Cryptocurrnecy in Nigeria is
one of the major off shoots of the Technology wave that has changed the
Nigerian business landscape.

Technology has
since, the last century seen a high permeation in all sectors of the global
economy. To be seen as a cutting edge solution provider, individuals in the
corporate world must be technology savvy or “techy”. Competition is now more
than ever, based on the application of technology such that to move your
business to the next level, you need to be tech-involved.

Advancement in technology
has seen the birth of cryptocurrency as a major consideration in both the tech
and financial worlds. cryptocurrency has been defined as a digital currency in
which encryption techniques are used to regulate the generation of units of
currency and verify the transfer of funds, operating independently of a central
bank. Decentralized cryptocurrencies such as Bitcoin now provide an outlet for
personal wealth that is beyond restriction and confiscation.

There has been a lot of
positive and negative discourse on the value of cryptocurrency
to fiscal systems
. With all the hype about the Bitcoin, the
bubble eventually burst in June last year and has left a lot of Bitcoin
investors, including myself, sceptical as to whether there is a future for
cryptocurrency independent of government regulation.

I was recently briefed by a
client seeking legal advice regarding the use of cryptocurrency by way of an
“Agri Coin” to unify farmers, farm products and product trading in the rural
areas of Nigeria. The coin would be utilized to project, coordinate and monitor
agricultural services. I was really interested in proffering legal advice in such
a ‘techi’ area. I immediately, but with some help from my ‘techi’ sons embarked
on research into this subject. I didn’t mention the fact that it was one of my
‘techi’ sons who urged me to invest a small amount of money in the Bitcoin,
which unfortunately I lost and fortunately had the sense not to invest my
entire life savings.

As a lawyer, my interest in
new products and services remains constant. To enter a discussion on the value
of cryptocurrency, it is important to learn about related things like
blockchain, smart
and ICOs. It has been established that cryptocurrency springs
from cryptography which is the process of converting plain text into
unintelligible text and the reverse; it is entirely digital and relies on
encryption that enhances secure transactions. In researching this topic I can
say with some authority that cryptocurrency was devised as an alternative form
of payment to cash and its equivalents such as credit/debit cards, cheques etc.
Its use is independent of our traditional banks. In other words, the use of
cryptocurrency dispenses with the need for intermediaries in the form of banks
and other financial institutions.

Cryptocurrency is backed by
a technology called Blockchain. To
answer the question, “what is a Blockchain?” we first need to understand the
meaning of “a ledger”, and then apply the same within the context of our
discourse. In accounting, a ledger is a computer file or a book where you find
a complete record of a company’s financial transactions throughout its life.
Using this record, accounting officers can prepare the company’s financial
statements. The ledger records financial information on liabilities, assets,
expenses, revenues and owners’ equity.

With the above in mind and
the understanding put in context, it is clear that Blockchain is simply a” decentralized
ledger”. It contains records which can be verified autonomously without the
need to have a central entity. It is not just a public ledger, but a real-time
ledger that records practically anything that can be put on record, including
but not limited to contracts, financial transactions, information on the supply
chain, physical assets, etc.

One major feature
characterizing Blockchain technology is the decentralized feature it possesses.
 There is no one organization or person who is in charge of keeping this
ledger. Instead, the ledger is open for everyone in the chain who can see every
detail of every record hence it is “public”. Each of the records in this chain
of records is referred to as “a block”. In addition, a fundamental feature of
Blockchain technology we need to consider is its immutable character. The
records absolved by Blockchain technology are such that are fixed and cannot be
edited by any person once it gets to the platform. This accounts for
transparency in transactions.

So, in summary, think of
Blockchain as a long chain of records (financial transactions or otherwise)
made up of blocks, with each block being each of the records that make up the
long chain. Each block is encrypted and has a time stamp which is immutable.

An affiliated subject matter
which I had to get my head around to understand in my quest for knowledge is
the “Smart Contract”. Smart contracts are computer protocols intended to
digitally facilitate, verify, or enforce the negotiation or performance of
a contract. These transactions are trackable and irreversible. Smart
contracts have been touted as the true building blocks of Blockchain
applications. At the core of smart contracts are self-execution, code write-ups
and Blockchain enforcement (all technical terms which I am still trying to

A smart contract is designed
using lines of code and executes itself without the intervention of a third
party and after fulfilment of certain laid out conditions. In other words and
put simply a smart contract is an agreement between two people in the
form of computer code. It runs on the blockchain, so it can be stored on a
public database and cannot be changed. The transactions that happen in
a smart contract processed by the blockchain, which means they can be
sent automatically without a third party. It has been argued that using smart
contracts helps you eliminate both enforcement costs and ambiguity, making all
business transactions instantaneous. Further, it lets you replace traditional
contracts; which then saves time and money for your business. While this
may be true, it is clear from practice that the orthodox manner of contractual
evidencing still is the order of the day.  

is impossible to comment on the subject matter of cryptocurrency without making
mentions of token offerings and initial coin offering. An initial coin
offering, also commonly referred to as an  ICO, is a fundraising mechanism
in which new projects sell their underlying crypto tokens in exchange for a
cryptocurrency be it Bitcoin, Ethereum etc. An ICO is similar to an Initial
Public Offering (IPO) in which investors purchase shares of a company, in the
case of an ICO they are purchasing units of cryptocurrency. SureRemit a
Nigerian start-up company raised $7 million through a Blockchain ICO aided by
‘Hashed’ one of the largest cryptocurrency funds domiciled in South Korea.

