EXAMINING THE LEGAL REGIME OF BLOCKCHAIN AND CRYPTOCURRENCIES IN NIGERIA

ABSTRACT

The world is witnessing very fast developments in all spheres of human endeavor and has, in fact, become a global village. These tremendous developments are occasioned by swift and unending growth in technology and part of these developments is the emergence of blockchain technology (BT). As it is in other parts of the world, BT is fast evolving in Nigeria and is fast disrupting the traditional financial system because it has ushered in a new type of currency called ‘digital or virtual currency’, which differs from the traditional currency and is now a subset of alternative currencies. Despite the rapid acceptance of this digital currency in Nigeria, the existence of a legal framework for its provision, adoption, circulation and usage, as an alternative currency, is circumspect. It is against this background that this presentation seeks to explore the genesis of blockchain and cryptocurrencies and their incursion into Nigeria’s financial market and general business environment. 

INTRODUCTION

Prior to the invention of money (which is generally accepted as a means of exchange for goods and services, trade by barter was the means through which trading in goods and services were carried out. Goods and services were traded by people for what they needed. This was the order until the Mesopotamians created the shekel as the first known form of currency. Cowrie-shells, whale-teeth, animal skin, and other items from nature were also some of the early forms of currency. Although the use of metal (coin) for money dates back to Babylon before 2000 BCE, it became standardized about the 7th century and it was then made up of a combination of silver and gold. In the 6th century, animal hide was used as currency in ancient Rome, France, Russia and China. China was the first country to create paper money during the reign of Emperor Zhenzong and paper money spread to other parts of the world in the late 18th and early 19th centuries. Despite the modern-day paper currencies, the world over, it is noteworthy that there are other means used in settling commercial activities, including treasury bills, cheques, bills of exchange, et cetera. The information technology industry is rapidly and steadily adding its transformational value, through new discoveries and development of technologies that could be relied upon for businesses to thrive. Online payments constitute one of such technologies, which were introduced to facilitate payment for goods and services, as against the physical exchange of coins and or paper money. As a result of the internet boom and the growth of e-commerce, online payments have become more convenient and accepted, both in the public and private sectors. Another development in the business circle, attributable to information technology, which is gaining tremendous popularity and widespread use, the world over, is digital currencies, otherwise known as “cryptocurrencies”.

DEFINITION OF BLOCKCHAIN AND CRYPTOCURRENCY

Blockchain

Blockchain may be described as a medium to perform data management that allows persons to create and share the public ledger of transactions within a distributed network. It is a network of blocks connected to one another in a precise order, each block containing specific data, such as financial transactions, contractual terms, medical information, et cetera. It can also be described as a system, set-up to record decentralised transactions, in contrast to banks and issuing houses which are centralised authorities.

Blockchain is a distributed ledger that keep a temper proof history of all activities on a network of connected systems. Transactions in a blockchain are grouped in blocks while being cryptographically chained in an approach that is immutable; thus generates a mathematically irrefutable history. Blockchain is driven by the presence of a peer-to-peer networks; Merkle trees, asymmetric key encryption, hash values to list a few; making it possible to store data in several locations and still continually reconcile such data through a shared database. Blockchain generates identical blocks of information across the network; these information cannot be controlled by a single entity thus, eliminating a single point of failure. It also has a secure validation mechanisms for every transactions on the blockchain; utilising sophisticated encryption technology. Transactions are recorded as

temporal and sequential order of occurrence. Previous data on blockchain are immutable yet accessible to users for validation purposes. Updating transactions on blockchain requires the identity verification of the parties involved in the transaction; the updated transactions is also verified by other users. The connection between identities, transactions, and the ledger create transparency; establishing trust on a blockchain network. Thus, making it possible to trace an entity or a transaction’s path from source to sink with remarkable security and transparency.

The Blockchain Process

TYPES OF BLOCKCHAIN TECHNOLOGY 

There are basically 4 types of blockchain technology: 

• Private: This one operates in a private context and is controlled by a single entity. It is run on a small network within a firm or organization and is not open to everyone. The transactions here are faster because it has a smaller number of nodes which shortens the time it takes to verify transactions. You can tailor this type of blockchain to meet your specific requirement. However, the disadvantage here is that it has fewer nodes or members so it is more vulnerable to a security compromise. It is used to track and manage assets and also for internal voting. Private blockchains restrict participation to select members. Private blockchains offer plenty of opportunities such as enhanced privacy, greater control and faster transaction-processing speeds. 

  Use cases: Internal applications such as logistics, accounting, payroll and sensitive record-keeping. 

• Public: Public blockchains are the town squares of the blockchain world. It is a permissionless distributed ledger on which anybody can join and conduct transactions. It is non-restrictive and every peer has a copy. Anyone with an internet connection can access the public blockchain. This type of blockchain technology is used for voting during elections to ensure openness. That said, public blockchains have several inherent challenges. They often struggle with relatively slow transaction speed and limited scalability. Due to their highly transparent nature, they may not be appropriate for sensitive business transactions. 

  Use cases: Trading digital assets, crowdfunding, collecting donations or working on open-source projects. 

• Hybrid: Hybrid blockchains combine elements of both public and private options. Organizations who expect the best of both worlds (public & private) use a hybrid blockchain. It enables the organization to decide and choose who has access to a certain blockchain data and what data is made public.  They can be tailored to different access levels, and therefore offer a balance between the decentralized ethos of public blockchains and the control of private ones. This versatility makes them an attractive option for businesses seeking the best of both worlds. Managing dual aspects of public and private components can be complex and resource-intensive. Establishing protocols and governance strategies that can handle the hybrid nature of these blockchains is a related challenge. 

  Use cases: Enterprises involved in selective data-sharing. For example, a financial or healthcare organization might use a hybrid blockchain if they need to make certain information publicly auditable while protecting customer or patient confidentiality.

• Consortium: Consortium blockchains are a specific type of permissioned blockchain in which a group of organizations share control and governance of the network. Each consortium member typically has equal rights regarding decisions. Compared to a single-entity, private blockchain, these models foster increased trust and security. Consortium blockchains have distinct challenges. Managing consensus and governance across multiple organizations requires significant coordination and, often, compromise. Differences in goals and strategies among members can lead to conflicts or inefficiencies.

  Use cases: Secure data sharing, logistics and supply chain management.

CHARACTERISTICS OF BLOCKCHAIN

• Decentralization: Decentralization in transaction systems shifts from centralized authorities to peer-to-peer (P2P) blockchain networks, eliminating the need for trust in intermediaries. This paradigm reduces costs and improves efficiency by leveraging blockchain's consensus mechanisms. While there are trade-offs like higher server and energy costs, the benefits of decentralization, such as enhanced security and efficiency, outweigh these drawbacks. Blockchain's consensus algorithms maintain data consistency across distributed networks, rendering third-party intermediaries unnecessary.

• Immutable: Transactions undergo validation within a short timeframe, and if miners detect any unauthorized transaction, it will be rejected from inclusion in the blockchain. Once a transaction is added to the blockchain, it becomes immutable, meaning it cannot be deleted or altered thereafter.

• Anonymity: In order to preserve anonymity, users can engage with a Blockchain network using multiple randomly generated addresses within the system (Wang et al., 2017). Being decentralized, the Blockchain does not track or record users' private information through a central authority. This trustless environment offers the possibility of a degree of anonymity.

• Auditability: In a Blockchain network, transactions are recorded and validated using a digital distributed ledger and timestamp. This enables easy auditing and tracing of previous records if any node in the network is accessed (Yu et al., 2018). For instance, in Bitcoin, it is feasible to systematically trace all transactions, ensuring the audibility and transparency of the Blockchain's data state. However, tracing the origin of money becomes challenging when it passes through numerous accounts.

Cryptocurrency

Cryptocurrency” is a medium of exchange, alternate to paper currency, created and stored electronically (digitally), using encryption techniques to control the creation of monetary units and to verify the transfer of funds. The Central Bank of Nigeria (CBN) defined “cryptocurrencies” as digital or virtual currencies issued by largely anonymous entities and secured by cryptography, cryptography being a method of encrypting and hiding codes that prevent oversight, accountability, and regulation. The International Monetary Fund (IMF) described “crypto-assets” as mere codes that are stored and accessed, electronically. It refers to a wide-spectrum of digital products that are privately issued, using similar technology and same can be stored and traded, using, primarily, digital wallets and exchanges. EU Market in Crypto-assets Regulation (MiCA) defined “crypto-asset” as ‘a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology.

