Last October, Enogiel Osasenaga's life took a Kafkaesque turn. Osasenaga, who had recently been hired for a job in Lagos, needed a place to stay before eventually relocating to Lagos. An Airbnb apartment seemed like the easiest solution. There was just one problem. Due to capital controls imposed by the Nigerian government, Osasenaga can only spend the equivalent of $100 a month on his debit card.
“You either have to wait until next month, or you have to somehow get a few people to give you their cards and book an apartment using multiple cards,” Osasenaga says. So a close friend suggested a solution. I think it would be better to pay with Bitcoin.
It worked. Eventually, Osasenaga began using cryptocurrencies to pay for temporary accommodation. His new strategy yielded a small profit over Christmas. After depositing $200 worth of naira in his wallet, Osasenaga realized that its value had doubled. Then, “I started using cryptocurrencies for transactions, receiving payments, and services,” he says.
Osasenaga was not alone. Amid the economic turmoil the pandemic has brought to Nigeria, millions of our countrymen have turned to cryptocurrencies as a reliable hedge against the collapsing naira. In February, the Nigerian government imposed a complete ban on the banking sector from facilitating crypto trading in an effort to prevent the currency from depreciating further. Now, crypto enthusiasts like Osasenaga have to hide their Bitcoin usage as much as possible. He said banks would “immediately freeze the account” if they had any clue that the transaction was used to buy cryptocurrencies.
Nigeria is not alone in its attitude towards cryptocurrencies. This year, countries including Bolivia, Nepal, Algeria, Vietnam, and Egypt, as well as Turkey and Ghana, have banned cryptocurrencies or severely restricted their use. India may soon follow suit and draft legislation aimed at disrupting the cryptocurrency market later this year. Even in Western economies, attitudes have become significantly more hostile. In January, European Central Bank President Christine Lagarde denounced Bitcoin as a “highly speculative asset” with deep links to money laundering. Her comments were echoed by US Treasury Secretary Janet Yellen's testimony that virtual currency transactions were used “primarily for illicit financing.”
Although a crypto ban in the US or EU does not seem imminent, some investors believe its days are numbered. They argue that virtual currencies pose a clear and present danger to central banks' authority over the money supply in their respective jurisdictions. If trading volumes grow at the rate predicted by cryptocurrency proponents, the threat could become intolerable.
In April, famous investor Ray Dalio said, “Every country values its monopoly to control the supply and demand of its currency.'' “They don’t want other funds operating or competing because things could get out of control.”
To ban Bitcoin or not to ban it?
Danny O'Brien, director of the Electronic Frontier Foundation, is not surprised that governments are starting to oppose cryptocurrencies. In fact, “I think I was surprised it took this long,” he says.
This is happening now because of two factors, O'Brien explains. The first is the increase in the number of cryptocurrency scams. It increased by 40% in 2020 and is expected to increase by 75% this year. And its connection to illegal finance. In theory, limiting the mining and use of cryptocurrencies should solve this problem. But realistically speaking, bans do little to deter criminals. Fraudsters commit fraud, and outlawing cryptocurrencies only provides “illegal access” to these digital assets within certain jurisdictions, O'Brien said. “I think that will lead more people down the garden path.”
According to O'Brien, the second reason for banning cryptocurrencies is the threat they pose to government-led monetary policy. While Bitcoin and Ethereum may provide citizens with a useful hedge against a sharp decline in their national currency, cryptocurrencies undermine the ability of central banks to use monetary policy to solve the problems underlying currency declines. , reducing central banks' influence over investment, spending, and inflation within their jurisdictions. .
Both reasons are cited in Turkey's crypto trading ban and regulations planned for India. There is little evidence that such measures work. First, the decentralized nature of cryptocurrencies means that enforcing a ban is technically difficult. Doing so will require a level of Internet control that few people can tolerate, O'Brien said.
If we ban all crypto companies in India, people will only use crypto outside India.
Danny O'Brien, Electronic Frontier Foundation
“If we ban all crypto companies in India, people will just use crypto outside India because the very nature of these digital systems does not require geographic proximity,” he explained. do. “To prevent that, we have to build something that monitors all the traffic going in and out of India. And to do that, we're talking about building a system like the Great Firewall. If we do that, we will transform India's digital world into a model very similar to China.”
Unless cryptocurrencies are blocked on a technical level, the threat of prosecution may deter their use. But this only works if there are attractive alternatives, O'Brien says. He sees similarities to its use for digital piracy in the early 2000s. “In the case of music stolen online, people were worried as a result, rather than strict laws that tried to ban MP3 players or put teens who shared files in jail. “It actually solved a lot of problems,” he says. O'Brien. “It was the development of a streaming service.”
