Study Session 4: Blockchain and Cryptocurrencies

Expected Duration: 1 week or 3 contact hours

Introduction

Blockchain technology and cryptocurrencies are reshaping the

global financial landscape, offering new ways to conduct
transactions, store value, and build decentralized applications. In
this study session, we will explore the fundamentals of blockchain
technology, including its structure, applications, and relevance to
the Nigerian economy. Additionally, we will delve into
cryptocurrencies, covering key concepts, regulatory issues, and
market trends with a specific focus on Nigeria. We will also use real-
life case studies of blockchain adoption in the Nigerian fintech
sector to provide practical insights into the role these technologies
play in fostering financial innovation.

4.0 Learning Outcomes for Study Session 4

When you have studied this session, you should be able to:

4.1 Explain the basic principles of blockchain technology and its

potential applications (SAQ 4.1)
4.2 Discuss how blockchain is being adopted in the Nigerian fintech
sector (SAQ 4.2)
4.3 Describe the key features of major cryptocurrencies and their
role in the global economy (SAQ 4.3)
4.4 Analyze the regulatory landscape and market trends for
cryptocurrencies in Nigeria (SAQ 4.4)

4.1 Understanding Blockchain Technology

Basics of Blockchain and Its Applications

Blockchain is a decentralized digital ledger system that records

transactions across multiple computers in a way that ensures data
security, transparency, and immutability. The technology is based
on a series of blocks (data) linked together in a chain, with each
block containing a record of several transactions. Once information
is recorded in a block, it cannot be changed without altering all
subsequent blocks, making the system highly secure against fraud.
Key concepts of blockchain technology include:

Decentralization: Unlike traditional financial systems that

rely on central authorities (such as banks), blockchain
networks are decentralized. Transactions are verified by
network participants (nodes), eliminating the need for
intermediaries.

Transparency: All participants in a blockchain network can

view and verify transactions, creating an open and
transparent system. This is especially valuable in financial
systems, where trust is often a key concern.

Immutability: Once data is added to the blockchain, it

cannot be altered. This ensures the integrity of records,
making blockchain ideal for applications that require secure
and tamper-proof data storage.

Smart Contracts: These are self-executing contracts with

the terms of the agreement directly written into code. They
automatically execute actions when predefined conditions are
met, reducing the need for third-party enforcement.

Applications of Blockchain Technology:

Blockchain has a wide range of applications across different sectors,

including:

Finance: Blockchain is revolutionizing the financial sector by

enabling secure, transparent, and efficient transactions
without intermediaries. This has led to innovations such as
cryptocurrencies, cross-border payments, and decentralized
finance (DeFi).

Supply Chain Management: Blockchain enhances

transparency and traceability in supply chains by providing
real-time visibility into the movement of goods and materials
from origin to final destination.

Voting Systems: Blockchain can be used to build secure,

transparent voting platforms, reducing fraud and ensuring the
integrity of elections.

Healthcare: Blockchain is applied in the healthcare sector to

secure patient records, streamline administrative processes,
and enable better data sharing between healthcare providers.
In-Text Question (ITQ) 4.1
What are the key advantages of decentralization in blockchain
technology?

In-Text Answer (ITA) 4.1

Decentralization eliminates the need for central authorities, reduces
reliance on intermediaries, and enables peer-to-peer transactions
that are more secure and transparent.

Case Study: Blockchain Adoption in Nigerian Fintech

Nigeria is becoming a key player in the global fintech space, with

blockchain technology driving many of the country’s recent
innovations in financial services. In the past few years, blockchain
adoption in Nigeria’s fintech sector has surged, particularly in areas
such as payments, remittances, and asset tokenization.

Key examples of blockchain adoption in Nigeria include:

Payment Solutions: Blockchain-based payment platforms,

such as BitPesa, offer cross-border payment solutions that
are faster and cheaper than traditional banking methods.
These platforms allow users to send and receive payments in
various currencies, including cryptocurrencies, and have
gained traction among businesses and individuals in Nigeria.

Remittances: With Nigeria being one of the largest recipients

of remittances in Africa, blockchain technology is increasingly
used to reduce the cost and improve the speed of
international money transfers. Companies such as
Flutterwave have integrated blockchain solutions into their
remittance platforms to facilitate more efficient and
transparent cross-border payments.

Asset Tokenization: Nigerian fintech firms are exploring

blockchain for the tokenization of assets, such as real estate
and commodities. This involves converting ownership rights to
physical assets into digital tokens on a blockchain, making it
easier to trade and transfer these assets on decentralized
platforms.

In-Text Question (ITQ) 4.2

How has blockchain technology contributed to reducing the cost of
remittances in Nigeria?

In-Text Answer (ITA) 4.2

Blockchain technology reduces the cost of remittances by enabling
faster, more efficient, and transparent cross-border payments,
which eliminates the need for traditional financial intermediaries.

4.2 Cryptocurrencies

Overview of Major Cryptocurrencies

Cryptocurrencies are digital or virtual currencies that use

cryptography for security and operate on decentralized blockchain
networks. Unlike traditional currencies issued by governments (fiat
money), cryptocurrencies are not controlled by any central
authority. Here are some of the most prominent cryptocurrencies:

Bitcoin (BTC): Launched in 2009, Bitcoin is the first and most

widely known cryptocurrency. It serves as both a digital
currency and a store of value. Bitcoin transactions are
recorded on the Bitcoin blockchain, which is decentralized and
secured through a consensus mechanism known as proof-of-
work.

Ethereum (ETH): Ethereum is a decentralized platform that

enables developers to build decentralized applications (dApps)
and smart contracts. Ether (ETH) is the native cryptocurrency
of the Ethereum network and is used to pay for transactions
and computational services on the network.