Cryptocurrency is a digital payment system that doesn't rely on banks to verify transactions. It’s a peer-to-peer system that can enable anyone anywhere to send and receive payments. Instead of being physical money carried around and exchanged in the real world, cryptocurrency payments exist purely as digital entries to an online database describing specific transactions. When you transfer cryptocurrency funds, the transactions are recorded in a public ledger. Cryptocurrency is stored in digital wallets.

Cryptocurrency received its name because it uses encryption to verify transactions. This means advanced coding is involved in storing and transmitting cryptocurrency data between wallets and to public ledgers. The aim of encryption is to provide security and safety. The first cryptocurrency was Bitcoin, which was founded in 2009 and remains the best known today. Much of the interest in cryptocurrencies is to trade for profit, with speculators at times driving prices skyward.

How Does Cryptocurrency Work?

Cryptocurrencies run on a distributed public ledger called blockchain, a record of all transactions updated and held by currency holders. Units of cryptocurrency are created through a process called mining, which involves using computer power to solve complicated mathematical problems that generate coins. Users can also buy the currencies from brokers, then store and spend them using cryptographic wallets. If you own cryptocurrency, you don’t own anything tangible. What you own is a key that allows you to move a record or a unit of measure from one person to another without a trusted third party. Although Bitcoin has been around since 2009, cryptocurrencies and applications of blockchain technology are still emerging in financial terms, and more uses are expected in the future. Transactions including bonds, stocks, and other financial assets could eventually be traded using the technology.

TYPES OF CRYPTOCURRENCY

There are thousands of cryptocurrencies. Some of the best known include:

• Bitcoin: Founded in 2009, Bitcoin was the first cryptocurrency and is still the most commonly traded. The currency was developed by Satoshi Nakamoto – widely believed to be a pseudonym for an individual or group of people whose precise identity remains unknown.

• Ethereum: Developed in 2015, Ethereum is a blockchain platform with its own cryptocurrency, called Ether (ETH) or Ethereum. It is the most popular cryptocurrency after Bitcoin.

• Litecoin: This currency is most similar to bitcoin but has moved more quickly to develop new innovations, including faster payments and processes to allow more transactions.

• Ripple: Ripple is a distributed ledger system that was founded in 2012. Ripple can be used to track different kinds of transactions, not just cryptocurrency. The company behind it has worked with various banks and financial institutions.

Quidax, an African-founded cryptocurrency exchange that has recently made headlines as Nigeria’s first Security and Exchange Commission (SEC) licensed cryptocurrency exchange.

HISTORY AND EVOLUTION OF BLOCKCHAIN TECHNOLOGY AND CRYPTOCURRENCY

One of the emerging technologies that gained popularity and widespread acceptance, within the shortest period of its introduction, is BT, which is, primarily, aimed at driving new business and service models, by supporting the digital transformation of countries and businesses. Historically, cryptocurrency is said to have emerged in the early 1980s and was known, then, as “cyber-currency” and was later improved on, in the 1990s. BT is said to have been first introduced in 2008, when Nakamoto, a researcher, published an article, titled: ‘A Peer-To-Peer Electronic Cash System’, in which he explained how one could carry out instant transactions, directly, from sender to receiver without any involvement of any third-party, such as government or financial institutions. Cryptocurrencies are a digital currency, also known as virtual currencies, which also serve as an alternative means of payment, created using encryption algorithms, and they function as both a currency and virtual accounting system, simultaneously. As earlier indicated, the CBN defines “cryptography” as a method of encrypting and hiding codes that prevent oversight, accountability, and regulation.16 Examples of cryptocurrencies include bitcoin, ripple, compound, litecoin binance coin, chainlink, polkadot and cardano.

Blockchain technology has its roots in the late 1970s when a computer scientist named Ralph Merkle patented Hash trees or Merkle trees. These trees are a computer science structure for storing data by linking blocks using cryptography. In the late 1990s, Stuart Haber and W. Scott Stornetta used Merkle trees to implement a system in which document timestamps could not be tampered with. This was the first instance in the history of blockchain. However, most people know blockchain as the technology behind Bitcoin, and this was indeed its first application, but since then, several innovations in the system have allowed blockchain to spread far and wide and is now democratizing and transforming all kinds of industries, from healthcare to trade and finance.

APPLICATION OF BLOCKCHAIN TECHNOLOGY

Blockchain is an emerging technology that is being adopted in innovative manner by various industries. Application of blockchain in various aspect of economy has yielded good results which tries to turn around negative perception of blockchain into positive recognition in Nigeria. Sequel to this, both government and regulators have come to appreciate good features of blockchain, hence calls for better ways of embarking on blockchain business processes. AWS (2023) describe some use cases in different industries in the following subsections:

• Anti Corruption Tool

Corrupt practices such as data manipulation, security of data, concealing of facts, and money laundry are some of the impunities bedeviling Nigeria (Faith, 2023). Reports has shown how African countries make up most of those that are most corrupt in the world with Nigeria in the top 10 ranking (Richman, 2023). In Nigeria, the use of blockchain technology could greatly benefit the economy help eradicate corrupt practices (Tomslin, 2020). Blockchain has two distinct features that make it a powerful anti-corruption tool in the area of transaction record. Firstly, the security of the information and the validity of the data it controls are excellent. Blockchain eliminates the possibility of data manipulation and failure. Also, it enhances information availability, diminishing the capacity of bureaucrats to conceal specific facts (Romanello, 2021). Secondly, blockchain provides a transparent and decentralized framework for recording a series of transactions. Because transactions are stored chronologically, producing an immutable chain, blockchain creates an unalterable trail of transactions, providing for full transaction traceability. As a result, a public blockchain gives prosecutors and law enforcement officials a tool for detecting illegal conduct or wrongdoing by leaving enough digital traces to isolate corrupt behavior (Santiso, 2018). With these, blockchain enables for the reduction or elimination of integrity breaches such as fraud and corruption while also lowering transaction costs (Kshetri & Voas, Blockchain in Developing Countries, 2018a). The blockchain promises tamper-proof records that corrupt clerks or bureaucrats cannot modify. The distribution of a ledger and the consensus mechanisms also make it difficult for one entity to falsify entries. 

• Democratic Tool

One of the ever-occurring challenges in our democratic process in Africa at large is the issue of vote tampering, electoral result manipulations as alleged in African countries like Nigeria, Cameroun, Kenya e.tc. Democracy is one of the most important pillars of modern society, but as we've seen over the last few years, it's far from perfect. Corruption, manipulation, and a lack of transparency can all weaken democratic processes. There has also been a concerted push over the last several years from anti-democratic and authoritarian movements that aim to challenge the norms of many established democracies. In conjunction, this has left many feeling discouraged about the state of their governments and genuinely worried that the democracies they cherish are at risk. Democracies need a global rejuvenation, and that's where blockchain technology comes in, offering a new way to empower democracies and bring greater transparency and participation to the people.  In Nigeria, Blockchain is believed to be a promising technology that can be used in the electoral process. It can be used to create voting records that are cryptographically secured. Votes recorded precisely, permanently, securely, and transparently. Vote casting, tracking, counting, and transmission may all be done using blockchain, which helps to avoid vote fraud. The electoral umpire and voters would have a verifiable audit trail thanks to the way it records votes, ensuring that no votes could be added to the ones already cast (Ikuero, et.al., 2021). According to Alekseev (2020), the main drawbacks of using blockchain technology in elections are: technical problems, hackers, cyberattacks, and violations of vote confidentiality. Utilizing blockchain in electoral systems is purported to decrease national expenditures. By using blockchain-based voting systems, it can be assured that every vote is recorded accurately and securely, while making the voting process as accessible as possible. This can help to prevent voter fraud and ensure that elections are fair and free. Recently, there have been several examples of politicians falsely calling into question the results of elections with the goal of subverting the will of the electorate. The result has been a lot of misinformation which has broken down trust towards democratic systems. Blockchain can help restore this trust by providing a transparent, and easily auditable way to conduct elections. With blockchain-based voting systems, all votes are recorded on a tamper-proof, decentralized ledger. This means that it is virtually impossible to manipulate the results of an election. Additionally, because the ledger is decentralized, there is no single point of failure that could be attacked by hackers or other bad actors.

