INTRODUCTION
Cryptocurrencies have grown widely used worldwide, but their legal position in many nations remains somewhat murky. They are classified as currencies, securities, properties, assets, commodities, tokens, and so on, but not money. The increasing popularity, qualities, and potential of cryptocurrencies have caused numerous countries to consider their regulation.
A cryptocurrency (also known as virtual currency) is a digital currency in which transactions are validated, and records are kept by a decentralised open-ledger system that employs encryption rather than a centralised authority. It is a digital asset intended to function as a medium of trade in which each coin's ownership record is kept track of in a ledger that exists as an electronic database. Once a niche interest, cryptocurrency expanded to become a global phenomenon that is changing the financial industry.
CLASSIFICATION OF CRYPTOCURRENCY AS A COMMODITY
The taxes, trading, and legal recognition of cryptocurrencies are all impacted by Nigeria's intricate and dynamic legal classification.
According to the Nigerian Securities and Exchange Commission (SEC), cryptocurrencies fall under the commodity category. According to this categorisation, cryptocurrencies are assets that can be traded and whose value is subject to changes in supply and demand in the market. In Nigeria, cryptocurrencies that are categorised as commodities are liable to taxes. Guidelines for taxing cryptocurrencies have been released by the Federal Inland Revenue Service (FIRS), which treats them like other assets or commodities for income tax purposes. Trading cryptocurrency profits are usually liable to capital gains tax. Nigerian regulations about cryptocurrencies are also impacted by their status as commodities. The SEC regulates securities and commodities, ensuring that exchanges and trading platforms abide by all applicable rules and laws. This covers the prerequisites for Bitcoin exchange registration and licencing.
Nigeria's cryptocurrency classification policy aligns with global practices, which generally recognise cryptocurrencies as assets or commodities rather than as legal money. This classification highlights initiatives to control cryptocurrency dangers while maximising its possible advantages, like financial inclusion and innovative digital payments.
Although the SEC has classed cryptocurrencies as commodities in Nigeria, the regulatory environment is still changing and open to new developments. In order to guarantee that cryptocurrencies are integrated into the more extensive financial system and to shape the future of cryptocurrencies in Nigeria, international cooperation, uniform enforcement, and clear regulations are essential.
REGULATION OF CRYPTOCURRENCIES IN NIGERIA
Two statutes in Nigeria came close to making provisions that can be extended to virtual currencies; they are the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act[1] and the Investment and Securities Act[2]. The Foreign Exchange (Monitoring and Miscellaneous Provisions) Act establishes an autonomous foreign exchange market and makes provisions for the monitoring and supervising of transactions conducted in the market. Section 2 of the Act provides that transactions in the market shall be undertaken in any convertible foreign currency and through the usual money market instruments, including foreign banknotes and coins, travellers’ cheques, bank drafts, mail and telegraphic transfers and any other money market instruments as CBN may from time to time determine with the approval of the Minister.
THE CENTRAL BANK OF NIGERIA AND CRYPTOCURRENCY: REGULATION, CHALLENGES, AND FUTURE PROSPECT
Cryptocurrency has generated excitement and regulatory attention globally as a decentralised digital asset. The Central Bank of Nigeria (CBN) significantly impacts how cryptocurrencies are viewed, used, and regulated in Nigeria. It also shapes the regulatory environment around cryptocurrencies in the nation.
With regard to cryptocurrencies, the CBN has voiced cautious scepticism, raising issues with consumer protection, financial stability, and possible illegal use. The CBN issued a circular in February 2021 ordering banking institutions to stop supporting cryptocurrency transactions and to close any cryptocurrency-related accounts. The purpose of this order was to protect the financial system from the threats posed by digital assets and to guarantee adherence to current Anti-Money Laundering (AML) and Counter-terrorism Financing laws. The CBN had voiced concerns about cryptocurrencies and issued repeated advisories against using them, claiming that the anonymity offered by virtual transactions made it possible for cryptocurrencies like Bitcoin, Litecoin, Ethereum, and others to be used for money laundering and terrorism financing.
By releasing a circular on 22 December 2023, the Central Bank of Nigeria (CBN) changed its position on bank accounts connected to or facilitating payments for cryptocurrencies or cryptocurrency exchanges. The Guidelines on Operations of Bank Accounts for Virtual Assets Service Providers have been released by the Central Bank, which has officially revoked its 2021 circular. The guidelines control the creation, management, and utilisation of bank accounts created by Digital Assets (DA) and Virtual Assets Service Providers (VASPs). VASPs are organisations that carry out transactions involving the exchange of virtual assets for fiat money, the exchange of one or more virtual asset types, the transfer of virtual assets, the administration and/or safekeeping of virtual assets or tools that allow control over virtual assets, and the involvement in and provision of financial services associated with an issuer's offer and/or sale of a virtual asset. Financial VASPs like cryptocurrency exchanges and wallet providers are subject to strict rules. Failure to comply could result in severe penalties, including the risk of hefty fines, registration revocation, or even a total ban on operations within Nigeria.
CHALLENGES AND CRITICISMS OF THE CBN’S STANCE
Fintech innovators, cryptocurrency aficionados, and industry players have criticised the CBN's restrictive position on cryptocurrencies. Opponents contend that the prohibition hinders Nigeria's standing in the international digital economy, inhibits innovation, and reduces chances for financial inclusion. Additionally, investors and companies in the cryptocurrency field are hesitant due to the lack of clarity and consistency in the regulatory approach.
In Nigeria, the legal position of cryptocurrencies is still unclear despite directions from the CBN. Even though the Securities and Exchange Commission (SEC) categorises cryptocurrencies as commodities, there are regulatory gaps and difficulties with enforcement because no comprehensive legislation addresses cryptocurrencies directly. This ambiguity presents difficulties for cryptocurrency exchanges, investors, and consumers looking for legal certainty and protection under Nigerian law.
THE FUTURE DIRECTION OF CRYPTOCURRENCY REGULATION IN NIGERIA
Global trends, technological breakthroughs, and changes in domestic and international regulations will all likely impact how cryptocurrency legislation develops in Nigeria in the future. Many nations are working hard to create cryptocurrency regulations to solve issues like financial stability, consumer protection, and money laundering. Nigeria may draw inspiration from these international trends and modify laws to fit its unique social and economic circumstances.
There are benefits and drawbacks to the swift development of cryptocurrencies and blockchain technology. It will be necessary for regulatory organisations like the CBN to keep up with technological developments if they are to oversee and control the cryptocurrency market successfully. By giving marginalised communities access to financial services, cryptocurrencies have the potential to improve financial inclusion. Nigerian regulators might consider this when creating laws to balance innovation and consumer protection. Nigeria might work with regulatory agencies and international organisations to develop unified cryptocurrency regulations. This has the potential to improve global collaboration and reduce regulatory arbitrage.
CONCLUSION
In conclusion, Nigeria's legal and cryptocurrency landscapes are dynamic, with new legal nuances, regulatory obstacles, and changing viewpoints. Policymakers need to act quickly to create regulatory frameworks that are transparent, uniform, and flexible as cryptocurrencies continue to gain traction and acceptance among the general public. By doing this, Nigeria can protect its financial system and advance equitable economic growth in the digital era while using blockchain technology's transformative potential.
Ikeola Atilola