How Some Startups Survived Cryptocurrency Ban in Nigeria

Buhari’s Central Bank of Nigeria (CBN) prohibited banks from enabling cryptocurrency transactions on February 5, 2021. Crypto companies were locked out overnight as a result of banks being forced to cancel their accounts. A vibrant sector was pushed underground in a couple of days. The ban was devastating for Bitfxt, LocalBitcoins, and Paxful, once leaders in cryptocurrency trading, even when other exchanges changed their business strategies.

Bitcoin initially reached $10,000 during the 2017 bull run, which increased awareness of digital assets. Though it was challenging to purchase Bitcoin in 2017, Nigerians quickly entered the market in the hopes of earning cryptocurrency. 

Since Nigeria was not served by the existing cryptocurrency exchanges, purchasing cryptocurrency using Naira was challenging. Buyers used WhatsApp groups to communicate with cryptocurrency traders or wired money to a contact overseas to purchase Bitcoin from a foreign exchange, which was subsequently moved to a decentralized wallet. Both approaches had various drawbacks, most notably the possibility of being a victim of fraud because there were not safe and controlled platforms. 

Through the cryptocurrency trading platform Bitfxt, Nigerians may purchase cryptocurrency using Naira. Transaction fees and token listing fees were its sources of revenue. For listing on its app, the startup charges an integration fee to producers of cryptocurrency tokens. Revenues, however, were insufficient to cover its operational costs and overhead.

“We never made money; we never had extra money to keep,” Peters, Bitfxt’s former founder, stated. “The funds were always reinvested in our engineers.”

Local blockchain talent was in short supply, so Bitfxt hired Indian programmers and paid them in dollars, generating Naira in the process. One of the company’s key sources of revenue, token integrations, was overseen by these engineers, who also maintained the platform. 

The difficulties increased by 2020. Local cryptocurrency businesses were undercut by foreign exchanges like Binance, Huobi, and OKX, who entered Nigeria with larger budgets and international experience. Their arrival took place during a second bull market cycle, when Nigerians were waiting in line to purchase Bitcoin in the hopes of making money. Foreign exchanges entered into a pricing war on transaction fees and drew in top-tier blockchain technologists in an attempt to draw in these purchasers.

Bitfxt was having trouble raising money because of fierce competition, and a failed investment round in 2020 placed it in a precarious position. Peters closed Bitfxt for months due to a lack of funding, and in 2021 he changed the company’s name and focus to BoundlessPay. The CBN ban therefore became the last nail in the coffin. 

When the [crypto ban] happened, everybody—crypto exchanges—was affected, including us,” said Peters, now CEO of crypto remittance startup BoundlessPay. “That was when the first version of BoundlessPay was supposed to launch. And in that first version, we had a bank partnership that allowed us to integrate their core infrastructure into our system. This allowed our users to buy virtual assets on our platform. Because the crypto business was so dangerous, banks started to be wary about transactions using cryptocurrency. Banks disliked the time and money it needed to check these dangerous transactions, especially when they already had stringent regulations in place. Banks sought to prevent penalties and safeguard the deposits of their clients. Few companies took cryptocurrency, and banks were even less willing to get involved due to the possibility of significant losses.

The ban mostly affected customers. Accounts belonging to Nigerians were immediately frozen if they were linked to bitcoin transactions. Others couldn’t buy or sell their digital assets. They were denied access to their cryptocurrency holdings for several months.

Local businesses must innovate or risk going out of business.

Egoras, Cryptofully, Lopeer, Bitmama, NairaEx, BuyCoins, Fluidcoins, and VIBRA were among the 42 local and Africa-focused cryptocurrency firms that were active in Nigeria in 2021. Regulatory issues and liquidity constraints caused 26 of them to close, be bought, or change course. Previously successful local cryptocurrency firms such as Bitfxt, NairaEx, and Naijacrypto had failed. Lazerpay, which enabled companies to accept cryptocurrency payments, closed its doors in 2023, blaming Nigeria’s “uncertain regulatory framework around crypto.” In order to reorganize its operations, Bundle Africa, another cryptocurrency firm, shut down its trading platform. In order to concentrate on its international business, the foreign cryptocurrency trading platform Paxful momentarily left Nigeria and returned a month later. A different cryptocurrency startup, Helicarrier (previously BuyCoins), also shut down its trading platform in 2024 due to liquidity issues. Yet adversity met grit. The first wave of innovation came with the introduction of peer-to-peer (P2P) platforms, a trend started by foreign exchanges and quickly adopted by local startups adapting their models.

The CBN prohibition prevented banks and payment processors from offering virtual accounts to cryptocurrency businesses. As a result, cryptocurrency firms modified the 2017 WhatsApp model and integrated it into their platforms. Users managed liquidity with P2P; startups only served as intermediaries.

In 2021, Roqqu and Quidax launched their versions of P2P. Initially, the P2P space on platforms like Binance and Roqqu was not strictly regulated. With people allowed to self-regulate in their dealings with one another, scams and loss of funds became a dime a dozen. 

After learning from this, Busha, another local crypto platform, introduced Busha Connect later in 2021, a service that uses verified merchants as middlemen to facilitate trades. While not a direct escrow, this setup allows Busha to maintain oversight of trading activities on its platform. It still uses the Busha. In a circular issued on 22 December 2023, however, the CBN permitted certain virtual asset service providers (VASP) activities and activities relating to cryptocurrencies and 

When Franklin Peters founded the crypto startup Bitfxt in 2017, he set out to provide three solutions: a crypto payment gateway, a cross-border remittance product, and a crypto trading platform. At its peak in 2019, Bitfxt was processing “tens of millions” of transactions annually. The company was in the middle of a fundraising round when the seismic event changed its trajectory.