The decision of the CBN, on Friday, February 5, to issue a mandate to all commercial banks regarding the embargo on the transactions of crypto-currency elicited uniformed umbrage from the citizenry.
However, the mandate by the CBN is only a reminder of an earlier circular of January 12, 2017, which cautioned on the risk associated with transactions in cryptocurrency refer.
“Further to earlier regulatory directives on the subject, the Bank hereby wishes to remind regulated institutions that dealing in cryptocurrencies or facilitating payments for cryptocurrency exchanges is prohibited.
“Accordingly, all DMBs, NBFIs, and OFIs are directed to identify persons/or entities transacting in or operating cryptocurrency exchanges within their systems and ensure that such accounts are closed immediately”, the CBN circular, which took immediate effect warned, “that breaches of this directive will attract severe regulatory sanctions.”
This recent circular means that while the CBN has not banned virtual currencies, it has effectively blocked the ability of the exchanges which trade them to collect payments from bank customers.
Since crypto is hardly bought with cash from exchanges, this move will affect the operation of companies like BuyCoins, Patricia, Yellow Card among others.
While there have been conversations about the regulation of virtual currencies in Africa over the years, no one could have predicted these new rules.
The Securities and Exchange Commission, whose primary function is to safeguard investors warned investors about trading virtual currency in 2017. In a turnaround, the SEC recognised the validity of cryptocurrency as investments in September 2020.
According to the SEC, “Virtual crypto assets are securities; unless proven otherwise. The burden of proving that the crypto assets proposed to be offered are not securities and therefore not under the jurisdiction of the SEC is placed on the issuer or sponsor of the said assets.”
The commission went further to say that, “issuers or sponsors of virtual digital assets shall be guided by the commission’s regulation. The general objective of regulation is not to hinder technology or stifle innovation, but to create standards that encourage ethical practices.”
Before delving into the decision of the CBN and reactions from Nigerians, it is pertinent to have an understanding of what cryptocurrency entails.
Decryptionary.com further defined cryptocurrency as “electronic money created with technology controlling its creation and protecting transactions, while hiding the identities of its users.”
The seduction of crypto-currency is the convenience in its generation, storage, management, and accounting.
It operates based on a technology called ”Blockchain”.
Crypto-currencies are largely designed to operate without sovereign regulation and are protected from being discovered by the government authorities for supervision, this is the major feature directly related to the line of contention.
Some major types of cryptocurrencies include Bitcoins, Lite coin, Z cash, Dash, Ripple, Ethereum, NEO, Altcoins, and Tether.
Bitcoin is widely seen as a pioneer and the most successfully used in the world of cryptocurrencies.
Bitcoin was first made available to the public in 2009 and has ever since expanded by maintaining the highest market capitalization.
Major features associated with cryptocurrencies include:
- Created to be Anonymous: As the name implies, crypto means something concealed in secrecy or hidden. Their operation involves the use of codes in a form known as cryptography.
- Designed to operate with limited control from the government: Cryptocurrencies are modeled to operate with absolute independence. No central authority, government, or cooperation has access to the funds or personal information of the currency owners.
- Funds transfer is carried out directly between parties, and in the absence of any third party like a bank or credit card company.
Issues Associated with the Use of Cryptocurrencies
- Very volatile: Cryptocurrency has been identified as being liable to rapid and unpredictable changes as they are prone to fluctuation. The reason for this is that their prices are based on supply and demand.
- The anonymous/semi-anonymous nature of cryptocurrencies makes them susceptible to a host of nefarious activities such as money laundering and tax evasion.
- The cryptocurrency market is known for being speculative, there is no assurance that what is invested is what will be reaped or even more
- Non-revenue producing asset to states: The nature of crypto currencies and its secret operational system which is not controlled by any the government places it in a position, whereby it operates without remitting any form of revenue to the government.
- Unstable regulations surrounding its usage: There is yet to be a recognized regulation on the use of cryptocurrencies, although there are countries where there exist some forms of regulation on its use, there is no specific dedicated regulatory system.
