As Nigeria continues to grapple with financial inclusion challenges, many are exploring the potential of blockchain technology, particularly the differences between on-chain vs. off-chain solutions. These two types of blockchain approaches can significantly impact how financial services are delivered, especially in underserved regions where access to traditional banking is limited.

With over 80 million Nigerians remaining unbanked and many rural areas lacking basic infrastructure, the need for alternative financial systems has never been more pressing. Blockchain, with its promise of decentralized, transparent, and secure transactions, offers a powerful tool to address these challenges. However, the question remains: which blockchain solution – on-chain or off-chain – is better suited to overcome the unique barriers faced by Nigeria’s unbanked population?

This article will explore how both on-chain and off-chain solutions can either enhance or limit access to financial services for millions of Nigerians, taking into account the country’s infrastructure constraints and the rapid digital transformation taking place.

Understanding On-Chain Solutions and Their Potential for Blockchain Inclusion in Nigeria

As the global conversation around blockchain technology expands, on-chain solutions have emerged as a core component of decentralized financial systems. In the context of Nigeria, on-chain solutions refer to transactions and data that are directly recorded and stored on a blockchain network. Every transaction is visible on the ledger and must be validated by network participants, ensuring a high degree of transparency and security.

Benefits of On-Chain Solutions

1. Increased Access to Financial Services One of the primary advantages of on-chain solutions is their ability to provide unbanked and underbanked Nigerians with access to financial services. According to the World Bank, about 38% of Nigerians remain without access to formal banking services. On-chain systems enable people to send and receive money, store digital assets, and even access lending or insurance services, all without the need for a traditional bank account.

For example, using cryptocurrencies like Bitcoin or Ethereum, individuals in remote areas can engage in peer-to-peer transactions, bypassing the traditional financial system. With the rise of mobile wallets and crypto-based payment platforms, rural Nigerians can access financial services directly through their smartphones, which have become increasingly ubiquitous in the country.

2. Reduced Transaction Costs On-chain solutions can lower transaction fees, which is particularly important for Nigerians who regularly send money abroad or engage in local remittances. Traditional remittance services, such as those provided by banks or money transfer operators, can charge high fees (often as much as 10% or more), making it expensive for Nigerians to send and receive money.

By using cryptocurrencies or blockchain-based solutions, these fees can be significantly reduced. For example, Bitcoin transactions, though sometimes subject to network congestion and higher fees during peak times, can still offer a more affordable alternative to traditional money transfer services.

3. Increased Transparency and Trust Transparency is a critical issue in Nigeria, where concerns about corruption and financial mismanagement are widespread. On-chain solutions, which are public and immutable, provide a transparent way to track the flow of money. Each transaction is permanently recorded, ensuring that parties involved in financial exchanges can verify and audit the process without relying on third-party authorities.

This can be especially beneficial in Nigeria, where many individuals have limited trust in traditional financial institutions or governmental bodies. With blockchain’s inherent transparency, people can gain more confidence in financial systems, especially when they are directly involved in the process through on-chain solutions.

4. Financial Sovereignty and Control On-chain solutions empower individuals with greater control over their own financial assets. In Nigeria, many people are wary of the centralized banking system, which can be subject to inflationary pressures, foreign exchange restrictions, or even government policies that limit access to funds. Blockchain technology offers Nigerians the ability to store assets securely and transact without relying on intermediaries.

For example, Bitcoin provides a store of value that is not subject to the whims of inflation or political decisions like a traditional fiat currency. This is particularly important in Nigeria, where inflation has been a persistent issue, eroding the value of the naira and making it more difficult for the average person to save money.

Blockchain Challenges of On-Chain Solutions

1. Infrastructure Limitations While the potential for on-chain solutions is vast, Nigeria’s infrastructure challenges could limit their accessibility, especially in rural areas. Unstable electricity and poor internet connectivity are significant barriers to the adoption of on-chain solutions in underserved regions. Blockchain networks require a stable internet connection and access to electricity for users to engage in on-chain transactions effectively.

While mobile phone penetration in Nigeria is high, with over 90% of the population owning a mobile device, many rural communities still face connectivity and power issues that prevent consistent access to on-chain platforms. These infrastructure gaps may hinder the widespread adoption of blockchain-based financial services unless innovative solutions, such as offline wallets or low-bandwidth blockchain protocols, are developed.

2. Scalability and High Transaction Costs Another challenge for on-chain solutions, especially in a country as large as Nigeria, is the issue of scalability. Popular blockchain networks like Ethereum are often criticized for their inability to handle large volumes of transactions efficiently. During periods of high demand, transaction fees on Ethereum can soar, making it an expensive solution for micro-transactions.