• Healthcare

In the health sector, there are transactions where transparent and immutable record keeping may also be important, such as medical records or other related health data In Nigeria, the healthcare industry is faced with lack of proper records. Blockchain technology is projected to improve medical record administration and insurance claim procedure, accelerate clinical and biomedical research, and develop biomedical and healthcare data ledger Technology. Also, blockchain technology enables patients to set restrictions for their medical data, such as granting particular researchers access to sections of their data for a period of time. Through blockchain, patients can connect to other hospitals and have their medical data collected automatically Blockchain can also play a role in ensuring quick diagnosis of diseases as observed in “Care Ai” that was launched by The European

Commission in June 2018. It is a digital computer system connected to a blockchain that uses a patient’s blood sample to quickly diagnose diseases (malaria, typhoid fever, tuberculosis, etc.) without the presence of a physical doctor (Romanello, 2021). The computer system is engineered to help the invisible demographic of migrants, ethnic minorities, and those unregistered within traditional healthcare systems. So, it is possible for these invisible groups to get access to basic healthcare, and useful appropriate information without compromising their identities, for fear of deportation. 

• Smart Contract

A smart contract comprises lines of code that are programmed into a blockchain and executed automatically when certain conditions are met. Smart contracts can also be used to manage course content and distribution. Government institutions are seeking to improve the management of identities, assets, data, and contracts; this could be achieved through the adoption of blockchain technology. Smart contracts resolves the trust issues that arises with intermediaries between parties to an agreement. It enables parties with trust related issues to agree on the distribution of assets, temporal ownerships and potential assets transactions, ensuring transparency in businesses. The set of conditions, mutually agreed upon by all parties involved in the contract, is set and defined in a blockchain network. Whenever the mandatory conditions are met, certain actions are executed and all members of the network get to the same result by executing this action. Smart contract is useful in several government and non-governmental industry, such as insurance, properties and titles verification; making it easy to transact business without the fear of been swindled by a third party. Smart contracts are code written into a blockchain that executes the actions two parties agree to outside the chain. By automating these actions, the need for an intermediary or trust between the parties is removed.

• Identity Management

Identity authentication and authorization is of great concern to Nigerian government. There are several identity database stored in different locations in the country such as Bank Verification Number(BVN), Voter Registration Information (VRI) and National Identification Number (NIN) to least a few. The harmonisation and unification of this data for interoperability, verification and synchronisation, is still a challenge. Blockchain technology offers a solution to Nigerian unique identity and cyber digital identity issues; where identity can be uniquely created, authenticated and updated in an irrefutable, immutable, and secure manner. Effective identity management would boost numerous sectors of the economy such as government digital promotions and development, cybersecurity, digital inclusion, healthcare, national security, banking and ecommerce.

• Energy

Energy companies use blockchain technology to create peer-to-peer energy trading platforms and streamline access to renewable energy. For example, consider these uses: Blockchain-based energy companies have created a trading platform for the sale of electricity between individuals. Home owners with solar panels use this platform to sell their excess solar energy to neighbors. The process is largely automated: smart meters create transactions, and blockchain records them. With blockchain-based crowd funding initiatives, users can sponsor and own solar panels in communities that lack energy access. Sponsors might also receive rent for these communities once the solar panels are constructed.

• Financial Industry

Government financial services, banks and other financial institutions, including credit bureaus are often faced with lack of synchronised database to access identity confirmation, availability of collateral, creditworthiness of individuals and small business owners; stiffening accessibility to funds. An effective ledger system like blockchain technology could save information about the financial states of their clients, customers and beneficiaries; including data about financial status, current loans, interest obligations, collaterals, repayment history and income levels. However, individual authorisation is required for data accessibility to protect data privacy. Blockchain has the potential to create fast, transparent and seamless global financial transaction; promoting an ease of business transactions across borders.

Traditional financial systems, like banks and stock exchanges, use blockchain services to manage online payments, accounts, and market trading. For example, Singapore Exchange Limited, an investment holding company that provides financial trading services throughout Asia, uses blockchain technology to build a more efficient interbank payment account. By adopting blockchain, they solved several challenges, including batch processing and manual reconciliation of several thousand financial transactions. Blockchain technology can circumvent conventional fraud prevention techniques that require several parties to validate transactions. 

• Media and entertainment

Companies in media and entertainment use blockchain systems to manage copyright data. Copyright verification is critical for the fair compensation of artists. It takes multiple transactions to record the sale or transfer of copyright content. Sony Music Entertainment Japan uses blockchain services to make digital rights management more efficient. They have successfully used blockchain strategy to improve productivity and reduce costs in copyright processing (AWS, 2023).

• Education

Education has undergone tremendous changes, from traditional classroom settings to eLearning, and now we have progressed to blended learning. The COVID-19 pandemic accelerated the adoption of digital learning, and schools worldwide began using online platforms and Learning Management Systems (LMSs) to teach students. Blockchain technology is also poised to revolutionize the education industry. Blockchain has the potential to transform how academic data is managed, and how teachers and students interact. Let's look into how blockchain technology might affect education in the future. Blockchain technology has the potential to revolutionize the education sector by providing a secure, transparent, and tamperproof platform for storing and sharing academic records. As blockchain adoption continues to grow, we will see new and innovative use cases emerging in the education sector. Blockchain's distributed ledger technology can enhance transparency and accountability in the educational field. It can create an immutable record of educational data, including transcripts, degrees, and certifications, that is verifiable and tamperproof. This means that academic achievements can be validated with complete accuracy, and employers can be confident in the skills and knowledge of job applicants.

When a student transfers from one school to another, the transfer of documents and their verification is a time-consuming process. The verification process can be streamlined by introducing blockchain technology into schools and colleges. When a student transfers from one institute to another, the student records can be easily transferred to the new institute by granting access to the blockchain. Some blockchain development companies develop and issue certificates that are immutable and non-forgeable, but easily verifiable for authenticity.

LEGAL & REGULATORY FRAMEWORK OF BLOCKCHAIN IN NIGERIA

Generally speaking, Nigeria, currently, has no specific legal framework aimed at regulating the use of cryptocurrencies and BT technology, although in second quarter of 2023, the National Blockchain Policy for Nigeria was approved by the Federal Executive Council, which is to serve as a roadmap for Nigeria’s adoption and utilisation of BT. The policy lays out a comprehensive framework for integrating BT into different spheres of life, so as to fully realise the potential of BT. The policy aims to encourage the use, adoption, and integration of BT in the various sectors of Nigeria’s digital economy, in order to increase economic prosperity, efficiency, innovation, transparency, security and trust. Currently, an executive bill is being prepared for transmission to the National Assembly. The bill seeks to modernise revenue administration, including establishing a legal framework for crypto regulation. There is, however, an Investments and Securities Bill, presently, at the National Assembly, which seeks to repeal the Investments and Securities Act, 2007 and to establish the Securities and Exchange Commission as the apex regulatory authority for the Nigerian capital market as well as the regulation of the market to ensure capital formation, the protection of investors, maintenance of fair, efficient and transparent market and reduction of systematic risk. However, the policy is not law and until this Bill is passed, it has no legal effect. Currently, the principal law regulating the production, issuance, use and circulation of currencies, in their various denominations, is the Central Bank Act, 2007. However, there are other laws, whose contents, directly or indirectly, affect currencies in Nigeria. These laws includes:

THE CENTRAL BANK OF NIGERIA

Section 1 of the Central Bank Act33 established for Nigeria an independent corporate entity called the CBN, the objectives of, which, as encapsulated in section 2 of the Act, are to: ensure monetary and price stability; issue legal tender currency in Nigeria; maintain external reserves to safeguard the international value of the legal tender currency; promote a sound financial system in Nigeria; and act as banker and provide economic and financial advice to the federal government of Nigeria. Section 20 of the CBN Act, especially, bestows on the CBN, the power to regulate all forms of transactions involving currencies, including virtual currencies and other forms of digital assets. Consequently, the production, issuance and use of any form of currencies in Nigeria, not emanating from the CBN, become illegal, an affront and a usurpation of the powers of the CBN, being the statutory issuer of legal-tender currencies in Nigeria. The CBN has, unequivocally, declared, as direct contravention of existing law, the use of cryptocurrencies in Nigeria. It went further to direct the closure of all accounts owned by individuals or entities transacting in or operating cryptocurrencies’ exchanges in Nigeria. However, reading in- between the lines of the relevant CBN Circular, it is clear that there is no outright ban or prohibition on trading in virtual currencies. 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.