The exigencies of commerce
rely to a large extent on the dissemination of information. Information is
driven by technology which is the mainstay of daily commercial activity be it
withdrawing or transferring money at an ATM point, opening letters of credit,
operating credit cards, paying for goods and services, effecting a takeover bid
the list is inexhaustible, what is clear is that technology and information
remain the main drivers of commerce lack of which can lead to dire
consequences. Technology promotes information and allows corporate business to
consider imperatives to enhance efficiency and prevent losses.

Where am I going with all
this? I am looking at the value of cryptocurrency in global financial systems
and the need for government regulation. Some exponents believe that
cryptocurrencies are ripe to compete with traditional financial systems and
that “money is an asset with value meaning that money competes with money”
therefore cryptocurrencies should be fully integrated into global financial
systems. There is however a downside to this. Without government regulation,
massive fraud and theft may be perpetrated through cryptocurrency as it can be
used to promote money laundering activities, support radical movements and bad
governments, finance illegal drug trafficking and human trafficking. Truth be
told there will always be crime and criminals, therefore, the axiom “prevention
is better than cure
” comes in. This in my view begs the need for government

Money has always played a
fundamental role in the development of global financial systems and
historically paved the way for global trade and economic growth. Gradually, we
are seeing a transition from physical currency to almost virtual currency. The
fact that most economies have or are in the process of doing away with cash
means that financial systems are still evolving. This notwithstanding, some
sceptics are of the view that cryptocurrency can never be worth more than
“zero” and therefore should be disregarded as a technological whim. I,
therefore, believe that governments should start looking seriously at the
advantages of promoting legislation and regulations in this regard as the value
of digital assets is increasing with the world’s top five companies having data
as a primary asset.

Trading in cryptocurrency in
Nigeria is becoming very popular and can be a profitable idea for investment.
These accounts for why we have full-time crypto traders who employ various
strategies and methods of trading. As a result of its decentralized feature,
trading in cryptocurrency requires no involvement from a central bank thus
unlike regular cash and financial instruments, the pricing process is not
affected and this aids trading transparency. While this may be so, one will
question whether it will not affect the key issues of “predictability”. 

are at present 10 cryptocurrency exchange platforms in Nigeria otherwise termed
e-currency exchanges as well as online training courses on how to buy trade and
invest in cryptocurrency.  The interest of individuals in this area is
slowly but surely increasing. The Central Bank of Nigeria (CBN) and the
Securities Exchange Commission (SEC) both regulators of the money market and
capital market respectively have intermittently given warnings (somewhat of a
buyer beware notice)to the public regarding investing in cryptocurrencies. This
notwithstanding, cryptocurrency in Nigeria and its trading has not been
prohibited. While it is trite that there is currently no legislation in this regard,
the main issue seems to be the status of cryptocurrency. Different
jurisdictions have stated cryptocurrency to have the status of either security,
currency, property, cash equivalent, asset or commodity and this has made it
easier to be legislated on, regulated and monitored. This is however not the
position in Nigeria.

It is interesting to note
that Nigerian Banks and other Financial Institutions, as well as capital market
operators, are prohibited from investing in cryptocurrencies or carrying on
business as a virtual currency exchange. Most authors on this topic including
Chimezie Chuta, the coordinator of Blockchain Nigeria User Group, who has
written extensively on this subject matter, are of the opinion that “government
must seek out avenues and intelligent approaches to deal with Blockchain and

With evolving global trends
in the world’s financial sector, Nigeria is really lagging behind. The need for
the Nigerian government to review the financial services sector and completely
revolutionize institutions and soft structures cannot be overemphasized. If
Nigeria wants to be part of the technology jet set, the time to do this is now.
We have already seen a trend whereby Nigerian tech companies are operating
through off-shore locations such as Mauritius. As a former member of “Financial
Systems Strategy 20:20,
a CBN initiative established in 2007 by CBN
Governor, Professor Soludo aimed to provide a robust financial system that will
power the Nigerian economy, I often wonder where we are with 2020 being just a
year away!

In conclusion, I believe
that cryptocurrency in Nigeria has come to stay and its advantages clearly
outweigh the disadvantages. Consequently, I call on both the CBN and SEC to
make an informed decision on how to provide regulations for this product so
that it can gradually be integrated into our financial ecosystem.

Written By:

Managing Partner at Olisa
Agbakoba Legal
Source: OAL Legal