What is Cryptocurrency?
Cryptocurrency is defined as a digital currency that uses cryptography to secure and verify transactions. It can also be defined as a virtual, decentralized, and secure form of money that operates on a blockchain network. While a blockchain network is a distributed database or ledger shared among the network’s nodes.
The history of cryptocurrency can be traced to 1983, when American cryptographer David Chaum published a paper on cryptography electronic money, and further to 1995 when he built a proto-cryptocurrency, Digi cash. Another prominent name is Nick Szabo who developed the popularly described precursor to Bitcoin- Bit Gold, in 1998. Failure to solve the infamous double-spending problem associated with digital financial transactions without the use of a central authority would continue to linger until a decade later when a mysterious person or group of individuals under the name of Satoshi Nakamoto published a white paper called “Bitcoin- A Peer to Peer Electronic Cash System” that changed the history of cryptocurrency and global perception on money.
Cryptocurrency and Fiat Transaction.
Financial transaction involves the exchange of monetary value between two or more people. While Fiat is a government-issued currency not backed by a physical commodity such as gold or silver (e.g. the US Dollar, or Naira) but by the government that issued it, and has its value rooted in the relationship that exists between the laws of demand and supply. Fiat transactions are the more recognized means of financial transaction and largely involve the use of third parties to verify and ascertain transactions between parties. The Influence of third parties like banks and financial institutions on fiat transactions has effectively empowered regulators to establish, execute, and enforce financial transaction regulations. In contrast, cryptocurrency represents a decentralized medium of exchange designed to eliminate the influence of third parties, presenting significant challenges for regulatory authorities.
Nigeria Government Attitude and Policies towards Cryptocurrency.
As cryptocurrency continues to gain popularity and change the global monetary landscape, Nigeria- like every other country has had to deal with the issues surrounding its acceptance and regulation. The apex bank of Nigeria, the Central Bank, established under the CBN Act of 2007 and In the exercise of its powers under the Act, issued a circular to all Deposits Money Banks (DMBs) and Non-Bank Financial Institutions (NBFIs) on February 5, 2021, where it took a sterner approach by prohibiting transactions in cryptocurrency and closing bank accounts associated with cryptocurrencies, dealing one of the largest cryptocurrency market in the world, a huge blow. In another twist, the Security and Exchange Commission (SEC) on the 11th of May 2021 published new regulations titled “Rules on Issuance, Offering Platforms and Custody of Digital Assets” (the “Rules”) which classified cryptocurrency under digital assets. The SEC rules would provide guidelines and a framework for the issuance, offering, and custody of Digital Assets in Nigeria. The drawback to the implementation of the SEC rules would remain the CBN circular of February 5, 2021, which prohibited financial institutions from cryptocurrency transactions.
Reversal of the 2021 Ban and the Implication on Nigeria’s Crypto Landscape.
On the 22nd of December 2023, a circular by the CBN to all Deposit Money Banks (DMBs) and Non-Bank Financial Institutions (NBFIs) provided that the CBN will recognize cryptocurrency as a virtual asset. The apex bank further provided a guideline that will regulate the activities of stakeholders in the cryptocurrency space such as Commercial and Merchant banks; Payment Service Providers (restricted to those that are involved in settlement for third parties); All entities registered by the Securities and Exchange Commission (SEC) to conduct the business of digital/virtual assets services provision and shall include: Virtual Assets Service Providers, Digital Asset Custodian, Digital Asset Offering Platform, Digital Asset Exchange, DAX Operator, and any other entity that may be categorized by the CBN from time to time.
The implication of the new regulation for traders is the safety and security of funds kept in the custody of virtual Assets Service Providers. The guideline provides for the designation of accounts with specific requirements for opening and operating an account designated for conducting the business of virtual assets, restriction on the use of account, provision of designated settlement account, customer due diligence, customer protection measures, and sanctions in situations of breach.
Therefore, cryptocurrency traders can have confidence trading cryptocurrency in the country as it is legal to do so and the new guidelines have provided traders with the confidence to trade cryptocurrency.
The views expressed on this website are provided solely for general informational reasons and are not intended to be relied upon as legal advice.
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