In the financial services sector, the CBN’s approach to blockchain technology is streamlined to the use of virtual/digital currencies/assets in financial services. The CBN has adopted a cautious position as expressed in various circulars and press releases4. According to the CBN, transactions in virtual currencies are largely untraceable and anonymous, making them susceptible to abuse by criminals especially in money laundering and financing of terrorism. Thus, pending the issuance of substantive regulation by the CBN, banks and other financial institutions are prohibited from holding, trading, facilitating or transacting in any way in virtual currencies. In line with the above, in April 2021 and 2022 respectively, the CBN fined three (3) Nigerian banks a sum of Eight Hundred Million Naira (N800,000,000) and another six (6) banks over One Billion Naira (N1,000,000,000) for non-compliance with its directives on virtual currencies.6 Notably, while the CBN has not outrightly banned trading in virtual currencies, its position implies that persons or entities in Nigeria cannot facilitate the trade or transmission of virtual currencies through the Nigerian financial system thereby crippling virtual currency- based businesses in Nigeria. Given its stance on virtual currencies, it is therefore interesting that the CBN has also explored digital currency in the form of the e- Naira, which is a central bank digital currency (CBDC). Although the e-Naira was launched on 25th October 2021,7 its adoption level remains slow due to insufficient awareness and acceptance.

THE CBN INITIAL POSITION ON CRYPTOCURRENCY

On 12 January 2017, the CBN, through its Circular to Banks and other Financial Institutions on Virtual Currency Operations in Nigeria (the ‘Circular’), instructed banks and other financial institutions to: avoid using, holding or transacting in any way in virtual currencies;[4] implement effective anti-money laundering controls and controls that counter the financing of terrorism (AML/CFT) controls for existing customers that are virtual currency exchanges; and report any suspicious transactions by these customers.

Subsequently, on 5 February 2021, the CBN, through its Letter to all Deposit Money Banks, Non-bank Financial Institutions and other Financial Institutions (the ‘Letter’), took additional measures to restrict trading in cryptocurrency via official channels. In the Letter, the CBN stated that dealing in cryptocurrencies or facilitating payments for cryptocurrency exchanges is prohibited for regulated institutions. Furthermore, the CBN directed the regulated banks and institutions to identify and close accounts of persons and/or entities involved in cryptocurrency transactions or operating cryptocurrency exchanges within their systems. The Letter effectively excluded cryptocurrency businesses from accessing services provided by financial institutions in Nigeria.

It is important to note that the CBN’s position, as communicated through the Circular and Letter, did not place a ban on cryptocurrency in Nigeria. Instead, it only prohibits banks and other financial institutions that are statutorily under its regulatory control from processing/enabling such transactions. Consequently, individuals and exchanges seeking to transact in cryptocurrencies were forced to pivot to/adopt peer-to-peer (P2P) cryptocurrency business models.

CBN’s Guidelines on Operations of Bank Accounts for Virtual Assets Service Providers (VASPs) (the ‘VASP Guidelines’) and proposed amendment to the Digital Assets Rules

In December 2023, following the advent of a new administration, the CBN released the VASP Guidelines and relaxed its over two-year restriction on financial institutions operating accounts for cryptocurrency service providers or processing crypto-related transactions. While financial institutions remained banned from dealing in cryptocurrency, the ban on facilitating transactions for crypto businesses was lifted. Therefore, pursuant to the VASP Guidelines, financial institutions are now permitted to open bank accounts for crypto businesses, provided they fulfil the requirements set out in the VASP Guidelines. One such requirement is that the crypto platform must have obtained a relevant licence or registration from the SEC.

Following the CBN’s issuance of the VASP Guidelines, there were high hopes that Nigeria’s cryptocurrency regulatory environment would become more favourable in 2024. Indeed, there were private indications that the SEC was preparing to implement the Digital Assets Rules and begin registering and licensing qualified companies across the various licence categories. It was reported that some crypto startups had already approached the SEC[9] to initiate the registration process.

Shortly after the issuance of the VASP Guidelines, the SEC issued a proposed amendment to the Digital Assets Rules (the ‘Proposed Digital Assets Rules’). A notable amendment is the inclusion of crypto in the term ‘virtual asset’. Thus, ‘virtual asset’ is now written as ‘virtual (crypto) asset’, retaining the same definition. This proposed amendment, particularly the renaming of ‘virtual asset’, supports the position that the SEC’s earlier statement excluding cryptocurrency from the Digital Assets Rules was superficial and that the SEC’s delay in operationalising the Digital Assets Rules was primarily in connection to the CBN’s initial hostile stance on cryptocurrency.

The Proposed Digital Assets Rules and VASP Guidelines address some major concerns regarding the adoption of cryptocurrency, such as money laundering, terrorism financing and fraud. These regulations address these concerns through the requirement for licensing, robust AML/CFT provisions and disclosure of information about the directors, beneficial owners and principal officers of the entities. In theory, the regulatory framework was being established to enable cryptocurrency businesses to operate in Nigeria.

RECENT DEVELOPMENT WITHIN THE CBN

In parallel with the cryptocurrency regulatory reforms noted above, the CBN also implemented a currency float, allowing the value of the Nigerian Naira to be determined by market forces. Initially, these reforms remained separate. However, by February 2024, there were allegations that Binance, a major crypto trading platform operating in Nigeria, was involved in or enabling currency manipulation, contributing to a downward spiral in the value of the naira. This resulted in the arrest and prosecution of Binance executives and restrictions on Binance’s operations in Nigeria, ultimately leading to Binance removing the naira as a currency on its platform.

There is now a clear shift in the regulatory stance of both the CBN and SEC, with the SEC signalling its intent to crack down on illegal trading activities in the cryptocurrency space, including delisting the naira from P2P trading platforms in order to mitigate its manipulation. Similarly, the CBN has suspended the onboarding of new customers in four Fintech companies, due to alleged complacence in money laundering and foreign exchange (‘forex’) speculation activities linked to cryptocurrency. Some of these Fintech companies immediately put disclaimers up emphasising that they are licensed by the CBN and do not allow any cryptocurrency or virtual currency trading transaction on their platforms. The disclaimers noted that any account in violation will be closed.

Additionally, in April 2024, the Economic and Financial Crimes Commission, a law enforcement agency, secured a court order to freeze 105 accounts across nine Fintech companies in relation to unauthorised forex trading, money laundering and terrorism financing. This action is part of a broader investigation into 1,146 bank accounts suspected of manipulating the forex market through crypto platforms.

SECURITIES AND EXCHANGE COMMISSION/INVESTMENT AND SECURITIES ACT

The Investments and Securities Act, 2007, is enacted to regulate capital market activities in Nigeria and in section 1, the Securities and Exchange Commission (SEC) was established. The specific powers of the Commission include: regulating investments and securities business in Nigeria, as defined in this Act; registering and regulating securities exchanges, capital trade points, futures, options and derivatives exchanges, commodity exchanges and any other recognised investment exchange; regulating all offers of securities by public companies and entities; registering securities of public companies; rendering assistance as may be deemed necessary to promoters and investors wishing to establish securities exchanges and capital trade points; preparing adequate guidelines and organising training programmes and disseminating information necessary for the establishment of securities exchanges and capital trade points; and registering and regulating corporate and individual capital market operators, as defined in this Act.

The SEC has taken a different position from the CBN on the regulation of virtual/digital assets in Nigeria. The SEC’s position is that virtual assets that qualify as securities fall within the SEC's regulatory purview. Staying true to this position, on 11th May 2022, the SEC issued the New Rules on Issuance, Offering Platforms and Custody of Digital to regulate digital and virtual assets in Nigeria (the “Digital Asset Rules”). The Digital Asset Rules regulate digital asset offering platforms; digital asset custodians; digital service providers; and digital asset exchange platforms. In 2021, the SEC introduced the Regulatory Incubator (RI) program, a platform aimed at providing startups with a supportive environment to test innovative products, services, business models, and delivery mechanisms related to the capital market and initiated the application process for the first cohort of the RI on April 28, 2023.11 However, the acceptance of blockchain products and developers into the SEC RI remains uncertain. In its February 2021 press release, the SEC stated that individuals affected by the CBN’s position would only be eligible for the RI program once they are allowed to operate Nigerian bank accounts. Surprisingly, the SEC's call for applications did not specifically exempt virtual and digital assets from the program even though the CBN’s position has remained unchanged. However, crowdfunding, robo advisory/digital investment advisory, and digital sub-brokers innovators were explicitly excluded from the program due to the existence of SEC regulations governing those models.

