Full Project – Design and implementation of eNaira (digital currency)

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CHAPTER ONE

INTRODUCTION

1.0     INTRODUCTION

Digital currency refers to any means of payment that exists in a purely electronic form. Digital money is not physically tangible like a dollar bill or a coin. It is accounted for and transferred using online systems. One well-known form of digital money is the cryptocurrency Bitcoin. A variant of digital money is already present in society today in the form of cash held in online bank accounts. This cash can be sent to others or received from them. It can also be used for online transactions. Digital currency is similar in concept and use to its cash counterpart in that it can be a unit of account and a medium for daily transactions. But it is not cash. For example, the dollars in your online bank account are not digital money because they take on a physical form when you withdraw them from an ATM (Russev, 2019).

Central bank digital currencies are issued and regulated by the nation’s monetary authority, or central bank, and backed by the government. They are different from existing electronic central bank money, which is provided by central banks but can only be used by banks and selected financial institutions (Investopedia, 2017). Before central bank digital currencies, the only way consumers could use money that is a direct liability of a central bank was with physical cash. Existing digital retail payment from customer deposits accounts in banks are based on money that is the liability of the institution providing the account, not a central bank. A central bank digital currency is a direct liability on the central bank and is available to all households and businesses giving them access to electronic central bank money. It can be transferred or exchanged using technologies such as blockchain. Blockchain is a system of storing records of transactions across a network of computers.

Nigeria’s digital currency will be the digital form of the Naira and will be used just like cash. A central bank digital currency is not a cryptocurrency. Cryptocurrencies, such as Bitcoin, are not currencies in most countries since they are not a generally accepted form of payment. Although they are still widely referred to as cryptocurrencies, they are best described as digital assets, or crypto-assets (www.enaira.com).

1.1     BACKGROUND OF THE STUDY

Zetter (2009) explicated the origin of digital currency where he noted that in 1983, a research paper by David Chaum introduced the idea of digital cash. In 1989, he founded DigiCash, an electronic cash company, in Amsterdam to commercialize the ideas in his research. However, It filed for bankruptcy in 1998. In 1997, Coca-Cola offered buying from vending machines using mobile payments. PayPal launched its USD-denominated service in 1998.

Jack (2013) pointed that the origins of digital currencies date back to the 1990s Dot-com bubble. Another known digital currency service was Liberty Reserve founded in 2006; it allows users to convert dollars or euros to Liberty Reserve Dollars or Euros, and exchange them freely with one another at a 1% fee. Several digital currency operations were reputed to be used for Ponzi schemes and money laundering, and were prosecuted by the U.S. government for operating without MSB licenses.

In the same vein, the Central Bank of Nigeria launched a new digital currency, called the eNaira. eNaira is the Nigerian digital currency issued and regulated by the Central Bank of Nigeria (CBN). It has the same value as the physical Naira and guarantees simple, safe, and fast transfers and payments anytime and anywhere. Think of it as the same Naira but digital, borderless, and with more possibilities. eNaira is a Central Bank Digital Currency issued by the Central Bank of Nigeria as a legal tender. It is the digital form of the physical Naira and can be used the same way as cash.

eNaira is a digital currency and is a direct liability on the Central Bank of Nigeria while the money in your bank account is Naira held as deposit liabilities by the financial institution (www.enaira.com).

eNaira is a fast, affordable, secure, and reliable payment option designed to support the digital economy and aid financial inclusion in Nigeria. eNaira will, among other benefits, enhance the Nigerian payment ecosystem, increase revenue and tax collection, aid targeted social interventions, and improve diaspora remittances. eNaira will circulate alongside cash as a more efficient, safe, and cost-saving payment option. eNaira is safe and secured with advanced cryptographic techniques against counterfeiting, cloning and other forms of breaches. The eNaira wallet operates an open system that is accessible to all users based on a tiered KYC structure (www.enaira.com).

1.2     STATEMENT OF PROBLEM

Paper money is susceptible to accidental tearing, shredding, burning and being run through the laundry. Often times, paper money can be frustrating and risky to move around and this is a result of the invention of e-wallet. Digital tends to solve the double-spending problem by using an algorithmic consensus system. Using paper money can be very tedious and frustrating when trying to purchase an item over the internet or lack of bank in a certain locality, thus these are the problems identified by this research study.

1.3     AIM AND OBJECTIVES OF THE STUDY

The aim of the study is to design and implement a digital currency wallet called the eNaira.

The objectives of the study are stated as follows:

• To provide a system that offers more secure, convenient, fast transactions compared to physical cash
• To promote and facilitate financial inclusion
• To enable direct welfare disbursements to citizens.

1.4     SIGNIFICANCE OF THE STUDY

Regarding who would benefit from this study, the first beneficiaries would be individuals that have needs for saving up money aside their bank accounts and their pockets, as this research could encourage them to operate on the Internet platform for saving their money. In this system, there will be no issue of leaking pockets to loose money, no fear of travelling of huge bags of money, wearing out of paper currencies will also be eliminated. By using a digital currency, users can complete purchases easily and quickly with near-field communications technology. They can also create stronger passwords without worrying about whether they will be able to remember them later.

1.5     SCOPE OF THE STUDY

This study and subsequent design of the proposed system will be focused on creating a replica of the eNaira wallet that will be web based.

1.6     LIMITATION OF THE STUDY

The implementation of the proposed system is limited by internet and computer technology literacy of the user of the system who is to utilize the developed digital currency system.

1.7     DEFINITION OF TERMS

Digital currency: Digital currency is any currency, money, or money-like asset that is primarily managed, stored or exchanged on digital computer systems, especially over the internet.

eNaira: eNaira is a Central Bank of Nigeria-issued digital currency that provides a unique form of money denominated in Naira.

Authentication: Authentication is the act of proving an assertion, such as the identity of a computer system user.

eNaira Wallet: The eNaira wallet is required to access, use and hold the eNaira. The eNaira will be exchangeable for other Central Bank Digital Currencies.

Cryptocurrency: A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.

Bitcoin: Bitcoin is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.

Blockchain: A system in which a record of transactions made in bitcoin or another cryptocurrency are maintained across several computers that are linked in a peer-to-peer network.

Counterfeit: To counterfeit means to imitate something authentic, with the intent to steal, destroy, or replace the original, for use in illegal transactions, or otherwise to deceive individuals into believing that the fake is of equal or greater value than the real thing.

Central Bank of Nigeria: The Central Bank of Nigeria (CBN) is the central bank and apex monetary authority of Nigeria to maintain the external reserves of the country, promote monetary stability and a sound financial environment, and to act as a banker of last resort and financial adviser to the federal government.

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Full Project – Design and implementation of eNaira (digital currency)