The Cryptocurrency Landscape in Nigeria

Cryptocurrency also referred to as crypto or digital currency, is a digital representation of value which functions as a medium of exchange.[1] According to the Financial Action Task Force (FATF), cryptocurrency is a math- based, decentralized convertible virtual currency[2] that is protected by cryptography.

Since the introduction of the first decentralized cryptocurrency, bitcoin, in 2009 by pseudonymous developer, Satoshi Nakamoto, the entire concept of investment and financial transactions has been redefined globally. This new medium of financial transaction is becoming a globally accepted way of transacting because it holds the promise of easy fund transfer without third party intervention or assistance. In modern cryptocurrency systems, a user’s “wallet,” or account address, has a public key, while the private key is known only to the owner and is used to sign transactions. Fund transfers are completed with minimal processing fees, allowing users to avoid the steep fees charged by banks and financial institution for wire transfer.[3]

It is almost impossible to discuss the operations of cryptocurrency without mentioning the blockchain technology. These distinct technologies are inherently intertwined with one another. The blockchain technology was introduced by Stuart Haber and W. Scott Stornetta who wanted to implement a system where document timestamp could not be tampered with. This technology did not receive any global acceptance and application until 2009 when bitcoin was launched.

A blockchain is a decentralized ledger of all transaction across a peer-to-peer platform. Using this technology, transactions can be carried out by participants without an authorized central or clearing authority.

Epitomizing the enormous possibilities that can be achieved with this technology, is the launch of the Tunisian National Currency, the eDinar, on blockchain. It is further reported that, the Tunisia Economic City (TEC), which is currently the largest Mediterranean city project, will be partnering with the Locus Chain Foundation to apply blockchain technology as its settlement currency and service platform.[4]

Beyond its use as medium of exchange, we have seen the use of cryptocurrency as a mechanism of fund raising through Initial Coin Offerings prevalently in  2017 and 2018.

Although industry players recognise bitcoin as the trendsetter and go to cryptocurrency, it is important to highlight that bitcoin is not the only cryptocurrency in the digital currency space. Identified as some of the largest digital currencies in the market, beside bitcoin are; Ethereum, Ripple, Compound, Litecoin, Binance Coin, Tether, Cardano, Polkadot, Stella, Chainlink, Monero.  Recent survey ranks Nigeria amongst the top ten countries in the world with the highest number of Cryptocurrency transactions, with over 33% of the Nigerian population either using or owing cryptocurrency.[5]

Cryptocurrency has become ubiquitous in recent times, forcing   national and global authorities to grapple with this new phenomenon.  The legal status of cryptocurrencies varies substantially from jurisdiction to jurisdiction. However, one common action across most jurisdiction is the issuance of government circular/statement warning its citizens of the pitfall of investing/ transacting in cryptocurrency owing to the high volatility of this currency and the fact that most of the organizations that facilitate these transactions are unregulated. Highlighted in some of these circulars as a reason for discouraging its citizenry from engaging in crypto based transactions, is the opportunities these cryptocurrencies provide for illegal activities like money laundering and the funding of terrorism.

Whilst no country in the world has enacted any legislation recognizing cryptocurrency as legal tender, regulatory approaches to cryptocurrency dealing differ. Several developing and developed countries have recognized the potential in the technology behind Cryptocurrency and have adopted an approach aimed at developing a crypto-friendly regulatory regime, as a means of attracting investments in this sector.[6] However, a few other countries, such as Algeria, Egypt, Iraq, Morocco have placed an “absolute ban” on all crypto based or related activities in their jurisdictions have been adopted.

Another regulatory approach is the imposition of indirect restrictions by barring financial institutions within their jurisdiction from providing banking services to Exchanges or facilitating crypto based transactions.[7] Under this category are countries like, Kenya, Iran, China, Lesotho, Colombia and Bangladesh.

A comparative analysis of the reception of cryptocurrency and blockchain technology in Africa by Baker Mckenzie reveals that this technology has enjoyed wide acceptance from the private sector in the African continent, although, the resounding language of government across the continent can be interpreted as apprehensive, reserved and in some instance unreceptive.[8] Example of these unreceptive stance by government is the position by the Bank of Botswana, which has stated that it has no intention of regulating cryptocurrency.  Similarly, the Central Bank of Kenya in 2015, also issued a notice prohibiting financial institutions from providing financial services to entities transacting in cryptocurrency.

This position by the Central Bank of Kenya, has been adopted by the Central Bank of Nigeria in its circular dated 7th February 2021, directing Financial Institutions to withdraw banking services from Exchanges and entities transacting in Cryptocurrency in the Country and close such accounts. This stance by the Central Bank of Nigeria comes in months after the Securities and Exchange Commission (SEC), in a circular released on September 14, 2020, stated that cryptocurrency classes used for investment purposes or traded for such purposes would be regulated by the Security and Exchange Commission and that it is working towards providing robust regulation for industry players in this sector.