The SEC’s position and the new Rules on Issuance, Offering Platforms and Custody of Digital Assets (the ‘Digital Assets Rules’)

On 11 September 2020, the SEC issued a statement recognising virtual/digital assets as securities, in line with recommendations from its Fintech Roadmap Committee. However, given the CBN’s subsequent letter in February 2021, the regulatory stance on cryptocurrency became unclear. The impact of the CBN ban on licensed institutions, against the statement issued by SEC, triggered a perceived conflict between the regulators. To dispel speculation as to perceived regulatory conflict, the SEC issued a press statement on 11 February 2021, clarifying that the CBN’s actions aligned with its role as the apex regulator of the banking sector. To demonstrate its collaboration with the CBN, the SEC suspended admission into the SEC’s Regulatory Incubation Program (SRIP) until the affected entities could operate accounts within the Nigerian banking system. Notwithstanding the SEC’s statement and suspension of the SRIP, in 2022, the SEC issued the Digital Assets Rules, which was the first attempt at a comprehensive regulation of digital and virtual assets in Nigeria. The Digital Assets Rules define virtual assets as a digital representation of value that can be transferred, digitally traded and can be used for payment or investment purposes. The Digital Assets Rules also create various categories of digital assets with their respective registration and licensing requirements.

Recent Development Within the SEC

The Executive Chairman of the Federal Inland Revenue Service, Zacch Adedeji, has revealed that the Service would be seeking the support of the National Assembly to enact a law on the crypto industry. Adedeji said this on Saturday at a stakeholder engagement with the Senate and House Committee on Finance organised by the Intergovernmental Relations Department of the Service with the theme, ‘Repositioning The FIRS To Achieve Its Mandate.’ He said, “The plan first is to have the law that regulates it, and that is why you see that we are here with the legislature, which will be the base of charging. And that is done in any other place in the world when you have this innovation or system, so you just have to get ready for it because you can’t go away from it. So we just have to plan to regulate it in such a way that it is not injurious to the economic development of Nigeria.”

NITDA

NITDA, the regulatory body saddled with the responsibility of developing and regulating information technology practices in Nigeria has on its part focused on the general sphere of blockchain not just virtual and digital currencies/assets. Together with other stakeholders in the eco-system, NITDA developed the recently approved National Blockchain Adoption Strategy (the “Strategy”) to serve as a roadmap for the adoption of blockchain technology in the government's digital transformation agenda. The Strategy encompasses several key elements, including the establishment of a Nigeria Blockchain Consortium, the enhancement of the regulatory and legal framework governing blockchain, and the implementation of blockchain business incentive programs to support small and medium-sized enterprises (SMEs) and startups. The Strategy also recognises the scepticism of regulators like the CBN about the adoption of blockchain technology which has slowed down the adoption process and resulted in a high entry barrier into the blockchain space. To address this challenge, the Strategy introduces a blockchain sandbox framework which will be spearheaded by these regulators particularly the CBN, SEC, NITDA, FIRS and the Nigeria Deposit Insurance Corporation (the “NDIC”). It is worth noting that while the Strategy is commendable, it is not an act of the national assembly or a regulation/guideline. Instead, it is an explanatory document that lacks the force of law. This raises concerns about how effectively the initiatives outlined in the Strategy will be enforced, which is particularly significant in Nigeria, where laws and government initiatives often lack proper enforcement.

MONEY LAUNDERING (PREVENTION AND PROHIBITION) ACT

The Money Laundering (Prevention and Prohibition) Act, 2022, provides for the comprehensive legal and institutional framework for preventing and prohibiting money laundering in Nigeria, including detection, prosecution and punishment for money laundering and other related offences, placing certain anti-money laundering requirements on financial institutions and designated non-financial businesses and professions in Nigeria. Under the Money Laundering (Prevention and Prohibition) Act, financial institutions include banks, bodies corporate, associations or group of persons, whether corporate or incorporate, which carry-on the business of investment and securities, virtual assets service providers, discount houses, insurance institutions, debt factorisation and conversion firms, bureaus de change, finance companies, money brokerage firms whose principal businesses include factoring, project financing, equipment leasing, debt administration, fund management, private ledger service, investment management, local purchase order financing, export finance, project consultancy, financial consultancy, pension funds management and such other businesses as the CBN, or other appropriate regulatory authorities, may designate.

FEDERAL COMPETITION AND CONSUMER PROTECTION ACT

The Federal Competition and Consumer Protection Act (FCCPA) establishes the Federal Competition and Consumer Protection Commission and the Competition and Consumer Protection Tribunal, for the purpose of promoting competition in Nigerian markets, at all levels, through the elimination of monopolies, prohibition of abuse of dominant market positions and penalising other restrictive trade and business practices. It, generally, protects consumers of goods and services in Nigeria against unfair business practices, including misrepresenting material facts in the marketing of goods and services.43 In its definition section, the Act defines a consumer as including any person to whom a service is rendered. It is submitted that, although virtual currency operators are not, expressly, mentioned in the Act, individuals receiving the services of virtual currency operators in Nigeria are protected by the provisions of the Act and by extension, a customer has cause of action, under the FCCPA, for damage suffered because of misrepresentations made to him by a virtual currency operator.

NIGERIA DATA PROTECTION REGULATION 2019 (NDPR)

This regulation was made by the National Information Technology Development Agency (NITDA) in pursuance to its statutory mandates which include developing regulations for electronic governance and monitoring the use of electronic data interchange and other forms of electronic communication transactions, as an alternative to paper-based methods in government, commerce, education, the private and public sectors, labour and other fields, where the use of electronic communication may improve the exchange of data and information. These rules make provisions for the rights of data subjects, which include the existence of the right to request from the controller, access to and rectification or erasure of personal data or restriction of processing concerning data subjects or to object to processing, as well as the right to data portability, right to lodge a complaint with a relevant authority, right to withdraw consent, et cetera. However, it has been opined that the decentralised and immutable nature of virtual currencies, as blockchain-based creations, poses an obstacle to executing this right and might make the right functionally impossible to exercise but that technical or practical solutions may be needed to facilitate the erasure or rectification of personal data so as to ensure compliance with NDPR provisions.

CYBERCRIMES (PROHIBITION & PREVENTION,) ACT

The Cybercrimes (Prohibition, Prevention,) Act, provides an effective, unified and comprehensive legal, regulatory and institutional framework for the prohibition, prevention, detection, prosecution and punishment of cybercrimes in Nigeria. This act also ensures the protection of critical national information infrastructure and promotes cyber-security and the protection of computer systems and networks, electronic communications, data and computer programs, intellectual property and privacy rights. The objectives of this Act are to:

(a) provide an effective and unified legal, regulatory and institutional framework for the prohibition, prevention, detection, prosecution and punishment of cybercrimes in Nigeria;

(b) ensure the protection of critical national information infrastructure; and

(c) promote cyber-security and the protection of computer systems and networks, electronic communications, data and computer programs, intellectual property and privacy rights.

THE NATIONAL BLOCKCHAIN POLICY FOR NIGERIA

Nigeria’s digital economy sector has experienced significant growth in the last 4 years. Noteworthy examples of this growth include the unprecedented 18.44% contribution of the Information and Communications Technology (ICT) sector to our Gross Domestic Product (GDP) and the outstanding performance of the digital economy sector based on the independent assessment of the KPMG and the Foreign, Commonwealth and Development Office (FCDO). The sector's generation of an average quarterly revenue of N594 billion for the Federal Government is also highly commendable. As the leading digital economy in Africa, we have again taken the lead in developing a policy for the adoption of this important technology. We will use BT to boost innovation, improve public services, create job opportunities, reduce corruption and drive economic growth. As the world prepares for a BT-driven injection of $1.76 trillion to the global GDP by 2030, our development and implementation of the National Blockchain Policy for Nigeria will prepare

us to be active players and to benefit from this emerging global source of revenue. The National Blockchain Policy for Nigeria has therefore been developed to serve as a roadmap for Nigeria's adoption and utilisation of BT. The Policy lays out a comprehensive framework for integrating BT into different spheres of our national life in order to fully realise the potential of BT. It also addresses key issues such as governance, interoperability, security, and regulatory compliance. In addition to these, it offers direction and guidance to stakeholders in both the public and private sectors in order to ensure the adoption, innovative and responsible use of BT. The National Digital Economy Policy and Strategy (NDEPS) was developed to realign the Nigerian economy to take advantage of the numerous opportunities that digital technology offers. As part of the implementation of the NDEPS, the Federal Ministry of Communications and Digital Economy (FMC&DE), on behalf of the Federal Government of Nigeria, has developed the National Blockchain Policy in line with the 7th Pillar of the NDEPS, which focuses on Digital Society and Emerging Technologies

The implementation of the Policy will contribute to strengthening Nigeria's digital economy by expanding financial inclusion and enhancing openness and accountability. It will also enhance public trust in governance and promote citizen engagement by increasing transparency and accountability. Furthermore, it will ensure the growth of indigenous talent in Blockchain Technology solution development, in line with the Federal Government’s commitment to develop our nation’s human resources.

