The CBN's official reason for its recent cryptocurrency restriction is that cryptocurrencies are anonymous and used for money laundering, terrorism financing, and tax evasion. Let’s dig into what the facts say.
We’ll break up the allegation into two. First up, “cryptocurrency is used for money laundering.”
Cryptocurrencies have been used for illicit activities but so too have official currencies. So the CBN's argument must be that cryptocurrencies make the situation worse.
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But as things stand, significantly more illicit activities are conducted with regular money than with cryptocurrencies. According to the UN, between $800 billion and $2 trillion is laundered globally every year, mostly in cash.
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Meanwhile, the entire global value of cryptocurrencies is currently $1.4 trillion. Chainanalysis, the leading crypto-analysis company helping governments track criminals, estimated that 1.1% of all cryptocurrency transactions are illicit.
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So, if the government is trying to clamp down on money laundering and terrorism financing, they are better off spending their energy on their naira accounts.
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Let’s take on the next accusation: “Cryptocurrencies are anonymous.” Well, there are over 2,000 cryptocurrencies. So let us take bitcoin, which is the most valuable. Bitcoin is not anonymous. Technically, it is Pseudonymous.
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To use or store any cryptocurrency, you need a wallet, which can look something like this: 3FZbgi29cpjq2GjdwV8eyHuJJnkLtktZc5. There is no name behind it, but all transactions made by these wallets are stored on a permanent and public ledger.
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The ledger doesn't store names, but it has all the user’s transactions. That means it is possible to track where my money first originated and how it has moved around on the network.
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As Quartz put it, laundering money using cryptocurrency is like stealing from a jewellery store but leaving the map to your house at the crime scene.
But, chasing down crypto criminals requires expertise.
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Interested parties such as the Federal Bureau of Investigation (FBI) can get a sense of who owns a particular address by analysing the pattern of transactions involving that address. This process is called (block)chain analysis, and it was used as recently as last year.
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Remember the 2020 Twitter bitcoin scam? Twitter accounts of celebrities from Elon Musk to Kim Kardashian were hacked. Hackers asked individuals to send bitcoin to a specific cryptocurrency wallet promising that the money would be doubled and returned to a charity.
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Blockchain analysts noticed that the attackers appeared to be consolidating funds stolen from the attack into a central account. Within two weeks, the American authorities had used the activity on the blockchain accounts to identify three suspects in the scam.
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As the US attorney prosecuting the case said: "There is a false belief within the criminal hacker community that attacks like the Twitter hack can be perpetrated anonymously and without consequence".
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But while advanced countries like the US are developing the expertise to carry out these operations, developing countries fall behind. Regulators (like our CBN) have opted for outright restrictions on their use.
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But before the latest restrictions, several of Nigeria's crypto exchanges had already begun to self-regulate by removing these digital currencies’ Pseudonymous nature. They knew who was buying or selling cryptocurrencies.
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To transact on many cryptocurrencies exchanges, you have to submit personal details, take selfies, upload government ID, and submit BVN or NIN numbers to conduct transactions.
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Collecting this information strengthens their Know Your Customer (KYC), Anti-Money Laundering (AML), and combating the financing of terrorism (CFT) procedures, just like what commercial banks
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Collecting this information strengthens their Know Your Customer (KYC), Anti-Money Laundering (AML), and combating the financing of terrorism (CFT) procedures, just like what commercial banks
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Unfortunately, if the CBN’s restriction brings about the end of exchanges in Nigeria, then we are going back to the times of WhatsApp and Telegram for cryptocurrency transactions.
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So it looks like, with the recent move, the CBN has essentially moved cryptocurrencies from platforms where it could detect any money laundering and terrorism financing to platforms where it can't monitor what the market is doing. The irony.
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It's bizarre that instead of asking exchanges to formalise their KYC processes, the CBN told banks to close the accounts of anyone involved in the space. There is another reason, about which the CBN has been quiet.
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For a deeper analysis of the unstated motives behind the latest restrictions, read our premium story. stearsng.com/premium/articl…
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This afternoon, a Central Bank of Nigeria (CBN) circular sent to commercial banks and other financial institutions surfaced online. Here is a thread explaining what the circular means and why the CBN issued it.
A THREAD 1/ 33
Cryptocurrencies have gained popularity since bitcoin, the most valuable crypto, rose significantly four years ago. The coin went from $900 in January 2017 to almost $20,000 by the end of that year.
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While cryptocurrencies are known for people making (or losing) money from trading, they have many use cases, including making cross-border payments, remittances or storing wealth (protected from inflation or exchange rate depreciation).
You’ve seen everyone talking about sachets this week. From Baileys Delight to Morning Fresh. This thread clarifies the pros and cons of “sachetisation” and identifies opportunities in the sachet economy.
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Why sachets? These sachets are a manifestation of Nigeria’s struggle—from low purchasing power to our credit gap. 83 million Nigerians in informal jobs make only around ₦1400 a day.
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PROS (3)
1)Cash management - Only 6% of the population have access to loans. Without credit, people can only buy goods and services that they can afford *right now*.
That’s the number of times Nigeria’s cash cow, @NNPCgroup, has publicly released its financial statements in its entire history.
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It released the 2018 accounts in June and 2019 accounts last month. Twice in 5 months. What a time to be alive.
In this thread we highlight the major profit and loss centres at NNPC and talk about salaries, which attracted some attention last week.
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. @NNPCgroup made a loss of ₦1.7 billion in 2019 despite earning revenues of over ₦4.6 trillion. Of the group’s 21 Strategic Business Units (SBUs), the refineries were the major loss drivers.
Over the past week, many have noticed the spike in food prices, and as usual, we’re here to make sense of it.
This thread isn’t just a story about “why food prices are rising”, but it’s also about “ why food prices seem to be rising more than official numbers suggest”
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So why is this the case?
The main thing to note is that inflation rates capture price increase across a wide range of goods across the entire country.
But for context, let’s look into how they are calculated.
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The @nigerianstat calculates food inflation by getting price information about certain food items from over 10,500 informants across the country.