Legal, Regulatory And Institutional Framework Of The Blockchain Industry In Nigeria
By Anthony Onwukwe and Arinze Okeke
With the fast rising growth of emerging technologies in the 21st century such as artificial intelligence, quantum computing, robotics and the blockchain, it is pertinent that adequate regulation should be channeled to ensure that these technologies and their adoptions adhere to global best practices and from the consumer protection perspective that these technologies and their adoptions do not harm the ordinary user of these technologies and products flowing from it. Thus, laws and regulations, policies and standards are perfect instruments to ensure that these technologies align with the purview of legality.
The blockchain technology is one of the fast rising technologies in the 21st century, having attained popularity within the last decade and has gained prominent adoptions in different industries and countries. It’s also safe to say that the blockchain technology has transcended into an industry. With the evolution of cryptocurrency, smart contracts, decentralized autonomous organizations (DAO) and presently Non Fungible Tokens (NFTs) and Metaverse, all built on the blockchain foundation, with adoptions, products and services, springing out from these novel areas, a question arises; what is the legal perspective concerning the blockchain industry? Are there legal or regulatory frameworks governing the blockchain industry especially with disruptive technologies springing up from the parent, blockchain.
Blockchain or the blockchain system is a distributed ledger technology (DLT) or a public ledger that is decentralized. Technically, blockchain is a network of blocks connected to each other in a sequence and each block contains specific data which could be health records, financial transactions, terms of contracts and many more. It’s also a system put in place to record decentralized transactions, in the sense that these transactions are not controlled by one body or a group of people unlike banks, issuance houses, which are centralized authorities.
In Nigeria, blockchain which has become more prominent amongst its citizens have been left widely unregulated by the governing laws of the nation. This can be associated with the lack of recognition and effort to adopt blockchain and its entails with the most prominent one being cryptocurrency, officially by the government.
On February 5th of 2021 the CBN issued a directive contained in a circular ordering banks to close operating accounts involved in cryptocurrency transactions. In the directive, the CBN reminded regulated institutions that dealing in cryptocurrency and facilitating payment in cryptocurrency is prohibited. This directive spurned from the statement of the CBN that digital currencies such as bitcoin, lite coin, dodge a lot more are used to finance terrorism, money laundering due to the anonymity associated with virtual transactions and its decentralized nature.
Notwithstanding the availability of certain laws and regulatory bodies which have been put in place to govern financial operations in Nigeria such as The Investment and Securities Act, 2007 which establishes the Securities and Exchange Commission, the Banking and other Financial Institutions Act, (BOFIA) 2007, the Finance Act 202, NDIC Act and regulatory bodies such as the Central Bank of Nigeria, Nigerian Deposit and Insurance corporation and the FIRS etc. Nigeria has no specific legislations or regulations on blockchain.
Overview of the legal and regulatory frameworks of blockchain in other countries
UNITED STATES OF AMERICA
In the United States, blockchain and cryptocurrency have been the front burner in terms of regulations and administration, with bodies such as the Security and Exchange Commission, Commodity Futures Trading Commission, Financial Crimes Enforcement Network, Internal Revenue Service, Office of the Controller of Currency, making efforts for a holistic regulation of blockchain and emerging financial technologies. Many federal and state agencies and policy makers have praised the technology and being important to US future infrastructure. Several state governments have proposed and passed laws affecting cryptocurrencies and blockchain technology to promote the technology which goes further to the establishment of cryptocurrency focused banks. Oklahoma a state in the US introduced a bill, authorizing cryptocurrency to be used, offered, sold, exchanged and accepted as an instrument of monetary value within its governmental agencies. Ohio became the first state to accept taxes in cryptocurrency.
UNITED KINGDOM
The post-Brexit era has caused a maturity in the development of regulations, governing blockchain/cryptocurrency in the UK. In year 2020, the UK confirmed crypto assets as properties although it hasn’t been considered a legal tender. However, the government of the UK have made efforts to regulate the cryptocurrency industry. In 2018, the UK government set up a tax force that defined cryptocurrencies and its utilization which led to further understanding of the complexities and dynamics governing cryptocurrency it has also set up compliance requirement for companies, brands and project, that seek to run blockchain focused businesses in the UK. Notwithstanding, efforts are being made to draft a governing law on blockchain and cryptocurrency.
However, certain existing laws and regulations can be applied to a number of blockchain adoptions across industries in the Nigerian economy which will be examined below;
Cyber Crimes (prohibition and prevention) Act 2015; due to the cyber security threat or attack that might affect blockchain networks, this Act can play a role in preventing such attacks. The Act creates a comprehensive legal, regulatory and institutional framework in Nigeria to prevent, prohibit, detect, prosecute and punish cybercrime in Nigeria.
The primary legislation from the regulation of capital market in Nigeria, is the Investment and Securities Act 2007, which establishes the SEC. SEC currently recognizes virtual assets and instruments and provides for their treatment under its rules. For instance, crypto assets are treated as commodities if traded on a recognized investment exchange or issued as an investment whereby they are subject to Part E of the SEC rules and other relevant sections and subsequent rules.
Finally, general compliance requirements such as KYC (know your customer), Anti money laundering compliance and CFT and other corporate compliance requirements apply to businesses building on the blockchain technology. For instance, blockchain companies are to comply with data privacy laws in Nigeria as well as intellectual property laws and regulations of the nation.
We recommend that there should be a second look at the adoption and recognition of blockchain and cryptocurrencies by the Nigerian government. This review should be done with expertise, taking cognizance of the prospects and utility blockchain offers as this would enable the formulation of sufficient policies to govern the blockchain sector and boost the economic growth of the country.
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