The CBN directive came amidst recent reports that the Bank of England in January 2020 resolved to assess how Britain could adopt a Bitcoin-style digital currency, statements that the United States currency regulator now allows banks to trade in stable coin, and the global movement geared towards Central Bank Digital Currencies. And various global discuss which reveals that the Cryptocurrency will likely be accepted as a means of payment by Central banks and global financial regulatory agencies in the nearest future. For instance, in Senegal a national digital currency – the eCFA – was launched as far back as 2016. The eCFA is projected to have the same value as the CFA franc and can be stored on mobile money and e-money wallets. Although built on the blockchain, the eCFA is actually regulated by the central bank, Banque Regionale de Marches (BRM) and eCurrency Mint.[9]

It is also important to highlight that in very recent times Countries like the USA, the UK, Germany, Switzerland, Singapore, India, Malta, Hong Kong, Japan, UAE, South Africa have taken a pro- cryptocurrency position, by adopting various regulatory approaches aimed at building a more friendly economic environment to attract investors in this space. The German Finance Ministry, had since 2013, announced that bitcoin is an essential unit of account that can be used for trading and tax in the country.[10] More recently, the German parliament passed a legislation allowing banks in the country to sell and store cryptocurrencies starting from 1st January 2020.[11]

Being one of the top ten largest Bitcoin markets in the world with over $500 (Five Hundred Million Dollars) worth of Bitcoin traded over the last five years. And in a country where the unemployment rate is currently at 33.3 percent and youth unemployment accounts for a large part of this number, cryptocurrency has created a new niche that the Nigerian labor force has leverage on. However, the recent directive by the Central Bank will, without doubt, have an adverse effect on the Cryptocurrency market in Nigeria as it will essentially prevent traders from buying cryptocurrency with credit/debit cards issued by Nigerian banks and from receiving proceeds of cryptocurrency transactions through the exchanges which facilitate the buying and selling of cryptocurrency.

Ultimately, the ability of these traders to earn income, will be impaired and invariably impact the economy. Sadly, the restriction may be ineffective in stopping the growing crypto market in Nigeria. Rather, it may only serve to open the gates for increased peer-to-peer transactions and further away from regulatory oversight, thereby exposing the public to greater risks than the CBN seeks to prevent.

Blockchain technology, decentralized finance, smart contract and indeed cryptocurrency will in the coming years challenge traditional banking and central banking, in ways that cannot be imagined. A peak into this future, is the services being offered by Nexo Finance, where instant loan is being offered with cryptocurrency as collateral.

In the face of this inevitable wind of change that is bound to come, the approach that should be adopted by the Central Bank of Nigeria as stated by the Vice President, Professor Yemi Osibanjo, should be for the Central Bank to subject its current position to further reflection, acquire the requisite knowledge to provide a robust regulatory regime that addresses the unique concerns associated with this phenomenon, instead of throwing away the baby and the bath water.

Addressing the legality of the CBN directive, there is currently no law in Nigeria proscribing the use of or trade in Cryptocurrency. The question that begs to be answered then, is pursuant to what law was the said directive by the central bank issued. One may be tempted to say the Bank and Other Financial Institutions Act. However, there is nothing in the Bank and Other Financial Institutions Act that empowers the Central Bank to proscribe an act or activity that has not been criminalized by the legislature. Section 4(1) and Section 4(6) of the 1999 Constitution vest legislative powers in the National Assembly and State Houses of Assembly.

Granted that the CBN directive does not proscribe cryptocurrency dealings, however the directive mandating all financial institutions to withdraw banking services from cryptocurrency-based exchanges and further directing the financial institutions to close all accounts belonging to all such individuals or entities, is arguably discriminatory and repugnant to the tenets of the 1999 Constitution. Section 17(3) of the 1999 Constitution provides that National policy shall be directed towards ensuring that all citizens, without discrimination of any group whatsoever, have the opportunity for securing adequate means of livelihood as well as adequate opportunity to secure suitable employment.

It therefore goes without saying that the act of the Central bank singling out cryptocurrency business for denial of banking services is without a legal justification (that is, justification recognized by law) and therefore, discriminatory, unconstitutional and contrary to national policy. If the CBN acknowledges the legality/legitimacy of cryptocurrency business (which it tacitly acknowledges in its rejoinders), then goes without saying that the apex bank lacks the legal basis to deprive a person conducting a legitimate business access to banking services.

It is against the above background that we advise that the Central bank subjects its current position to further reflection, liaise with the various industry stakeholders and prescribe a robust regulatory framework that will ultimately help the apex Bank in its mandate of ensuring stability in the financial system and promoting sustainable economic development.


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