s deployed. This is why no one can control or influence Bitcon technically.
Within a space of 12 years of the evolution of cryptocurrency, one Bitcoin is now more than $45,000. Don’t you think there is manipulation somewhere?
We have not seen anything yet. Bitcoin is projected to reach $500,000 in less than five years. Why? It’s simple economics – demand and supply. In Bitcoin’s case, supply is constant with limit of 21,000,000 that will be in circulation. So, the more exposure Bitcoin has, the demand keeps increasing, which is what pushes the price up.
Here is the manipulation – as people know more, they get involved and it keeps going up. Will it come down? Yes, it can because it’s a tradeable asset, which our Nigeria Securities and Exchange Commission approved and classified last year – the same way a company’s share can drop and rise. However, one needs to understand the concept of the supply limit, which is already constant.
Don’t you think the ordinary person is already out of the equation?
The ordinary people are not out of the equation. As a matter of fact, they are harnessing it more. The phase we are now is the institution phase, which will last for another 35 years. The first phase is 10 to 15 years, which is the early adopters phase or individual phase. As the institutions get involved more, they create news around it and the exposure makes it go wider.
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The CBN recently reissued an order asking banks to close the accounts of cryptocurrency traders. What is the implication of this on the country?
Well, reading through the memo and what other economists are saying, it’s not a good one for the traders involved. For our country, it will hinder some funds moving around. This will tell on the economy. I will advise more research and better policies to be created by the CBN to help the economy in this area. I know that the apex bank has been bashed for this, but it says cryptocurrency had been used for illegal activities such as money laundering, financing terrorism and illicit drug trading. Are these not legitimate grounds to place a ban on the currency?
Here is it, there is always a negative part of every phase. Every currency has this globally and the governments have always handled it in a way that will not make the matter get worse. That is the same way this should be handled. We can’t run from or ignore innovation or evolution. We accept, modify and move on with it. The main issue here is that it’s Internet-based. This does not enhance or encourage auditing. So, we have to build walls against the illegal moves and let the fruitful moves ride on.
How do you respond to the allegation that cryptocurrency impairs the integrity of the nation’s financial system?
To me, it’s an evolution/innovation that we as a people have come to live with and it comes in phases. Today, it’s cryptocurrency. Before, the so-called financial system, we had trade by barter with no documentation, just agreement. Now, we have got to this stage/phase through the same mentioned process and progress. This is evolution and innovation. About every 100 years, this happens; there will still be bigger ones to come.
Here is the conclusion; our financial system team has to deliver its work: research, test and implement policies that will work for this phase. More evolution will come and that is what makes the work of the team relevant; the way doctors became more relevant when COVID-19 came. Challenges are breakfast of champions.
The apex bank also thinks that small traders in cryptocurrency are subject to losses because of the volatility of the trade. Is it not legitimate for the bank to protect small traders?
Well, I will say volatility of assets and instruments is what brings in more profit for the traders. They need to learn how to play here. Every business with volatility is what makes the economy boom. Learning and taking calculated risks are what make people stay. This is about exchange of value, which is determined by people and their choices.
Protecting the people is good but in what way? From my experience, education is the best way to protect. Let our banks educate us more.
Nigeria is not the only nation that has placed some restrictions on cryptocurrency. China, Canada and some others have also put in place similar restrictions. Why should Nigeria’s own attract condemnation?
The approach is what people are condemning. The same China has softened its policies to accept this phase in the financial system. It’s a disruption. It is just a time to think, create, modify, implement. I think they should relate more with experts in this field. There is always a way forward.
What does Nigeria stand to lose by placing restrictions on cryptocurrency?
As a country, a lot! It majorly means we don’t want growth. It’s a phase globally, which comes with its own challenges. We don’t run or ignore challenges; we face them, get the solutions and we win. That is what makes champions. A good example is how the medical system overcame Ebola, not by ‘managing’ but by conquering it and it was recorded as a won challenge for Nigeria. So, placing restrictions on cryptocurrency only means we are running from another championship challenge. The Nigerians I know and believe in are winners.
Let us face it, do research, get the specialists in this field, discuss and create a model that will move our country forward. A lot of countries like Ukraine are working on this; they are working on digitalising their local currencies to become relevant in the digital space. What you can’t control, you learn how to overcome it.
What should be the best approach in regulating cryptocurrency or are you of the view that it should be left to cause the damage it is capable of causing?
Regulating it against damaging the country’s standards is the best recommendation and route. We need to list the damages and then create policy to mitigate them. This is where the work is. An example of what can be done to is ring-fencing risks in relation to money laundering and financing of terrorism.
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