eNaira has been a trending topic in Nigeria for a very long time displacing the traditional banking method. Nigeria has now taken a bold step into the world of blockchain technology by introducing eNaira, the first central bank digital currency (CBDC) on the African continent.
In a landscape where cryptocurrencies, like Bitcoin and Ethereum, have been gaining popularity, the eNaira aims to embrace blockchain’s potential and rival the appeal of these digital assets, particularly among young Nigerians.
The primary objectives behind the eNaira creation are to promote financial inclusion within Nigeria, facilitate cross-border transactions, and enable direct government-to-citizen payments.
To fully capitalize on the digital currency’s benefits, citizens must grasp its functionality and advantages. This article serves as a comprehensive guide to everything you need to know about eNaira.
Understanding Central Bank Digital Currencies (CBDCs):
Central bank digital currencies are digital versions of a country’s traditional currency. Digital currencies operate solely in digital form, with no physical counterpart.
For instance, Bitcoin and Ethereum are examples of digital currencies that rely on complex encryption techniques and operate on a decentralized blockchain to ensure secure transactions and manage currency creation.
When a central bank, like Nigeria’s Central Bank (CBN), endeavors to create its digital currency resembling cryptocurrencies, it becomes a CBDC.
The Advantages of CBDCs:
Central banks opt to develop CBDCs to capitalize on several advantages, including reduced transaction costs due to the elimination of intermediaries.
In conventional fiat transactions involving currencies like the naira or dollar, intermediaries such as banks, card schemes (Visa or Mastercard), or settlement systems (NIBSS in Nigeria) contribute to increased costs and processing time.
CBDCs, on the other hand, establish a direct and secure link between transacting parties, facilitating cost-effective, efficient, and faster cross-border transactions.
Reasons Behind the eNaira’s Creation:
The eNaira’s conception was driven partly by the fear of missing out (FOMO) on CBDCs, as the Bank of International Settlements reported that a significant majority of central banks worldwide were contemplating their creation. However, the currency’s development also aimed to address specific financial system challenges in Nigeria.
Goals and Objectives of the eNaira:
The key objectives include:
- Enhancing financial inclusion
- Improving payment efficiency
- Enhancing revenue and tax collection
- Facilitating direct government payments to citizens
How the Digital Currency Functions:
Similar to Bitcoin, eNaira operates on a blockchain network. Transactions occur peer-to-peer (P2P) between two eNaira users without intermediaries’ involvement.
Contrasting eNaira and Bitcoin:
While both eNaira and Bitcoin operate on blockchains, they have notable differences. Bitcoin is a decentralized digital currency, utilizing a public blockchain accessible to anyone.
In contrast, the eNaira operates on a private blockchain, controlled by the CBN, which allows the CBN to manage onboarding, KYC processes, and eNaira creation.
Maintaining the eNaira’s Value:
The eNaira maintains a 1:1 value with the naira, with its value backed by a naira reserve held by the CBN.
Issuance and Management of the currency:
The eNaira follows a platform model, where the CBN acts as the core ledger provider, enabling and recording transactions.
Other financial institutions gain access to the platform via APIs, assisting in the distribution and creation of additional payment functionality for the digital currency.
Using the digital currency:
To use the the digital currency, individuals can download the eNaira Speed Wallet app on smartphones or dial 99750# via USSD on feature phones.
Types of Wallets:
The eNaira offers two types of wallets:
- eNaira Speed Wallet (Combo) – For individuals and merchants.
- eNaira Speed App Lite – Requires specifying usage as a merchant, business, or individual.
Requirements to Open an eNaira Wallet:
To open an eNaira wallet, individuals need their National Identification Number (NIN), phone number, and Bank Verification Number (BVN).
Advantages and Disadvantages of the eNaira:
Advantages of using the eNaira include free transfers, fast transactions, and quick setup time for individuals without bank accounts.
However, the currency’s usage requires adherence to KYC protocols, making it less anonymous than public blockchains like Bitcoin.
As Africa’s pioneering CBDC, the eNaira holds significant promise for Nigeria’s financial future, but widespread adoption is yet to be fully realized.
Nevertheless, the introduction of the digital currency marks a significant milestone in Nigeria’s journey into the world of digital currencies and blockchain technology.
Follow techkudi.com for more