Like many countries where cryptocurrency regulations are still unclear, cryptocurrency in Nigeria is in the same situation. This leaves the purchasing and selling of crypto coins in a legal grey area from which many things can come out.
On one hand, this has allowed people to use and buy crypto without too much scrutiny from their local authorities. As many States around the globe still do not know what to make of these new types of assets. While governments try to sort it out, citizens have bought and started using them in great numbers. This creates pressure on public officials to accept the use of cryptocurrencies and not destroy this new market.
Of course with the dubious legality also comes fraud and theft. As long as crypto remains in the grey legal world it is hard to claim someone stole it. If there is no legal category, then police and other agencies can't move to stop criminal activity involving cryptocurrencies.
This push and pull drama, on one hand, the State moving to ban and outlaw crypto, and on the other, regulate it is playing in Nigeria right now. There is still no clear directive, so in this article, we will review the state of regulation at the current moment.
A summary of regulations from around the world
At the core of the problem regulating cryptocurrencies is their distributed nature. The networks that host the ledgers are global and cross borders easily. Even if a country completely bans crypto, as long as citizens have access to the internet, they can trade them. Cryptos such as Bitcoin, Ether, Tezos, and others belong to a permissionless public network. No one controls anyone, not even those who created them. This lack of central authority makes crypto coins almost impossible to stop or destroy because there are no authorities to arrest.
In the United States, this has created a problem for federal agencies. There is no clear line that would show who is in charge of regulating crypto. his has resulted in several agencies overlapping their authority. These are The Internal Revenue Service (IRS), The Financial Crimes Enforcement Network (FinCEN), The Securities and Exchange Commission (SEC), The Commodity Future Trading Commission (CFTC), and the Office of Foreign Assets Control (OFAC).
Among the conflicting views from these agencies, we have that some classify crypto as property and subject to taxation. Others as types of currencies with the same legal protections as money from a foreign nation. Other groups classify them as securities, such as bonds or stocks that are also subject to taxation. In the end, for the US there is no unifying law that can finally decide over all of these approaches.
China, the world's second-largest economy, has banned cryptocurrencies. Of course, this is a move to stop foreign crypto coins capturing the market while the government is busy developing a national digital currency using blockchain. It is unclear how strict the prohibition is since the Chinese crypto market is among the most valuable.
Finally, the EU has had a more open approach. It is trying to regulate cryptocurrencies but it encourages their development. And some of the world's most profitable exchanges are European based, such as Kraken.
The situation of cryptocurrency in Nigeria
The first hurdle in Nigeria is The Nigerian Cyber Crime (Prohibition, Prevention) Act 2015. It requires that all financial transactions be done under Know Your Customer (KYC) protocols. Any bank or fintech in the country has to verify the identity of the people using their services. These records need to be maintained and kept for at least 2 years.
This is not possible in the world of Blockchain. The ledger saves all of the economic transactions of a wallet for as long as the network lasts, so in that sense, it is more secure than a regular database. But associating a wallet's address with a person is a different matter, that is beyond the capacity of most institutions.
Another action taken by the Nigerian authorities is to warn against the dangers of investing in cryptocurrencies. These were made in 2017 by the Central Bank of Nigeria (CBN), as well as, Securities and Exchange Commission (SEC) of the country. Both agencies advised traders dealing with crypto that they could lose all of their capital. Because "real currencies" are from governments and crypto is not.
There was a second warning that stated cryptocurrencies were often used in illegal activities. The CBN alleged that criminals BTC in drug trafficking, smuggling, illegal weapons sales, money laundering, and other similar crimes. They urged people to abstain from purchasing these assets and trading in them. They also issued a warning to banks and other financial institutions that using cryptocurrencies should not be encouraged or facilitated.
Despite the harsh rhetoric by financial authorities, the adoption of cryptocurrency in Nigeria has not stopped. In fact, during 2020 it has accelerated and there are more than 20 startups in the country actively developing blockchain applications. It seems no matter what type of warning is out there, Nigerians won't stop using crypto assets.
This has put pressure on the government to make the laws more clear. As a result, the CBN has begun developing a road map for regulations in the crypto economy. At the time of this writing the map was not public in any way but at least shows a desire by the authorities to tackle the problem head-on.
Of course, as long as crypto remains in a grey zone in Nigeria scams, fraud, and theft will be rampant. Identifying safe and easy to use exchanges is imperative for any Nigerians looking to begin their crypto journey. One such place is Reminato, a peer-to-peer exchange that has developed and integrated a web wallet that uses Naira natively for instant transactions. The world of blockchain has arrived in Nigeria and now it is the time to enter it.
