eNaira Review: what is eNaira and how will the Nigerian digital currency work?
The Nigerian government has concluded plans to issue its own digital currency. And understandably, this has left many Nigerians asking questions such as is Nigeria launching its own Bitcoin? Is the Naira going to be as valuable as the dollar? Are we now going to save our Naira on crypto exchanges?”
In this explainer, we’ll brake down what crypto currencies are and how they work, what eNaira is and how it’s supposed to work. To be honest, eNaira seems like another bad idea and just a pure waste of resources from the Nigerian government!
What are crypto currencies and how do they work?
Crypto currencies have grown in popularity over the years. One of the most notable being Bitcoin, the first successful version, created in 2009 by the elusive Satoshi Nakamoto.
Its popularity stems largely from the stories of people who made huge sums of money investing it and ironically those who lost money through it.
The technology behind every crypto currency is called the Blockchain, here is how it works – when a transaction is made, several computers compete to solve complex mathematical equations in a process called mining, the winner wins the right to record the transaction (deduct the value of the transaction from the seller’s wallet and add it to the buyer’s wallet) in a ledger, the ledger is then validated and stored in the Blockchain. The winning computer usually gets some reward, in the case of Bitcoins, one twelfth of a Bitcoin for each ledger added to the Blockchain.
The whole idea of crypto currency is to eliminate government’s control over money. Anyone can buy and sell them, and anyone can become a miner. And unlike your wallets with government regulated banks that can identify with your BVN and other KYC documents attached to it, cryptos are completely anonymous, the only identifier on your wallet is your unique alphanumeric code which cannot be traced.
What is the eNaira?
At a Senate hearing in February, the Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, famously described crypto currencies as ‘money out of thin air.’
In an interesting turn of events, the CBN is using the technology behind this “money out of thin air” to create the eNaira. It revealed on July 22, 2021, that the pilot scheme for the project will begin.
eNaira is a central bank digital currency (CBDC) that will be issued and controlled by the Nigerian government. It works differently from a cryptocurrency like Bitcoin. Cryptocurrencies are not controlled by a singular entity. The creation and distribution of Bitcoin is decentralised meaning anyone can participate.
Is the eNaira a crypto currency?
No eNaira is not a cryptocurren. While it might share similarities with cryptocurrencies — running on a Blockchain for example — eNaira not necessarily a crypto currency.
What the CBN is trying to do basically is to turn our Naira fiat currency into a currency that is designed for the internet.
Simply, eNaira is a currency created digitally to facilitate digital transactions. While we can already perform digital transactions with the Naira, the eNaira does not need to be backed by physical cash.
Why is Nigeria launching the eNaira?
following the boom of cryptos like Bitcoin, CBDCs are trending and countries want in on the action. Over 80 countries are testing and researching the possibility of a central bank digital currency.
As at February this year when the CBN put a ban on crypto currency trading in Nigeria, the country ranked second globally in crypto currency use. This made the CBN to be fearful of the traction cryptocurrencies were getting. The apex bank feared that Nigerians might dump the country’s Fiat currency, which has been loosing value for some time now for cryptos.
According to the CBN, the apex bank says the objective of the eNaira is to aid financial inclusion, improve payment efficiency, improve revenue and tax collection, targeted social interventions, amongst other objectives.
How will the eNaira work?
Unlike bitcoins where anyone can become a miner and record transactions in the Hyperledger Blockchain, the miners of eNaira will be tightly controlled and regulated by the CBN.
The CBN will grant licenses to banks and fintech companies to mine the digital currency and create wallets for customers, while the Nigeria Inter-bank Settlement System (NIBSS) will most likely be used to settle any disputes that arises.
Financial institutions will play roles in identity verification, payment processing amongst other things.
Can the government monitor transactions with the eNaira?
Yes, the government can monitor all eNaira transactions on the Hyperledger Blockchain. Unlike bitcoins and other cryptos, the government can track who is buying and selling the eNaira.
The eNaira is not a crypto currency, it is just another digital means of payment. Cryptos where created as a way to evade government surveillance and protect people’s money from the volatility arising from government’s inefficiency and corruption.
The eNaira will still give government the ability to track its users and also the ability to control and influence it. This is what makes the eNaira everything cryptos where created to stand against.