Ripple (XRP): Ripple is both a platform and a currency. It is

designed for fast and low-cost international money transfers,
often used by financial institutions to facilitate cross-border
payments.

Litecoin (LTC): Created as a "lighter" version of Bitcoin,

Litecoin offers faster transaction confirmation times and a
different hashing algorithm, making it more suitable for
everyday transactions.

Stablecoins: These are cryptocurrencies that are pegged to a

stable asset, such as the US dollar or gold. Examples include
Tether (USDT) and USD Coin (USDC). Stablecoins aim to
provide the benefits of cryptocurrencies (such as fast
transactions) while minimizing price volatility.

In-Text Question (ITQ) 4.3

What differentiates Ethereum from Bitcoin in terms of functionality?

In-Text Answer (ITA) 4.3

While Bitcoin primarily serves as a digital currency and store of
value, Ethereum allows for the creation of decentralized applications
and smart contracts on its platform, making it more versatile than
Bitcoin.

Regulatory Issues and Market Trends in Nigeria

As cryptocurrencies continue to grow in popularity, governments

worldwide are grappling with how to regulate them. In Nigeria,
cryptocurrencies have experienced both rapid adoption and
regulatory challenges. While there is significant interest in using
cryptocurrencies for payments, investments, and remittances, the
Central Bank of Nigeria (CBN) and other regulatory bodies have
expressed concerns about the risks associated with
cryptocurrencies, such as money laundering, fraud, and the
potential for market instability.

Regulatory Issues in Nigeria:

Central Bank of Nigeria's (CBN) Stance: In 2021, the CBN

issued a directive to financial institutions to cease providing
services to cryptocurrency exchanges. The CBN expressed
concerns about the unregulated nature of cryptocurrencies
and their potential use for illegal activities. However, this did
not stop the rise of peer-to-peer (P2P) cryptocurrency trading
platforms, which allow users to trade digital currencies
without relying on traditional banks.

Nigeria’s Digital Currency (eNaira): In response to the

growing popularity of cryptocurrencies, the Nigerian
government launched its own central bank digital currency
(CBDC), the eNaira, in October 2021. The eNaira aims to
provide the benefits of digital currency while being fully
regulated by the CBN, offering a safer alternative to
decentralized cryptocurrencies.

Market Trends:

Increased Adoption: Despite regulatory challenges, Nigeria

remains one of the largest markets for cryptocurrency
adoption globally. According to a report by Chainalysis,
Nigeria ranked among the top countries in terms of
cryptocurrency usage, with citizens turning to digital
currencies as a hedge against inflation and as a means of
accessing international markets.

Peer-to-Peer (P2P) Trading: Following the CBN’s

restrictions, P2P trading platforms such as Paxful and
 Binance gained widespread adoption in Nigeria, allowing
users to trade cryptocurrencies directly with one another. P2P
platforms bypass traditional banking systems, making them a
popular choice for Nigerians looking to trade digital assets.

Growth of DeFi (Decentralized Finance): Decentralized

finance, or DeFi, is an emerging trend in the cryptocurrency
space. DeFi platforms use blockchain technology to offer
financial services such as lending, borrowing, and trading
without relying on traditional intermediaries. In Nigeria, there
is growing interest in DeFi as a way to access financial
services, especially in underserved communities.

In-Text Question (ITQ) 4.4

What are the main concerns of the Central Bank of Nigeria regarding
cryptocurrencies?

In-Text Answer (ITA) 4.4

The Central Bank of Nigeria's concerns include the unregulated
nature of cryptocurrencies, their potential use for illegal activities
such as money laundering and fraud, and the risks of market
instability.

Summary of Study Session 4

In Study Session 4, we have explored the foundational concepts of

blockchain technology and cryptocurrencies. Blockchain is a
decentralized, secure, and transparent system that is transforming
various sectors, including finance and supply chain management. In
Nigeria, blockchain adoption is growing, particularly in the fintech
sector, where it is being used for payments, remittances, and asset
tokenization. We also examined cryptocurrencies, with a focus on
major digital currencies such as Bitcoin, Ethereum, and stablecoins,
and discussed the regulatory challenges and market trends
affecting the cryptocurrency landscape in Nigeria.

Self-Assessment Questions (SAQs) for Study Session 4

Now that you have completed this study session, you can assess
your learning by attempting the following questions. You should
discuss your answers with your peers, and if you have any
difficulties, consult your tutor.
 SAQ 4.1 (Tests Learning Outcome 4.1)
Explain the main advantages of blockchain technology over
traditional centralized systems.

SAQ 4.2 (Tests Learning Outcome 4.2)

Discuss the role of blockchain in the Nigerian fintech sector,
using real-life examples.

SAQ 4.3 (Tests Learning Outcome 4.3)

Compare Bitcoin and Ethereum in terms of their core
functionalities and applications.

SAQ 4.4 (Tests Learning Outcome 4.4)

Analyze the current regulatory environment for
cryptocurrencies in Nigeria and its impact on market trends.

References/Further Reading

 Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic

Cash System. Bitcoin.org.
 Tapscott, D., & Tapscott, A. (2016). Blockchain
Revolution: How the Technology Behind Bitcoin Is Changing
Money, Business, and the World. Penguin Books.
 Casey, M., & Vigna, P. (2018). The Truth Machine: The
Blockchain and the Future of Everything. HarperCollins.
 Narayanan, A., et al. (2016). Bitcoin and Cryptocurrency
Technologies. Princeton University Press.
 Chainalysis (2021). The 2021 Geography of Cryptocurrency
Report. Chainalysis.