by Senator Ihenyen

Introduction

Cryptocurrency is one of the innovative applications of blockchain technology to finance.¹ Using cryptography, this innovation introduces a new way to create, own, store, and transfer digital currency or “virtual currency” in an increasingly data-driven global economy without a central authority or third party. “Virtual currency” has been defined as “a digital representation of value that can be digitally traded and functions as (1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of value, but does not have legal tender status (i.e., when tendered to a creditor, is a valid and legal offer of payment) in any jurisdiction.”² Therefore, cryptocurrency should be understood as a decentralized virtual currency secured with cryptography. Cryptocurrencies, including bitcoin the biggest and the most adopted cryptocurrency, are essentially invented to solve the problem of trust in a centralized system.³  Ironically, the use of cryptocurrencies around the world, including Nigeria, has also brought about distrust. This distrust borders on the risks and threats often associated with the use of cryptocurrencies.

As recently re-emphasized by the Central Bank of Nigeria (CBN), cryptocurrency’s anonymous/pseudonymous nature has become appealing to criminals.⁴ This has brought about the use of cryptocurrencies for illegal activities, including money laundering, ransomware, scams, stolen funds, terrorism and extremism financing around the world. 

The above does not however mean that cryptocurrencies are in themselves criminal or illegal. Criminal or illegal activities are not peculiar to cryptocurrencies. Fiat currencies continue to be used today to perpetrate the significant size of criminal and illegal activities globally. This applies to all innovations. As observed in the Chainalysis 2021 Crypto Crime Report and CipherTrace’s Cryptocurrency and Anti-Money Laundering Report (February 2021), as the use of cryptocurrencies for legitimate transactions increases, the percentage of illegal use of cryptocurrencies reduces.⁵ Therefore, the regulatory approach should not be a ban of cryptocurrencies in Nigeria’s banking and financial system. Rather, regulators should consider a collaborative and risk-based approach, helping to minimize the identified risks and threats without stifling innovation. Innovation is as constant as change. Any resistance does not come without its own negative effects, especially on the global competitiveness of Nigeria’s economy in today’s digital economy. The CBN and other relevant regulators as well as other stakeholders are not incapable of working collaboratively to ensure a cryptocurrency ecosystem in Nigeria that is beneficial to Nigeria’s economy and does not compromise national security.

In 2020, cryptocurrency-related crimes fell significantly. Apart from the growing awareness of the transparent and traceable design of cryptocurrencies, this is also due to a more collaborative and risk-based approach adopted by regulators across major jurisdictions.  The part of this work that focuses on cryptocurrency crimes relies on available data from Chainalysis and CipherTrace, two reputable and independent global blockchain-analysis companies.

In the paragraphs that follow, the facts and figures are presented, making a strong case for a more collaborative, risk-based approach to cryptocurrency regulation in Nigeria. This will not only make Nigeria safer and more secure but also create economic opportunities, including job creation and foreign direct investments (FDIs) in the country. Hopefully, this piece adds to the resource that will help the CBN, the Securities and Exchange Commission (SEC), and other stakeholders including lawmakers, policymakers, and regulators consider regulating cryptocurrency in Nigeria rather than ban it in Nigeria’s banking and financial system.

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1. ‘Press release issued by Blockchain Industry Coordinating Committee of Nigeria (BICCoN)’, 13 February 2021, 5, https://drive.google.com/file/d/1odBKsNwsgDH088mY_7j2LFBqmV5g5V6O/view, accessed 28 February 2021
2. Virtual Currencies: Key Definitions and Potential AML/CFT Risks, Financial Action Task Force, June 2014, 4, https://www.fatf-gafi.org/media/fatf/documents/reports/virtual-currency-key-definitions-and-potential-aml-cft-risks.pdf
3. Ihenyen, Senator, ‘Blockchain Technology: Can it really solve the problem of trust in a centralized world?’, Blockchain Street, Chain One, Block 1, June 2020, 3, https://infusionlawyers.com/blockchain-technology-can-it-really-solve-the-problem-of-trust-in-a-centralized-world/
4. Ihenyen, Senator, ‘Blockchain Technology: Can it really solve the problem of trust in a centralized world?’, Blockchain Street, Chain One, Block 1, June 2020, 3, https://infusionlawyers.com/blockchain-technology-can-it-really-solve-the-problem-of-trust-in-a-centralized-world/
5. Central Bank of Nigeria (CBN), ‘Response to Regulatory Directive on Cryptocurrencies’, 7 February 2021, https://www.cbn.gov.ng/Out/2021/CCD/CBN%2520Press%2520Release%2520Crypto%252007022021.pdf&ved=2ahUKEwj5hav34sDvAhVz7OAKHeLMCxsQFjAAegQIARAC&usg=AOvVaw3vCD5XeG90pzWtLNssyFer accessed 28 February 2021