I have been an advocate of a cryptocurrency that will be pegged to the Naira over what we largely have today where entities (usually outside Nigeria) “create” currencies with no regulatory control. So, I am not a fan of Bitcoin because mining equilibrium is not clearly distributed but rather concentrated in the hands of those with technological supremacy. I recommend NairaCoin to be pegged to the Naira as a crypto vehicle for Nigerian commerce for those interested in that new domain.
There is a very deep conversation which is going on LinkedIn since I wrote that the Nigerian government can indeed regulate cryptocurrencies like Bitcoin. As I noted, my preference is for the government to create our own cryptocurrency, NairaCoin, and tie its value to the Naira. I have a reason for that.
Yet, you can put your blockchain-contract in Naira, but since this is digitized architecture, my suggestion is to simply create a Nigerian cryptocurrency backed by the Central Bank of Nigeria so that Nigeria has its cryptocurrency (NairaCoin) which is tied to the Naira. That will make blockchain contracts more efficient. The NairaCoin will maintain exchange rates with Bitcoin and others, just as paper Naira has with U.S. Dollars and Euro, while making sure that the paper Naira and NairaCoin are always correlated.
That thinking is now new: stablecoins are engineered for that. Yes, you create cryptos and you peg them to a traditional currency like US dollars. What is new is that banks are getting into the game: “JPMorgan Chase is the first major U.S. bank to create its own cryptocurrency… JPM Coin, a dollar-pegged cryptocurrency, or “stablecoin,” intended to help big clients—like corporations, banks, and broker-dealers—settle up international payments, securities transactions, and treasury services…”, Fortune newsletter summarizes.
JPM Coin is a brilliant idea which will enable smooth operation of any blockchain architecture within JPM domain. Unlike the amalgam of many cryptos like Bitcoin, Ethereum, etc, the megabank now has one crypto defined and under its control, so that clients can see certainty and visibility when settling payments, securities and treasuring services.
The lender moves more than $6 trillion around the world every day for corporations in its massive wholesale payments business. In trials set to start in a few months, a tiny fraction of that will happen over something called “JPM Coin,” the digital token created by engineers at the New York-based bank to instantly settle payments between clients.
J.P. Morgan is preparing for a future in which parts of the essential underpinning of global capitalism, from cross-border payments to corporate debt issuance, move to the blockchain. That’s the database technology made famous by its first application, bitcoin. But in order for that future to happen, the bank needed a way to transfer money at the dizzying speed that those smart contracts closed, rather than relying on old technology like wire transfers.
It fixes one major challenge I have with Bitcoin: regulation. To make many things legal, most firms will still put Naira and Dollars in their blockchain-anchored contracts. I have argued that unless Nigeria has recognized cryptos, contracts based on them could be voidable in courts. So, largely, I tell people to ensure the numbers are in Naira, or any traditional global concurrency, because Nigeria is yet to test the validity of crypto-only contracts in court.
So while the world likes blockchain, making it to work cannot decouple the fact that you need to be sure that any contract therein can stand in courts. If a nation does not recognize Bitcoin, are you at risk on trusting it to set the basis of payment? Possibly, as before the law was updated, email documents were not admissible in Nigerian courts.
Yes, there used to be a time when in Nigeria, banks would not accept scanned documents sent via emails. The same happened in European Union where publishers required hardcopies, not digital (e.g. scanned copies via emails), copyright transfers before they would publish academic papers. Those requirements have since evolved.
But with JPM Coin-inspired model, a bank in Nigeria can have a blockchain system that runs on its crypto for settlement, as its customers can still operate in Naira knowing that the technology will handle the equivalency, even as transaction fees drop, due to productivity gains that blockchain makes possible. Because say Access Coin (for Access Bank), has no value different from Naira, it does not introduce any risk like Bitcoin and cousins.
JPM Coin will unlock new markets for the big bank. Nigerian banks should make a local version for the Nigerian market. Then, entrepreneurs in this space should then pursue the universal local one: NairaCoin fully pegged to the Naira.