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In July 2016, Manasseh Egedegbe, an Abuja-based investment manager, was caught in the cross hairs of Nigeria’s dollar crunch and had some difficulties making an international payment. At the time, with Nigeria’s foreign reserves and revenues shrinking amid an economic slump, the Central Bank of Nigeria (CBN) put up currency controls to restrict access to dollars. For Egedegbe, and many other Nigerians, that presented a problem. In his desperation, he turned to the cryptocurrency wave of the moment: bitcoin.

“I was able to use bitcoin to do just one transaction and then I got hooked,” Egedegbe tells Quartz.

Over the past 18 months, due to reasons ranging from needing to make international payments, like Egedegbe, or simply wanting a slice of the next big thing, bitcoin adoption in Nigeria has spiked. This year, peer-to-peer bitcoin trading in Nigeria has increased by nearly 1,500%—surpassed only by China. Data from LocalBitcoin, a popular bitcoin exchange available in around 200 countries, shows weekly bitcoin trade volume in Nigeria crossed 1 billion naira ($2 million) in August. “Seeing the price skyrocket” has drawn a lot of Nigerians “who want a piece of the action,” Egedegbe says.

The situation in Nigeria is not too dissimilar from Zimbabwe, whose unstable economy and depleted foreign exchange markets saw locals turn to bitcoin as a storage of value this year. At one point Zimbabwe had the highest bitcoin prices in the world.

New markets

A new crop of local bitcoin exchanges are proving central to the growing local adoption. Timi Ajiboye co-founded Bitkoin Africa in October after experiencing some difficulty trying to buy the cryptocurrency on foreign exchanges. The inability to pay with a Nigerian bank account or card drove Ajiboye’s decision to start Bitkoin Africa to make it much easier for local trading.

For his part, Tim Akinbo, co-founder of Tanjalo, also an exchange founded in October, says the potential local applications of cryptocurrencies and the enabling technology was the motivation for starting the exchange. There are also some older players in the space like NairaEX, a bitcoin exchange founded in Nov. 2015.

Despite growing adoption, skepticism largely outweighs enthusiasm but Ajiboye says local exchanges can help ensure more people understand cryptocurrencies better. An initial skeptic himself, Ajiboye cites his new-found conviction in cryptocurrencies, after gaining more understanding of their potential, as hope for a broader change in mindset.

Much like how local fintech companies are creating products and services to plug gaps in the local financial system, cryptocurrency technology has some potential across Africa given the lack of “advanced financial infrastructure,” Akinbo says. In that respect, these exchanges serve as vital cogs in the evolving infrastructure that will see cryptocurrencies achieve some of its potential in Africa. Whatever that potential is, the first step is “allowing people to buy and own the currencies,” Ajiboye says.

Both exchanges are notching up transactions in just two months of being in business. Bitkoin Africa’s trade volume is rapidly increasing: nearly half of its total trade volume since inception happened in the first ten days of December. Meanwhile, Tanjalo has done close to $1 million in trade volume with “very little marketing,” according to Akinbo.

Dodgy beginnings

The origins of mainstream interest in bitcoin across many African markets has been credited to Mavrodi Mundial Moneybox (MMM), a two-decade old Russian ponzi scheme. At its peak, MMM had over two million users in Nigeria despite several warnings by authorities. It has also been operational in Ghana, Zimbabwe, Kenya and South Africa in the past 18 months.

The scheme’s playbook was simple: users could “invest” money by pledging to other users in the scheme and then receive returns plus 30% interest in 30 days. But its long run in Nigeria came to a halt when, in Dec. 2016, it suspended operations (CBN estimates that MMM users lost $50 million when the scheme crashed). But, at the start of the year, when MMM sought to relaunch, it tried to get round regulator’s rules by allowing users pay and receive pledges using bitcoin—a strategy it has also deployed in other parts of Africa. Many participants of the scheme, looking to make a quick buck, were quick to latch on yet again.

Over time, renewed interest has come from wealthier, middle-class Nigerians who, Egedegbe says, “likely understand the technology better than the average man in the street.” But even though it’s not a Russian ponzi scheme, a sharp drop in bitcoin’s prices could still see people get their fingers burned. Its manic price surge—it has broken through $1,000 thresholds within hours in December—has seen it questioned as possibly the most obvious bubble ever and has also drawn comparisons with the dot-com bubble at the turn of the millennium.

Akinbo, who is more upbeat about bitcoin’s future, says its potential to facilitate cross border trade may eventually justify the increasing price spike. “When you look at it in terms of that potential alone, I’d say it’s undervalued.” As for a potential bubble, Akinbo views this phase more as a time when everyone is trying to get in on the action. “Just like any new technology, speculation is how this will find its footing,” he says.

The big picture

Much of the bitcoin craze is down to big-ticket predictions about its future potential. In Africa, possibilities discussed range from easing payments, particularly for international services to enhancing remittances—a boon for many local economies. But the most basic of these, Akinbo says, is the possibility of having a system “where everyone is permitted to participate” without discrimination of geographical location or origin.

For Ajiboye, who plans to expand Bitkoin Africa into other African countries from next year, making it easier to trade across Africa is a real possibility. “It’s easier to send money from America to Nigeria than to send money from Nigeria to Gambia but the technology can power these things,” he says.

Death by regulation

Whether or not the bitcoin bubble bursts, its potential locally could be mitigated by regulation. While it’s difficult for authorities to regulate cryptocurrencies which they have little control over, it’s possible to regulate companies that provide services using the currencies. So far, Nigeria’s Central Bank (CBN), like most apex banks across the world, has issued warnings on the risk of cryptocurrencies. One of the earliest came in a January circular in which it cited the dangers of “money laundering and financing of terrorism.”

However, more recently, the apex bank’s stance appears to have softened: in October, it reportedly set up departments to develop a report on policy proposals for cryptocurrencies. Quartz’s email inquiries to ascertain the progress and submission date for the report have not yet been replied.

As CBN mulls its policies on cryptocurrencies, Akinbo advocates that it “remains flexible” by continually reviewing and tweaking its policies in line with global trends. The alternative is adopting and sticking to a policy which could become archaic in a quick changing world. One event that could trigger a wave of apprehensive regulation could be a sharp dip in prices (or the bitcoin bubble bursting). If that’s the case, Osarumen Osamuyi, a Lagos-based developer, hopes the apex bank doesn’t adopt “draconian regulation.” Such drastic action, he says, “will ultimately hurt innovation.”

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