So far, there are few attractive options for citizens suffering from a weak national currency. So why do so many governments persist in banning cryptocurrencies when it is impossible to convince their citizens to abide by them? For O'Brien, it's because Bitcoin Partly due to their belief that it is simply a fraud or a vehicle for money laundering, this betrays a fundamental misunderstanding of how cryptocurrencies work and their potential as financial instruments.
Mixed with this is a desire on the part of some people to have greater control over their citizens' digital lives. “I think what's interesting about Turkey and India is that we have regimes that are teetering on the edge of both preserving democratic institutions and falling into a more authoritarian model,” O'Brien said. , in the context of similar attacks and public outcry against cryptocurrencies arguing that stricter restrictions on virtual currencies should be seen. “And the sad truth is, I think we only consider these blanket bans when we see that an authoritarian model is within reach.”
While some developing countries have tightened their crackdown on cryptocurrencies, they are gaining momentum in Western countries. Goldman Sachs says demand for Bitcoin is surging among institutional investors as billionaires promote joke coins on popular comedy comedy shows.
Still, some believe that the era of cryptocurrencies is nearing its end, even in developed countries. One factor is the environmental costs associated with mining Bitcoin, which Tesla recently cited in its announcement that it would no longer accept Bitcoin as payment (although it remains unclear how much carbon emissions mining generates). There is still debate as to whether this amount will occur). But more immediate threats lie in: The emergence of central bank digital currencies (CDBC). These promise to reassure the public that digital cash is backed by state institutions and grant the government near-total control over monetary policy.
According to an April survey, around 86% of the world's central banks are exploring the potential of CBDCs. The Bank of England is busy investigating the possibility of so-called “.britcoinMeanwhile, the United States is quietly experimenting with its own “electronic dollar.” Other countries have also moved into experimental stages, with Sweden testing its own “electronic krona” and China conducting an “electronic renminbi” pilot involving 500,000 of its citizens. Meanwhile, the Bahamas has already introduced its own digital currency.
Can cryptocurrencies peacefully coexist with CBDCs? If you believe Michael Burley, the answer is no. In February, the hedge fund manager of “Big Short'' fame predicted that “governments will try to crush their competitors in the currency field,'' as central banks scramble to raise funds amid the inflation crisis. On the other hand, it refused to allow its citizens to hoard alternative sources of value such as gold and Bitcoin. Use monetary policy to resolve the situation. As CBDCs give central banks greater control over the money supply and citizens flock to cryptocurrencies as a safer and ultimately more private alternative, the temptation could become irresistible, say others. is predicted.
Hester Peirce thinks such a future is unlikely. The SEC commissioner, known as “Crypto Mom” by her supporters who advocate smarter cryptocurrency regulation (“This is my only claim to motherhood, so I have to accept it”), said: We are confident that Bitcoin and other cryptocurrencies have now become virtual currencies. Legitimacy in the eyes of both regulators and investors. “The crypto industry has matured quite a bit,” Peirce said. “Almost every day we receive news about other institutions looking to get involved in cryptocurrencies.”
This has led U.S. regulators to consider how they can respond to cryptocurrencies, rather than preventing their further proliferation throughout the financial ecosystem. Peirce says talk of outlawing it completely is absurd in the current environment. The precedent often cited for the prospect of a ban in the United States, Executive Order 6102, which prohibited the sale and storage of gold over a certain weight, occurred in the midst of the Great Depression and was criticized as an unusual restriction even at the time. Ta. “It was also easier than banning Bitcoin,” Peirce added.
Indeed, there are signs that emerging markets, which have traditionally been hostile to cryptocurrencies, are becoming more open to the limited and highly regulated use of cryptocurrencies. In Vietnam, where around 1 million people use cryptocurrencies, the government has commissioned its own research group to investigate how cryptocurrencies are regulated, and Russia has announced that it will restrict crypto-related financial services. We are considering it.
There are also signs that the ban on crypto trading may be eased in Nigeria, with the central bank easing its February announcement and starting talks with the country's SEC on new regulations. Meanwhile, the public continues to defy the restrictions. A recent study found that peer-to-peer Bitcoin transactions have increased by 27% since the ban was announced in February, with transaction value reaching $1.5 billion in the last month alone. “Everything is returning to normal as we speak,” Osassenaga said. “And we are doing more and more transactions with cryptocurrencies.”
