The Inherent Prospects of Cryptocurrency in Nigeria and the Role of Advisory Firms by Daphne Onoja
Like in many developing countries, Nigerians are some of the most prolific users of cryptocurrency worldwide. The uptake over the years has been swift and cryptocurrencies, typically via peer-to-peer networks, are used for everyday transactions nationwide. It is without a doubt that the concept of Cryptocurrency has had a difficult history in Nigeria, but the sector is shaking off its association with scams and Ponzi schemes, and is on a path towards full integration into Nigeria’s financial sector.
A cursory review of the timeline of cryptocurrency regulation in Nigeria shows that in 2016, the Central Bank of Nigeria (CBN) in conjunction with the Nigeria Deposit Insurance Commission (NDIC) set up a commission to investigate Bitcoin following the Mavrodi Mondial Moneybox (MMM) Ponzi scheme. In January 2017, the Nigerian Securities and Exchange Commission (SEC) alerted Nigerians that no companies or entities involved with cryptocurrencies would be recognized or authorized. Additionally, it stated that there were no protections or insurances against financial losses involving cryptocurrencies.
In 2021, the CBN banned banks and financial institutions from supporting crypto asset transactions, citing money-laundering and terrorism financing risks. In addition to this, some Nigerians involved in cryptocurrencies reported having their bank accounts frozen. Following these events, in May 2022, SEC published new regulations on issuance, offering platforms and custody of digital assets. The rules apply to all platforms that facilitate the trading, exchange, and transfer of virtual assets involved in any aspect of Blockchain-related virtual or digital asset services. This includes all issuers and sponsors of virtual or digital assets, whether domestic, foreign, or non-residential, as well as any operator specifically targeting Nigerian investors. In May 2023, SEC published regulations for digital assets, suggesting the authorities were seeking a middle ground between a ban and a lack of regulation. Then in December 2023, SEC lifted its ban on banks operating accounts for crypto service providers. Subsequently, SEC proposed amendments to its previously published regulations. The new regulations detailed how the country’s financial institutions could interact with digital assets, and stipulated a 500 million Naira upfront capital requirement for crypto exchanges seeking a virtual asset service provider (VASP) license.
In January 2024, CBN released initial guidelines for banks opening cryptocurrency accounts, which govern the opening, operation, and use of bank accounts opened by Virtual Assets Service Providers (VASPs) and Digital Assets (DA) entities. However, the ban remains on banks’ ability to trade or hold virtual assets within their own portfolios. The guidelines include stringent anti-money laundering (AML), know your customer (KYC) and other measures. Additionally, banks are required to set what is described as “prudent” transaction limits and not allow cash withdrawals from crypto accounts.Cryptocurrency adoption has been partly motivated by rising inflation in Nigeria in recent years. As with other countries where cryptocurrency uptake has been strong, Nigerians are keen to protect the value of their money. The relatively high costs associated with transferring money in and out of the country through traditional banking systems also remain a source of concern for many Nigerians who rely heavily on remittance payments. According to the World Bank, Nigerians abroad sent $20.1bn home in 2022, which underscores the value of a lower cost money transfer option. A 2023 World Bank study of remittances into Nigeria and other sub-Saharan nations also reported fees as high as 36% for every $200 sent from overseas. Concurrently, crypto exchanges typically charge a fraction of this amount. These factors among many others largely contribute to the cryptocurrency appeal, with its lower costs and faster transaction times.
Cryptocurrency possesses the attributes of both money and securities. Like money, some cryptocurrencies can be used to buy goods and services, while other crypto assets are similar to securities or investment, with the expectation of future profits.
Due to its functionality as money and securities, the following regulators have taken steps to regulate cryptocurrencies in Nigeria:
1. SEC
SEC was established by the Investment and Securities Act 2007 (the ‘ISA’) and empowered to, among other things, regulate investments and securities business in Nigeria and register and regulate securities exchanges, capital trade points, futures, options and derivative exchanges, commodity exchanges and any other recognized investment exchange.
2. CBN
The CBN is empowered by the Central Bank of Nigeria Act 2007 (the ‘CBN Act’) to, among other things, issue legal tender currency in Nigeria and promote a sound financial system in the country. Given that there is no legislation prohibiting cryptocurrency, the CBN’s approach to regulating it has been in the form of directives or guidance to its regulated entities, including banks and other financial institutions. A notable example of such guidelines is the CBN guideline released on the 3rd of January 2024, following the lifting of the ban that previously barred banks from operating accounts for crypto assets. The core aim of this guideline is to regulate the operations of bank accounts for VASPs. The framework provides minimum standards and requirements for banking business relationships and account opening for VASPs, and creates an effective monitoring of the activities of banks and Other Financial Institutions (OFIs) in providing services for SEC licensed VASPs/Digital Assets (DA) entities in the country. Among other things, the guideline also seeks to ensure effective risk management in the banking industry with regard to the operations of licensed VASPs.
Given the evolving regulatory landscape, the volatility of digital currencies, and increasing public interest, it is trite that navigating this complex market may pose difficult for intending operators hence the need to work with advisory firms. Advisory firms closely monitor regulations issued by CBN and SEC, whilst providing risk management advice thereby ensuring clients understand the evolving regulatory risks associated with cryptocurrency and how to mitigate them. Legislative uncertainty is never positive, and a possible ban on P2P trading will clearly dampen interest among Nigerians, hence, the importance of risk analysis and meticulous legal consultation.
The potentials of cryptocurrency in Nigeria remain positive and it is capable of transforming Nigeria’s economy in many ingenious ways. It can greatly enhance financial inclusion by providing banking services to the unbanked population, especially in remote areas, and reduce transaction costs, making remittances and cross-border payments more affordable and efficient. As a hedge against currency devaluation, cryptocurrencies offer Nigerians an alternative store of value, preserving wealth in times of economic instability.
The rise of cryptocurrencies is also fostering entrepreneurship, creating new job opportunities, and driving innovation in fintech and blockchain startups. Decentralized finance (DeFi) platforms provide Nigerians with access to financial products like lending and saving without relying on traditional banks, promoting financial independence. The transparency and security of blockchain technology offer greater accountability, reducing fraud and corruption risks in the financial system.
For small and medium-sized enterprises (SMEs), cryptocurrencies enable easier access to global markets and offer innovative fundraising methods like tokenization. Nigeria’s youthful and tech-savvy population is leading the charge in cryptocurrency adoption, positioning the country as a potential leader in the digital economy. Overall, the adoption of cryptocurrency in Nigeria could drive digital innovation, enhance financial autonomy, and contribute to economic growth.
Though the prospects are endless, it is worthy of note that the crypto market is largely volatile at the moment, thus, crypto companies/ crypto enthusiasts need to continue to err on the side of caution while working to harness its potentials. In other words, the importance of consulting legal and other professional advisers in the industry cannot be overemphasized. These subject experts combine regulatory knowledge, market expertise and security practices in helping clients navigate the complexities of the cryptocurrency market, and this is crucial to having sustainable operations.
Daphne Onoja is a legal practitioner with about 3 years of experience , she currently advises technology startups and established companies on regulatory compliance, tax policies, data privacy and protection. Her practice focuses on providing comprehensive legal solutions in areas such as corporate governance, compliance, corporate law, intellectual property, dispute resolution, Property law, among others.
She is passionate about taxation, tech advisory, helping startups navigate the complex legal landscape, protecting intellectual property rights, ensuring compliance in highly regulated industries, and mitigating industry-specific challenges.