On behalf of the Federal Government of Nigeria, and as part of the implementation of the NDEPS, the Federal Ministry of Communications and Digital Economy (FMC&DE) has developed over twenty (20) national policies and law that are all being implemented, including the following:

1. Nigeria Startup Act 2022;

2. National Digital Innovation & Entrepreneurship Policy

3. National Policy for the Promotion of Indigenous Content in the Telecommunications Sector;

In keeping with this trajectory, the FMC&DE has developed the National Blockchain Policy (hereinafter referred to as the “Policy”) in line with Pillar 7 of the NDEPS, which focuses on Digital Society and Emerging Technologies, tying the development of the digital economy to indices of the well-being of ordinary citizens. This builds on the gains of other strategic activities deployed under this Pillar, like the National Policy for the establishment and management of the National Centre for Artificial Intelligence and Robotics (NCAIR). The Centre was established in 2021 and was the first of such centres in Africa. The Policy aims to grow domestic talent in Blockchain solutions development, foster innovation, and catalyse the adoption and use of Blockchain Technology

FOCUS AREAS OF THE POLICY

1. Talent Development: The development of talent in the field of Blockchain is critical for the growth and success of the Blockchain industry. This Policy seeks to provide a framework for the development of talent to support the growth of the industry and to ensure that the National Blockchain ecosystem has the necessary human capital to drive innovation and growth. This focus area will facilitate the development of a skilled and knowledgeable workforce in the industry; attract and retain talent; promote innovation and growth; and enhance the competitiveness of the National blockchain ecosystem. The Government will collaborate with relevant stakeholders to develop capacity-building programmes to enhance the skills and knowledge of Blockchain professionals. These programmes will be tailored to meet the needs of the industry and will include training, workshops, and certification programmes that incorporate ethical considerations and best practices. The Government will develop talent attraction programmes to attract and retain Blockchain talent. These programmes will provide incentives to encourage Blockchain professionals to develop and sustain the Nigerian Blockchain industry.

2. Innovation: To facilitate innovation in Blockchain, a multi-pronged approach is needed, involving creating an environment that encourages experimentation, providing resources to support innovation, and addressing regulatory and legal barriers. The Government and other stakeholders will provide support for research and development in the Blockchain industry. This will help entrepreneurs and researchers develop innovative Blockchain solutions that can be used in various sectors. The Government will collaborate with industry experts and thought leaders to identify key trends, challenges, and opportunities in the Blockchain industry. This will help the Government policies that are informed by industry experts and are relevant to the current needs of the industry. The Government will create regulatory sandboxes where Blockchain Start-ups can test their innovative ideas without being subject to stringent regulations. This will allow for more experimentation and innovation in the industry. The Government will provide support for Blockchain start-ups in the form of incentives, incubation centres, mentorship programmes etc. This will help start-ups to grow and thrive in the competitive Blockchain industry.

3. Blockchain Adoption: The adoption of Blockchain Technology is poised to support the continuous growth of the digital economy in Nigeria by fostering a more secure, transparent, accountable, efficient service delivery, and trusted ecosystem. The below-listed areas are approved by the FGN for adoption to achieve the Policy's mission and vision.

4. Financial Services: Blockchain Technology has the potential to transform financial services by providing secure, transparent, and efficient transactions without the need for intermediaries. Nigeria recognises the potential benefits of Blockchain Technology and its ability to provide decentralised payment services, particularly with the advent of cryptocurrencies, which are digital assets designed to work as a medium of exchange of value within the Blockchain. Cryptocurrency has been a subject of interest in Nigeria in recent years, with a growing community of cryptocurrency enthusiasts and traders in the country. The Government will establish a regulatory framework that enables the integration of Blockchain Technology into the financial system while ensuring the protection of consumers and the stability of the financial system. The Government will establish a regulatory framework that enables the safe responsible and optimal use of cryptocurrencies in Nigeria in a way that ensures consumer protection, market stability and financial inclusion

5. Government and Corporate Digital Services: Blockchain Technology has the potential to transform the way the Nigerian Government and businesses operate and deliver services. It offers increased transparency, accountability, and efficiency, which can lead to improved trust between citizens and organisations. Further, it can also be used in various functions, such as:

Identity Management: In today's digital world, there is a growing need for secure and reliable methods of identity verification to prevent fraud and identity theft. By implementing a blockchain-based identity management system that incorporates device management and tracking, personal IDs, professional credentials, and certificates, it would be possible to create a more secure and reliable system for online identity verification and authentication. This can be applied in different areas and sectors of the economy including voter registration, identification and tracking of devices and goods, healthcare management and financial services.

Land Registration and Record System: In a traditional land registration and record system, the process of transferring ownership can be complicated and time- consuming, often involving multiple intermediaries such as lawyers and government agencies. There may also be concerns about fraud or errors in the documentation. A blockchain-based land registry would consist of a distributed ledger that records all land transactions and ownership changes. Each transaction would be verified by multiple nodes in the network, ensuring that no single party can manipulate the data. This would create an immutable record of ownership that would be difficult to alter without the consensus of the entire network. This will create a more transparent and secure system for recording and verifying property ownership, with little to no human error.

BENEFITS OF BLOCKCHAIN AND CRYPTOCURRENCY ADOPTION

The implementation of Blockchain Technology can contribute to strengthening Nigeria's digital economy by expanding financial inclusion and enhancing openness and accountability. The inherent characteristics of Blockchain, such as its immutability and decentralization enable secure and transparent transactions and activities through some of its applications, like smart contracts, which have the potential to bring several benefits to the economy. Below are some of the benefits of adopting Blockchain in Nigeria;

1. Improved Transparency and Accountability:  Blockchain Technology can help to increase transparency and accountability in various sectors in Nigeria. By using a distributed ledger system, all transactions are recorded and can be accessed by anyone on the network. This can help to reduce corruption, fraud, and other illegal activities.

2. Increased Efficiency: Blockchain Technology can also help to improve the efficiency of various processes, such as payment processing, supply chain management, and identity verification. By leveraging Blockchain features like smart contracts, transactions can be executed automatically, reducing the need for intermediaries and streamlining the process.

3. Enhanced Security: Blockchain Technology is highly secure due to its decentralised nature. Transactions are recorded on multiple nodes, making it nearly impossible to tamper with the data. This can

4. Financial Inclusion: Blockchain Technology can help to increase financial inclusion in Nigeria by providing access to financial services to those who may not have had access before. By using blockchain-based payment systems, individuals can send and receive money easily and securely.

5. Job Creation: Blockchain adoption in Nigeria has the potential to create significant job opportunities across a range of sectors. With a young and tech-savvy population, Nigeria is well-positioned to become a blockchain hub in Africa. The adoption of Blockchain Technology creates new job roles, such as blockchain developers, cybersecurity experts, and smart contract engineers. Furthermore, Blockchain Technology enables the creation of new industries, such as cryptocurrency exchanges and blockchain-based payment systems, which could create jobs across various sectors, including finance, technology, and manufacturing. The implementation of Blockchain Technology in Nigeria shall also improve transparency and reduce corruption, which boosts investor confidence and create additional job opportunities. Overall, the job creation benefits of blockchain adoption in Nigeria have the potential to play a significant role in the country's economic development and growth.

6. Decentralization: In blockchain, decentralization refers to the transfer of control and decision-making from a centralized entity (individual, organization, or group thereof) to a distributed network. Decentralized networks strive to reduce the level of trust that participants must place in one another, and deter their ability to exert authority or control over one another in ways that degrade the functionality of the network. In a decentralized blockchain network, no one has to know or trust anyone else. Each member in the network has a copy of the exact same data in the form of a distributed ledger. If a member’s ledger is altered or corrupted in any way, it will be rejected by the majority of the members in the network.

