Despite being touted as the future of currency, the CBN has banned banks and discouraged people from trading in digital currencies for a number of reasons.
Most Nigerians were introduced to them when the highly popular Ponzi scheme, MMM announced that it was planning to pay its members in Bitcoin.
It may seem like another plot to strangle innovation in its crib but there are genuine issues surrounding the use of bitcoin and similar virtual currencies.
1) Bitcoin is very prone to theft. The system has imperfections that more sophisticated internet criminals take advantage of. The passwords (or private keys) that protect bitcoin accounts are often stored in publicly accessible databases like bitcoin exchanges or cloud drives.
Hackers access these keys and use them to syphon funds. One minute, you’re admiring your countless bitcoin on your PC screen, next minute, issa disappearance.
2) A large number of the companies that deal in bitcoin are actually fronts for illegitimate and fraudulent activities. The system is new and unregulated so it’s easy for new brands to come with wild promises.
In the early 2010s, Bitcoin Savings and Trust, an ‘investment fund’, drew much attention by paying outlandish profits to early investors. Can somebody say MMM? It turned out to be a Ponzi scheme, taking 4.5 million dollars worth of bitcoin when it crashed.
3) The price of Bitcoin is very unstable. Although it is the most used and exchanged virtual currency, it is very prone to wild changes in value, mostly in response to external factors.
Once, in 2015, the value of bitcoin rose by over 90%, from $209 to $413, in two months. This may be attractive to people looking to make money in the short time, but the instability means it is not suitable for long-term investment, especially since the value drops as quickly as it rises.
4) Transactions made with virtual currencies are largely anonymous, making them a preferred option for criminal uses like money laundering and terrorism.
Bitcoin users are identified with a numerical code, a pseudonym or username, not their given names or biometric data, so it is impossible to track the identity or location of the people who trade with it.
5) Bitcoin is not legal tender; most countries either do not have laws regarding it or, like Nigeria, have basically rendered it illegal.
While it is accepted by a number of merchants and even large companies like Microsoft, it is still largely not recognised as a sustainable medium of exchange, meaning that its prospects as the future of currency are very slim.