The rise of cryptocurrencies or e-Currency, especially bitcoin, has prompted the greatest push yet among central banks to develop their own digital currencies.
To avoid playing catch-up in the digital currency space, the Central Bank of Nigeria (CBN), plans to launch its own variant e-Naira to coincide with the country’s Independence celebration on October 1st.
Experts had likened trends in cryptocurrencies to gold for setting a price tag like the Bitcoin, which peaked at $64,870 in April, which countries saw as a big threat to states’ control over currency circulation, which led to its crackdown in China pushing the US and Europe into action and caused over 50% fall to $28,890 last month.
Lack of control had spurred a spin-off for a heavy regulatory stomp by major governments worldwide long before China’s action, including the CBN, which in a circular addressed to banks and other financial institutions on February 5, prohibited all forms of transactions in cryptocurrencies and facilitating payment for cryptocurrency exchanges.
Earlier in 2017, the CBN, even while it had been conducting research into digital currencies, had also warned that cryptocurrencies were not a legal tender, and expose investors to unprotected risks, especially as it is said that there can only be 21 million bitcoin as well as supply limits on many cryptocurrencies.
The CBN Governor, Godwin Emefiele, had during the 306th Banker’s Committee meeting announced that it will be working on a central bank digital currency.
Nairametrics reports that the CBN with its stakeholders outlined its digital currency initiative via a private webinar held Thursday the Director IT department, Rakiya Mohammed, revealed the project name tagged: Project GIANT, which will use the Hyperledger Fabric Blockchain.
However, warning against risks associated with cryptocurrencies were largely ignored, as simple market forces indicate that the lesser the supply, the higher the demand, and consequently, the higher the price.
Benefits of e-Currency
Despite the widely reported negative environmental impact of cryptocurrencies, the United Nations (UN), surprisingly believes that blockchain, the technology lying behind these online currencies, could be of great benefit to those fighting the climate crisis, and help bring about a more sustainable global economy.
The agency asserted that the potential of blockchain in protecting the environment has been tested in a number of other projects, by the UN and other organisations.
A news item published on its website in June, revealed that aside from actually improving environmental stewardship, the UN sees transparency as “One of the most useful aspects of cryptocurrencies.”
This is “Because the technology is resistant to tampering and fraud, it can provide a trusted and transparent record of transactions. This is particularly important in regions with weak institutions and high levels of corruption.”
Titled: Sustainability solution or climate calamity? The dangers and promise of cryptocurrency technology, the report said: “The World Food Programme (WFP), the largest UN agency delivering humanitarian cash, has found that blockchain can help to ensure that cash gets to those who need it most.”
Furthermore, the report alluded to a UN Environment Programme (UNEP) report, which suggests that the technology could improve the livelihoods of waste pickers, who eke out a living in the informal economy.
According to UNEP, a transparent monitoring system could accurately track where and how the recovered waste is used, as well as identifying who picked it, ensuring that the right people are rewarded for their efforts.
It also cited a tool to eliminate illegal fishing in the tuna industry, developed for the World Wide Fund for Nature (WWF), to a platform (CarbonX) that turns reductions in greenhouse gas emissions into a cryptocurrency that can be bought and sold, providing manufacturers and consumers with a financial incentive to make more sustainable choices.
Indeed, for UNEP’s DTU Partnership, a collaboration between UNEP, the Technical University of Denmark, and the Danish Ministry of Foreign Affairs, there are three main areas where blockchain can accelerate climate action – in transparency, climate finance, and clean energy markets.
According to the Partnership, which also provides research-based advisory services to assist developing countries deliver on the Paris Agreement and the Sustainable Development Goals (SDGs), data on harmful greenhouse gas emissions in many countries is incomplete and unreliable.
It therefore insists that “Blockchain solutions could provide a transparent, trustworthy way to show how nations are taking action to reduce their impact on the climate.”
In terms of climate financing, the report said investments that contribute to slowing the rate of climate change could be boosted, if carbon markets are scaled up, allowing businesses and industries to transition to low carbon technologies.
To this end, “blockchain could be an important part of accelerating the take up of renewable energy sources such as wind and solar. As these sources are, by their nature, intermittent and decentralized, new forms of energy markets are needed.”
It added that tools using blockchain technology can help create these markets, and end global dependence on fossil fuels.
Flip side of cryptocurrencies
One of the biggest criticisms against digital monies is in its power consumption, to which Tim Berners-Lee, credited as the inventor of the World Wide Web (WWW), described “Bitcoin mining” as “one of the most fundamentally pointless ways of using energy.”
While Bitcoins do not exist as physical objects, new coins are “mined”, or brought into circulation, through a process that involves using powerful computers to solve complex mathematical problems.
each Mastercard transaction is estimated to use just 0.0006 kWh (kilowatt hours), whilst every Bitcoin transaction consumes 980 kWh, enough to power an average Canadian home for more than three weeks
This process, it is said, requires so much energy that the Bitcoin network is estimated to consume more energy than several countries, including Kazakhstan and the Netherlands.
Broken down further, each Mastercard transaction is estimated to use just 0.0006 kWh (kilowatt hours), whilst every Bitcoin transaction consumes 980 kWh, enough to power an average Canadian home for more than three weeks, according to some commentators.
It was also argued that as fossil-fuelled power plants still make up a major portion of the global energy mix, Bitcoin mining can be said to be partly responsible for the production of the greenhouse gases that cause climate change (although at a lesser level compared to the agriculture, construction, energy, and transport sectors).
Besides, with cryptocurrencies still in their infancy, and there are still many technical and political challenges to be overcome, as seen by the volatile nature of some of the best-known versions like Bitcoin.
Despite the plethora of negatives, many financial experts believe that these teething problems will eventually be ironed out, allowing cryptocurrencies, and other financial tools based on blockchain, to cross over into the mainstream.
The CBN listed the benefits of the proposed eNaira to include macro management and growth, cross border trade facilitation, financial inclusion, monetary policy effectiveness, improved payment efficiency, revenue tax collection, remittance improvement, and targeted social intervention.
Others are expansion of the financial technology (fintech) ecosystem through enhanced operational efficiency, opportunities for fintech start-ups in building services/products like financial inclusion that will contribute to the economic growth, and the creation of a new system complimenting the traditional payment system.