In Nigeria, where many people engage in small-value transactions, the high cost of on-chain transactions during peak times could make blockchain-based services less attractive for everyday use. Additionally, the slow confirmation times for some on-chain transactions could be a deterrent for those seeking fast, reliable payment systems.

3. Lack of Financial Literacy For many Nigerians, the complexity of using on-chain solutions presents a significant barrier. Blockchain technology, cryptocurrencies, and decentralized finance can be difficult to understand, especially for those who are not familiar with the digital economy. In rural areas, where financial literacy is often lower, the adoption of on-chain solutions may face significant hurdles.

Off-Chain Solutions and Their Role in Blockchain Inclusion in Nigeria

While on-chain solutions have garnered a lot of attention for their transparency and decentralization, off-chain solutions offer a different approach that may be more practical for achieving widespread financial inclusion in Nigeria. Off-chain solutions involve transactions and data that are not directly recorded on the blockchain but are still eventually linked to it. These solutions are often used to improve the scalability, speed, and cost-efficiency of blockchain systems.

In this section, we will explore the nature of off-chain solutions, their advantages for Nigeria’s financial inclusion efforts, and some of the challenges they may face in meeting the needs of the underserved population.

What Are Off-Chain Solutions?

Off-chain solutions refer to transactions or data exchanges that occur outside of the blockchain network. Unlike on-chain transactions, which are validated and recorded directly on the blockchain, off-chain solutions involve processes that happen externally, with the final result or settlement recorded on the blockchain at a later time.

Some common types of off-chain solutions include:

• Off-chain transactions: These are transactions that take place between parties outside of the blockchain, but the information is eventually submitted to the blockchain for final settlement.
• Layer-2 solutions: These are secondary frameworks built on top of existing blockchain networks, such as Lightning Network for Bitcoin or Optimistic Rollups for Ethereum. They enable faster transactions and reduce the strain on the main blockchain network.

Benefits of Off-Chain Solutions

1. Scalability and Faster Transactions One of the biggest advantages of off-chain solutions is their ability to scale more efficiently than on-chain solutions. Blockchain networks like Bitcoin and Ethereum often struggle with transaction delays and high fees when the network becomes congested. For Nigerians, who rely on digital financial services for everything from remittances to peer-to-peer payments, the ability to process transactions quickly and affordably is crucial.

With off-chain solutions like Layer-2 networks or sidechains, transactions can be processed much faster and at a fraction of the cost. For example, using the Bitcoin Lightning Network allows for near-instantaneous transactions, enabling Nigerians to send money within seconds, without the delays and high fees that come with on-chain transactions.

This is particularly important in Nigeria, where remittances form a significant part of the economy, and the demand for quick, low-cost transactions is high. The ability to send funds without the long waiting periods and exorbitant fees often associated with traditional money transfer systems could provide a significant boost to financial inclusion.

2. Reduced Transaction Fees In addition to faster transactions, off-chain solutions can dramatically reduce the fees associated with blockchain transactions. On-chain transactions often require miners to validate and process every transaction, which can incur high fees, especially during peak times. Off-chain solutions can bypass this by allowing multiple transactions to be aggregated and settled on the blockchain at a later stage.

For Nigerians, this reduction in fees can have a profound impact, particularly for low-income individuals who engage in small-value transactions. Many people in rural areas rely on mobile money and peer-to-peer payment systems for their daily transactions. By utilizing off-chain solutions, the overall cost of conducting transactions can be minimized, improving access to financial services for all.

3. Offline Accessibility While on-chain solutions rely heavily on continuous internet access, off-chain solutions offer more flexibility. Some off-chain models can allow for offline transactions, with the final settlement occurring later when the network is available. This is particularly valuable in rural areas of Nigeria, where internet connectivity can be unreliable, and electricity issues are commonplace.

Using offline transactions or local nodes, users can still engage in financial activities even when they do not have direct access to the internet. Once the user is back online, the transaction can be recorded and confirmed on the blockchain. This allows people in even the most remote parts of Nigeria to benefit from the advantages of blockchain technology, without being hindered by infrastructure challenges.

4. Increased Privacy and Control While blockchain technology is inherently transparent, some users may be concerned about privacy when transacting on-chain. Off-chain solutions can provide an added layer of privacy by processing transactions away from the public ledger, with only essential information being recorded on the blockchain.

Conclusion:

In the quest for financial inclusion in Nigeria, both on-chain and off-chain solutions offer distinct advantages and challenges that need to be carefully balanced to maximize their impact. While on-chain solutions provide transparency, security, and decentralization, off-chain solutions offer faster transactions, lower costs, and better scalability. The integration of both approaches can help bridge the gap between the highly digital world of blockchain and the real-world limitations faced by many Nigerians, especially those in underserved or rural areas.