Case for ban by CBN
Data protection has become much more important in recent times as technology and its use is in boom. Different countries have enacted various laws, national and regional, to ensure the protection of consumer data.
For example, in 2018 the European Union enforced the General Data Protection Regulation across the continent and all organizations were mandated to implement its provisions.
In Nigeria also, there are laws that cater to the protection of consumer data dating way back to the 1999 constitution (as amended). This provided for the citizen’s right to privacy of home, correspondence, telephone conversations, and telegraphic communications.
The Nigerian Cyber Crime (Prohibition, Prevention) Act 2015, requires all financial institutions, including Fintech companies, to verify the identity of customers involved in electronic transactions, integrate and implement know-your-customer (KYC) processes and keep all subscriber data safe for a period of two (2) years.
Also, the Central Bank of Nigeria (CBN) Consumer Protection Framework requires all financial institutions regulated by the CBN to keep private consumers’ data and implement protection measure to prevent unauthorized disclosure of such data.
However, there is a difference between data protection and untraceable data. Globally, data protection laws are made to protect personally identifiable information of consumers.
This means that the information is traceable to particular consumers and the financial institutions affected are required to make these data available when so directed by a law enforcement agency.
The use of crypto-currency goes beyond data protection and enters the realm of data that is untraceable. Several governments have banned the use of crypto-currencies within their realm, others have advised the public against it as they claim crypto-currencies cannot be regulated, and yet others have accepted the use of these digital currencies and subjected their use to their Fintech laws.
The first legal issue to be considered in the use of crypto-currency is its legality. Many countries have banned the use of crypto-currency and have tagged it illegal currency.
So, there lies the question of the consequences of involvement in transactions that have no legal validity. The answer is the lack of legal recourse to substantiate claims in court in case of fraud or loss.
Most government warnings against crypto-currencies stem from the fact that they are unregulated and therefore it is impossible to enforce rights in any court of law.
Secondly, anonymity has always been one of the many appeals associated with using crypto-currency.
Cybercrimes that stem from this anonymity involve:
- Trade of illegal goods and services (drugs, weapons, human organs).
- Ransomware attacks.
- Money laundering.
- Cryptojacking – this is where the processing power of an unsuspecting person’s CPU is hijacked to mine for cryptocurrencies without their knowledge.
- Ponzi Schemes such as Bitconnect, DavorCoin, OneCoin, etc.
- Crypto-currency theft achieved through exchange hacks.
- Initial Coin Offerings Fraud.
A communications experts and CEO Fabulous Foods, Toks Oguntuga, who is in favour of the CBN ban stated, “The hoopla generated by the CBN policy on crypto is mainly from people who know little or nothing about cryptocurrencies, people who use it for dubious purposes and people who are perhaps blinded by politics and simply rehash whatever appears an opportunity to attack the current government.
“Nigeria’s economy is largely informal. The market men and women; many other businessmen and women who dominate the informal sector don’t even know jack about cryptos. How does crypto affect the price of garri or elubo lafun in the market? How many Nigerian businesses accept cryptos as a means of exchange?
“There is no government in the world except perhaps the pariah nations like N.Korea or countries under UN or US sanctions who will transact international business with cryptos. The reasons are simple. Cryptocurrencies are highly untraceable and very open to abuse.
“It is now the go-to currency by yahoo boys, terrorists and drug barons.
“The noise caused by the CBN policy is a confirmation that there is something fishy about the modus operandi of cryptos in Nigeria. As big as China’s economy is, with a GDP of $14trillion, they are not as crazy with cryptos. Why are a few Nigerians with a GDP economy of mere $250billion going hysterical because of cryptos?
“When a $15trillion economy trades only $198.3 of cryptos but that of $250 economy, notorious for corruption for that matter does $400m – double of it, it sure raises an eyebrow.
“Nigerians just like to major in frivolities. What we need is an enabling environment for businesses to thrive: good roads, security, and constant power. How do cryptos make those happen?”
In conclusion, in spite of the imminent abuse associated with trading in cryptocurrency, it should not be condemned in its totality; rather stringent national and global regulations should be put in place in curbing its misuse.
By Mayowa Oladeji…
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