Case Study - Note (NBA Digital Stamp)

On 19 June 2024, the Nigerian Bar Association (NBA), under the leadership of Mr. Yakubu Chonoko Maikyau, OON, SAN entered a contract for the implementation of a Secured Digital Stamp and Seal with Verification System for the NBA. The NBA Digital Stamp and Seal is a groundbreaking innovation powered by cutting-edge blockchain technology. It is fully integrated into Microsoft Word (2017 Edition and above), ensuring a streamlined and efficient process for affixing digital stamps from within Microsoft Word interface, and because it rests on the blockchain technology, members are assured every stamp is unique, tamper-proof, and verifiable. Also, the Digital Stamp and Seal comes with a user-friendly e-commerce portal that allows members to purchase digital stamps conveniently and securely. Alongside this portal is the NBA Digital Stamp & Seal Verification App, available on both Android and iOS, empowering the public to verify the authenticity of a legal document with a simple smartphone scan. Generally, the NBA leadership has developed this solution to protect the lawyer's job and bolster public confidence in the authenticity of legal documents. The NBA leadership did the unveiling of this NBA Digital Stamp and Seal on Monday, 19 August 2024. 

CHALLENGES AND LIMITATIONS TO THE ADOPTION OF BLOCKCHAIN TECHNOLOGY

Blockchain adoption in Nigeria has faced several challenges that have impeded its growth and potential impact on various sectors of the economy. Some of the key challenges include:

• Lack of awareness

One of the main challenges associated with blockchain technology in Nigeria is a lack of awareness of the technology and a widespread lack of understanding of how it works. Many companies and individuals alike do not understand what blockchain is or what it can do, and this lack of understanding is hampering investment in and adoption of the technology. Additionally, blockchain is often associated with cryptocurrency in the mind of many and the negative press that has shrouded the use of cryptocurrency has been extended to blockchain technology generally. It is important to educate people on the versatility of blockchain technology and how it can be deployed to solve a variety of problems in Nigeria. There exist a low level awareness and education towards understanding blockchain technology development, applications and usage within the Nigeria tech-communities, academic and business sectors. Blockchain could be complex with a developing environment that is not completely user friendly; thus, there are few professionals with the requisite knowledge and experience to develop blockchain solutions. Also, most government policymakers and private sector stakeholders are not aware of the benefit blockchain might bring to their organisation.

• Technical Complexity

There are infrastructure challenges that could limit blockchain processes and efficacy. For instance, very few Nigerians have internet access; less than half of those with internet accessibility barely have good quality uninterrupted internet service. Increase in quality internet penetrations is required for blockchain application to be successfully deployed and maximised by the Nigerian economy.

• Regulatory Uncertainty

The lack of legislative clarity is a significant obstacle to the widespread use of blockchain technology in Nigeria. Although the SEC introduced Digital Assets Rules in 2022, they remain non-operational due to challenges in implementation and conflicts with the CBN's stance on virtual currencies. The absence of clear guidelines and licenses has created uncertainty, slowing down innovation and investment in blockchain-based startups. To address this issue, the Nigerian government must develop clear and comprehensive regulatory frameworks for the blockchain industry. The government should also collaborate with relevant stakeholders in the blockchain industry, including startups, investors, and industry associations, to ensure that the regulatory frameworks are practical and effective.

• Resources

Implementing blockchain technology can be expensive, especially for small and medium-sized enterprises (SMEs). The costs include not only the initial deployment of the technology but also ongoing maintenance, updates, and potential scaling solutions. Additionally, there may be costs associated with training staff and integrating blockchain with existing systems. These financial barriers can prevent smaller businesses from leveraging blockchain technology. Finding ways to reduce implementation costs, such as developing more cost-effective blockchain solutions and providing support for SMEs, is essential to make blockchain more accessible.

• Electricity

The epileptic state of the Nigerian power sector is another significant clog in the wheel of blockchain adoption in Nigeria. A recent report by the Electricity Think Tank Group indicates that about 75 per cent (75%) of electricity consumed in Nigeria, comes from diesel and petrol-powered generators13 which account for about 25,000MW, while the national grid provides about 4,000MW. This poses a significant challenge to the implementation and adoption of blockchain technology in Nigeria, as many blockchain-based solutions require a stable and reliable source of electricity to function effectively. To overcome these challenges, the Nigerian government and relevant stakeholders in the power sector need to invest in improving the country’s power infrastructure as well as the adoption of renewable energy sources such as solar, hydro, and wind power. Another potential solution is to explore the use of energy storage technologies, such as batteries and fuel cells, to store excess power generated during times of high demand. This excess power can then be used to supplement the grid during periods of low supply or power outages.

• Security

Another key issue with blockchain technology is security. Despite being more secure than traditional computer systems, blockchain-based applications, networks, and organizations are not immune to vulnerabilities.14 In addition, due to its largely untraceable nature, criminal elements have adopted cryptocurrencies for their criminal activities including money laundering, drug trafficking, human trafficking, and financing terrorism. To address these security challenges, organizations that use blockchain technology need to implement robust security measures, such as two-factor authentication, encryption, and regular security audits. Additionally, collaboration between blockchain experts, law enforcement agencies, and regulatory bodies can also play a significant role in combating criminal activities related to blockchain technology.

• Skill gap

There is a shortage of skilled professionals who understand blockchain technology and can implement it effectively. The rapid growth of the blockchain industry has outpaced the availability of trained developers and experts. This skills gap can slow down the adoption and innovation of blockchain solutions. Investment in education and training programs is crucial to address this gap. Universities, online courses, and industry initiatives are beginning to offer specialized blockchain education, but more efforts are needed to build a workforce capable of driving the technology forward. While blockchain technology holds great promise, several challenges need to be addressed for its widespread adoption. Scalability, regulatory uncertainty, interoperability, security, energy consumption, complexity, cost, network congestion, data privacy, and the lack of skilled professionals are significant hurdles. Overcoming these challenges will require collaboration among developers, businesses, policymakers, and educators. By addressing these issues, we can unlock the full potential of blockchain technology and pave the way for a more decentralized and secure future.

• Data Protection

  Some important tensions between blockchain technology and data protection include:

  (I) The distributed peer-to-peer network architecture of blockchain technology often makes it difficult to determine the data controller, especially with respect to public block;

(ii) Applying jurisdictional data protection regulations to decentralized blockchain which is often multi-jurisdictional may prove difficult;

(iii) The decentralized nature of the blockchain poses a challenge to the enforcement of these cross-border restrictions16; and

(iv) The immutability of blockchain which underpins the technology itself makes it difficult to enforce the data subject’s right to rectification17 and the right to erasure (right to be forgotten) under the Nigeria Data Protection Act (the“DPA”) without compromising the structure and integrity of the blockchain. In the absence of regulatory guidance from relevant authorities to reconcile these issues, organisations should consider the following to mitigate possible areas of conflict

• Environmental Cost

Recent reports have shown that cryptocurrency mining and transaction processes have resulted in significant climate damages, with the average cost ranging from 35% between 2016 to 2021 and increasing to 58% from 2020 to 2021.19 This places cryptocurrencies in the same category as other energy-intensive or highly polluting goods like meat, and electricity produced from gasoline.20 The growing concerns about climate change in Nigeria may create challenges with the adoption of blockchain technology. However, the use of renewable energy sources for the deployment of blockchain technology could alleviate these environmental fears and concerns. Additionally, the use of energy-efficient hardware and mining techniques could further minimize the energy consumption and environmental impact of blockchain technology.

• Ethical Issues

One significant ethical concern with blockchain adoption is the use of cryptocurrency for criminal activity. This was one of the underlying reasons given by the CBN for its stance against the use of cryptocurrencies in the Nigerian financial sector. To tackle these ethical concerns, the Nigerian government must establish robust regulatory frameworks for the use of cryptocurrencies and other blockchain-based solutions. These regulations should include measures to combat money laundering, terrorist financing, and other illegal activities associated with the use of cryptocurrencies. Additionally, there needs to be increased collaboration between stakeholders in the blockchain industry, law enforcement agencies, and regulatory bodies for the development of policies and regulations that promote transparency, accountability, and compliance in the use of blockchain-based systems and cryptocurrency.

