The Effect of Crypto Currencies on the Value of the Nigerian Naira
Chapter One
Objectives of the Study
To determine the effect cryptocurrencies have on the value of the Nigerian Naira
CHAPTER TWO
Review of Literature
Introduction
Cryptocurrencies are decentralised, peer-to-peer internet mediums of exchange. They allow the user to perform anonymous yet transparent transactions with other users (Nakamoto, 2008). Unlike traditional monetary systems, which have some sort of intrinsic value derived from paying government taxes, cryptocurrencies have no intrinsic value but instead find their worth from their subjective value given to them by users. Being decentralised (and not regulated) and having no intrinsic value causes cryptocurrencies to have continually fluctuating values (Dollars, 2014).
The most notable example of a cryptocurrency is Bitcoin, created by Satoshi Nakamoto – a man whose real identify remains unknown to this day. Initially, despite the inherent risk in using a currency that has a seemingly volatile worth, Bitcoin has grown in popularity and value extremely rapidly since its inception. Iwamura et al. (2014) reported a 10 000% growth in the value of Bitcoin since 2012.
Graph showing rise of Bitcoin value
With this growth, Bitcoin and cryptocurrencies still however remain a rather esoteric topic- faced with much scepticism from the public. Yermack (2014) explains how cryptocurrencies are primarily used by technology enthusiasts looking for alternatives mean to perform transactions. However, he goes on to suggest as more businesses move to online platforms more of them will begin to make use of currencies such as Bitcoin for transactions.
The advantages, already identified, of cryptocurrencies like Bitcoin, as well as what could be inhibiting its adoption as a global currency (with specific reference to volatility) will be the focus of this literature review.
Fiat Currencies
Before discussing the advantages of cryptocurrencies, or defining cryptocurrencies, it is necessary to first identify what a fiat currency refers to. Rollins (1917) defines fiat money as money accepted as legal tender by a government. It is considered to have no pure intrinsic value, or rather has more face value than real value. In this literature review the term will be used to refer government backed or issued currencies, such as the dollar, Pound Sterling and South African Rand.
Since some cryptocurrencies, like Bitcoin, have been declared by governments as legal tender, they too, in theory, are a fiat currency. However, in the case of this literature review the term “fiat currencies” will be used to differentiate between cryptocurrencies and existing, traditional government monetary systems and currencies.
Cryptocurrencies
There is a large number of cryptocurrencies available at present, including Bitcoin, Litecoin, Peercoin, Dogecoin and many more less popular cryptocurrencies. Of all of these, Bitcoin is the most popular and widely used cryptocurrency (Ahamad et al., 2013). It is for this reason that Bitcoin will be focused on and specifically referred to throughout this paper. However, it is necessary to properly understand cryptocurrencies conceptually before delving further into the topic.
Cryptocurrencies are electronic/digital currencies that are intended to be anonymous and untraceable, but at the same time, transparent. They are transparent in that every transaction that ever takes place is recorded, but the transactions themselves are encrypted so as to leave the users involved anonymous (Skudnov, 2012).
CHAPTER THREE
METHODOLOGY
INTRODUCTION
This part of the study or research has to do with the methods employed to undertake the study which include the research design, population of the study, the sample size and method of data collection, sampling technique, and the methods of data analysis. All these sub-points are considered as follows
THE RESEARCH DESIGN
The research design employed in this study includes the survey, ex post facto and descriptive research design. This designs form the basis upon which the research was carried out. It is ex-post facto research design in that the data generated were already put in place and are not subject to the manipulation of the researcher. Similarly it is a descriptive research design in that the data generated were analyzed and the outcome described with a view to making inference.
POPULATION AND SAMPLE SIZE OF THE STUDY
The population of a study is the entire universe, objects which a researcher proposes to research on with a view to making findings. Every item in the population is a sampling frame. Thus, by the nature of this study, the population of the study is the effect of crypto currency on the naira value
However, the period of the study is 1980 to 2017. This period is lengthy enough to ensure adequate analysis and generalization of findings in the impact of power generation on economic performance in Nigeria.
CHAPTER FOUR
PRESENTATION AND ANALYSIS OF RESULT
Presentations of Empirical Results
The empirical results of the required analysis carried out in the study are presented below:
CHAPTER FIVE
SUMMARY OF THE FINDS, CONCLUSION AND RECOMMENDATIONS
Summary of the Findings
This research work was set to find out the impact of crypto currency on Currency value in Nigeria. Hypothesis was stated to guide the study. The hypothesis is stated thus: H0: crypto currency has no significance on Currency value in Nigeria.
To evaluate this hypothesis, annual time series data on naira value a proxy for currency value and crypto currency were collected from the year, 1980 to 2017. To analyze these data, simple linear regressions was adopted employing Ordinary Least Squares (OLS) techniques.
This analysis least some interesting results. From the result it was observed that crypto currency has a significant impact on currency value of Nigeria. Also that dependent variable (Naira value) can be controlled by independent variable (Crypto currency) as a result of positive relationship that exists between the variables.
Conclusion
From the findings, of this study, it was concluded that crypto currency has a significant impact on Naira value. Based on this, any action taking towards crypto currency will have external effect which might be positive or negative depending of the direction of the action since the relationship between the two variables is linear.
Finally, it was concluded that growth of the economy of Nigeria depends not only in oil sector but hugely on how efficient monetary policy and other policy variable are monupulated. Crypto currency can serve as a control variable to currency value of Nigeria.
Recommendations
From the finding of this study, the following recommendations are made:
- Central Bank of Nigeria should always monitor the economic situation of the society before knowing the direction the crypto currency will follow.
- Balance of payment should always be checked so as known how to apply the crypto currency.
- Financial institutions should always be monitored by government through Central Bank in order to make their operations effective.
- Further studies should be encourages from economists and other professionals a like to test the effects of effectiveness of some macro economic tools available to the government for enhancing currency value of Nigeria.
REFERENCES
- Ayo Alonge (2017) NDIC, CBN consider crypto currency
- Bit coin Composite Quote (XBT)”(2014). CNN Money. CNN
- Nermin Hajdarbegovic (7 October 2014). “Bitcoin Foundation to Standardise Bitcoin Symbol and Code Next Year”. CoinDesk.
- Romain Dillet (9 August 2013). “Bitcoin Ticker Available On Bloomberg Terminal for Employees”. TechCrunch.
- AHAMAD, S. and M.N.B. VARGHESE. A Survey on Crypto CurrenciesAnonymous Int. Conf. on Advances in Civil Engineering, AETACE, 2013.
- BARBER, S., BOYEN, X., SHI, E. and UZUN, E., 2012. Bitter to better—how to make bitcoin a better currency. In: Financial Cryptography and Data SecuritySpringer. Bitter to better—how to make Bitcoin a Better Currency, pp. 399-414.
- BARTON, R.,2010. COMPUTER SECURITY IN COMPUTER LITERACY EDUCATION.
- BERGMAN, M.K., 2001. White Paper: The Deep Web: Surfacing Hidden Value. Journal of Electronic Publishing, vol. 7, no. 1.
- BREZO, F. and P. G BRINGAS. Issues and Risks Associated with Cryptocurrencies Such as BitcoinAnonymous SOTICS 2012, The Second International Conference on Social Eco- Informatics, 2012.