THE NEED TO REGULATE CRYPTOCURRENCY IN NIGERIA

It requires emphasis that there are some benefits derivable from the adoption and use of BT and cryptocurrency for Nigeria, which include improved transparency and accountability, increased efficiency, financial inclusion, enhanced security, job creation’;  yet, there is need to regulate the use of cryptocurrencies and BT because of their volatility, high-risks and adverse consequences on the economies of nations of the world, including Nigeria. One of the negative effects of cryptocurrencies is that the rapid spread, high-value volatility and growing volumes of the crypto market could become a real threat to the stability of the global finance system and create serious problems for regulators and tax authorities in many countries; hence, the urgent need for international rules and regulatory practices. According to IMF, increased demands for crypto assets contribute to the outflow of capital, which, in turn, affects the foreign exchange market. The (pseudo) anonymity of crypto assets creates data gaps for regulators and can open unwanted doors for money laundering, as well as the financing of terrorism. Threats to the fiscal policy of states may increase, given that crypto assets contribute to tax evasion. The central banks profits that are earned from the right to issue currency could also decline. There is the need to regulate crypto-assets, crypto exchanges and wallets in the crypto market because the risks associated with it are higher than in the regulated financial market. The rights of investors and consumers are not, in any way,

Protected. Also, cryptocurrency mining requires a lot of energy and creates a huge carbon footprint, overloading power grids and generating capacity, and this can no longer be ignored. Thus, advocates of green energy are at the forefront of the fight aimed at discouraging the use of cryptocurrencies.

Anonymous payments are allowed in the cryptocurrency market. Thus, criminal groups involved in the sale of drugs, extortion, human organ trafficking, terrorism and other illegal operations can use it, as a way of transferring money, without being detected. Another important reason necessitating regulation is the fact that cryptocurrency is unreliable because any of these Bitcoin platforms may fold up, unexpectedly, and without due consideration to the users. Recently, Paxful, a peer-to-peer Bitcoin platform, with over one million five hundred users in Nigeria, shot down its operations and marketplaces. This unexpected shot down will, no doubt, affect users of the platform, negatively. What is required of the CBN is to evolve a very robust regulatory framework and highly technological monitoring mechanism that will be most suited for supervising the use of cryptocurrencies in Nigeria. Such robust regulatory framework and highly technological monitoring regime should be so dynamic as to, always be far ahead of dubious entities that may attempt to use to use cryptocurrencies for money laundering, terrorism financing, advanced fee fraud and other malfeasances and to beat such dubious entities to their game.

THE FUTURE OF BLOCKCHAIN AND CRYPTOCURRENCY IN NIGERIA

Nigeria has a vibrant tech startup ecosystem, with many focusing on blockchain and cryptocurrency applications. This entrepreneurial spirit could drive innovation and create new use cases for these technologies in various sectors, including finance, agriculture, and healthcare. the future of blockchain and cryptocurrency in Nigeria appears promising, with the potential for significant growth and impact across various sectors. However, this future will be shaped by a complex interplay of regulatory, economic, technological, and social factors. The government's approach to regulation and support for innovation will be crucial in determining the extent to which Nigeria can harness the benefits of these technologies while mitigating potential risks.

Complex Blockchain Legal Issues Require Skilled Guidance

Blockchain businesses face the same legal issues every other entity must face, from raising capital to hiring employees to securing their intellectual property. However, businesses in the blockchain industry face the additional challenges of operating in an uncertain and rapidly evolving legal landscape. To help blockchain businesses overcome these challenges, our blockchain lawyers provide comprehensive counsel on a wide range of legal issues, including:

• Business Formation: Compliance starts with the basics. Blockchain attorneys advise businesses regarding their everyday operations, including entity formation, corporate governance, and capital-raising activities.

• Cybersecurity and Data Privacy: While blockchain technology offers enhanced security and privacy features, it also comes with unique risks. Blockchain and crypto attorneys address issues related to data protection, privacy laws, and cybersecurity, ensuring that clients’ blockchain implementations comply with applicable regulations.

• Smart Contract: Blockchain lawyers also play a crucial role in drafting and reviewing smart contracts—self-executing contracts with the terms directly written into code. They ensure these contracts are legally binding and enforceable, helping clients navigate potential disputes that may arise from misunderstandings of the technology.

• Tax Planning and Structuring: Cryptocurrency taxation can be complex. Our cryptocurrency lawyers work alongside knowledgeable cryptocurrency tax advisors to ensure you get seamless advice. 

• Regulatory Compliance: The cryptocurrency market is subject to a web of ever-evolving regulations. One of the primary roles of blockchain lawyers is to ensure that businesses comply with the complex and often changing regulatory landscape surrounding cryptocurrencies and blockchain technology. A blockchain attorney helps businesses comply with state-level licensing requirements, federal securities regulations,anti-money laundering laws, and tax regulations. Blockchain attorneys also advise clients on the legislative developments related to blockchain worldwide.

• Intellectual Property: Blockchain businesses must safeguard their intellectual property (IP). A blockchain attorney helps clients devise a comprehensive IP strategy, including patent applications, trademark registration, and protection of proprietary technology.

• Litigation: Litigation involving blockchain technology has skyrocketed in recent years. Businesses facing investor lawsuits, government enforcement actions and investigations, and business litigation require robust representation.

CONCLUSION

The concept of currency is associated with the power of the sovereign to establish a legal framework providing for the central issuance of banknotes and coins. Naira and Kobo are the official legal tender (currency) in Nigeria which is legally backed up by many Acts. As it is now, the closest law in the regulation of cryptocurrency in Nigeria is the CBN Guidelines which is not a law for the regulation or otherwise of the use of cryptocurrencies. At best the said Guidelines can be described as caveat emptor, as the Supreme Court decided in Oladejo Adewuyi v Fadele Akanni and Ors (1993) LPELR-SC.36/1987.  

Despite its volatility and other demerits, cryptocurrencies are widely accepted in Nigeria, as the high volume of trade in the virtual currencies, in the country, show. This provides the justification for making cryptocurrencies legal in Nigeria and imposing on the CBN, the obligation to fashion a very robust and dynamic regulation mechanism for the virtual currencies. Doing so will fill the current gap occasioned by near-absence of regulation of cryptocurrencies in the country and will allow the maximization of the various benefits inherent in cryptocurrencies.

Blockchain technology is a digital technology that allows people to create a digital record of transactions that cannot be altered. It is primarily used in the financial world, but it is also being explored in other fields outside finance. Based on the technology impact, the technology can be used in Nigeria, as it has the potential to help reduce corruption, electoral result manipulation, increase transparency, provide data security, and improve education management systems. With a very promising future, it can be observed that Blockchain technology has the potential to foster innovations and is expected to revolutionize computing in several areas such as voting, Healthcare services, Education, Business industries, and where centralization was unnatural and privacy important. Therefore, the governments need to embrace this new and disruptive technology.

RECOMMENDATIONS

Despite the identified risks associated with virtual currencies and the reluctant attitude of even developed countries in totally accepting cryptocurrencies, as an alternative currency, it has come to stay and any law aimed at prohibiting or criminalising the usage of cryptocurrencies may not be effective. It is recommended that the Nigerian government should, as a matter of urgency, enact a comprehensive law and also come up with policies that will regulate the use of virtual currencies in the country. Such laws and policies should aim at protecting the rights of the users of cryptocurrencies. The Nigerian government should partner with willing Nigerian Universities by sponsoring and adequately funding research works on BT and cryptocurrencies. Furthermore, those circumventing existing CBN policies on crypto transactions should be punished. It is also recommended that the robust regulatory mechanism for cryptocurrencies earlier recommended should include efficacious strategies aimed at preventing cryptocurrencies from serving as a means of financing terrorism (both internationally and domestically) and other criminal acts. Also, there should be increased awareness to educate cryptocurrency users on the nature, gains and high risks attached to BT and cryptocurrencies.

SOURCES

• https://paxos.com/2024/05/22/understanding-the-different-blockchain-types/#:~:text=Four%20common%20types%20of%20blockchain,it%20comes%20to%20categorizing%20blockchains.

• The Imperative of Blockchain Technology in Nigeria General Election: International Journal of Social Science Research and Anthropology; Vol. 3

• The Place of Industrial Policy in the Adoption of Blockchain Technology in Nigeria: GPH Jornal of Applied Management Science; Vol. 5

• Possible Impact and Potentials of Blockchain Technology in Nigeria: Academy Journal of Science and Engineering

• https://www.kaspersky.com/resource-center/definitions/what-is-cryptocurrency

• An Overview of Blockchain Technology Adoption: Journal of Computer Science and Information Technology; Vol 7

• National Blockchain Policy for Nigeria 2023