by Mark Schwarz
In spite of Bitcoin being a decentralized payment protocol, governments around the world have always tried to ban it. In some countries like Morocco and Bolivia, trading Bitcoins attracts a hefty fine or jail term. In Nigeria, Bitcoin’s legal status is largely ambiguous. Here is why.
Nigeria Government’s Stance
In January 2017, the Nigerian Central Bank issued a statement banning any transactions in Bitcoins. The banks’ regulator circulated a statement to all banks in the country warning them against facilitating the trading of Bitcoins in the country.
Nigeria’s Central Bank argued that Bitcoin traders risked losing all their money by trading in a currency that was not regulated. They also noted that crypto exchanges were hardly regulated as well and their collapse could lead to a financial detriment to the traders. However, the statement didn’t affect a lot in the country’s cryptocurrency industry.
Most crypto exchanges continued to operate as usual. Later on, Musa Jimoh, a senior director in the Central Bank of Nigeria, clarified to the media that the CBN had no legal authority to regulate Bitcoins or any cryptocurrency exchange. Mr. Jimoh compared Bitcoin to the Internet, citing that neither could be regulated.
Securities and Exchange Commission
Nigeria’s SEC made a statement last year, warning Bitcoin traders to exercise caution. The Securities and Exchange Commission also warned ICO and altcoin traders, noting that most crypto traders dealt with all three types of crypto assets.
In early March this year, the Central Bank of Nigeria reiterated its stance on cryptocurrencies, warning traders that digital assets are a gamble. This came despite the CBN having organized a committee to review how the blockchain technology would benefit the country and the safety of it when used as an asset of value.
Like many countries around the world, Nigeria is yet to introduce a legal framework for cryptocurrencies or crypto exchanges. However, the country is showing great interest in introducing a legal framework. After the March statement by CBN, Nigerian lawmakers urged the regulatory authority and Nigeria’s Deposit Insurance Commission to speed up efforts to introduce a legal framework for cryptocurrencies in the country.
How Nigeria Compared to other African Countries
Cryptocurrency adoption in Africa is fast increasing, but it’s yet to reach the heights of developed countries like Russia and the US. Trading volumes in South Africa, for example, now hit an average of $10 million against an average of $5 million in early 2017.
Cryptocurrency adoption in Zimbabwe had also been rising at an incredible rate until recently when the country’s Reserve Bank announced a ban on all forms of cryptocurrency trading in the country. On May 14, the Reserve Bank of Zimbabwe banned cryptocurrency and ICO listing in the country, sending confusion among thousands of traders.
In Morocco, any form of cryptocurrency trading is banned. Like Egypt, one of the first African countries to ban Bitcoin for religious reasons, trading cryptos in Morocco is a serious crime that attracts jail term or fines.
In Kenya, East Africa’s largest economy, cryptocurrency trading is generally supported by government authorities. In fact, popular peer to peer lending site, LocaBitcoins.com recently announced that they had experienced unprecedented growth rates in Bitcoin trading in the country. Kenya’s Central Bank, however, does not endorse Bitcoin trading.
The CBK has regularly cautioned traders against crypto or ICO trading. Nonetheless, there are over a dozen of crypto startups in the country, some of which have already established themselves in different African countries.
Like in Kenya and Nigeria, crypto traders in Uganda have been trading despite a lack of support from their government. Of late, however, Uganda has been warming up to the idea of working with crypto startups. Last month, Binance’s CEO, Zhao Changpeng, proposed establishing Africa’s cryptocurrency exchange in Kampala. And noting that Zhao’s Binance is the largest exchange in the world, working with Uganda may change a lot in the country’s economy.
What does Nigeria’s Unclear Legal Framework mean to Crypto Startups?
The Nigerian government may still be reeling behind when it comes to setting a legal framework for cryptocurrencies, but startups can still operate. Actually, Nigeria has the highest adoption rate for cryptocurrencies in Africa. More than a dozen crypto exchanges record daily trading volumes of more than $10 million.
Setting up a Crypto Startup in Nigeria
It’s legal to start any type of business related to the cryptocurrency industry. Whether it’s an exchange, a blockchain firm or a Bitcoin mining farm, it’s possible to get licensed and start operation in Nigeria. Currently, crypto startups are classified like most businesses in the finance sector and such they have to impose KYC rules.
What to Expect with Impending Crypto Regulation
The call to regulate cryptocurrencies in Nigeria is nearly in fruition. It’s now a matter of weeks before a legal framework is introduced, probably later in July. Here is what to expect:
Security Standards will be defined
The CBN has regularly faulted weak security systems used by crypto exchanges as a reason not to trade cryptocurrencies. Once a legal framework is introduced, the government is highly likely to set high-security standards for crypto exchanges.
Specific KYC Rules
Nearly all cryptocurrency exchanges that deal with cash have to run KYC rules. However, the CBN is expected to set higher standards for startups when a legal framework is introduced. Trading cryptocurrencies in Nigeria might become easier or more difficult depending on the rules set by regulators.
Proper Definition of Cryptos
Currently, there is confusion as to whether Bitcoin is a currency or an asset. In many countries, the same confusion arises when defining Bitcoin, ICOs, and altcoins. A legal framework will define the assets accordingly for all traders and startups.
As it stands, Nigerian crypto startups do not pay more tax compared to other businesses. This is not likely to change even with the expected changes. However, until the government releases the legal framework, Nigerian crypto startups will have to wait to know the fate of taxation in the cryptocurrency industry.
Nigerians are free to trade cryptocurrencies as they wish. Many exchanges in the country enable trading with both credit/debit and bank transfers. There is almost no taxation required on the part of traders. However, impending cryptocurrency laws will help set precedence for the next chapter of cryptocurrency trading in Nigeria.
Mark Schwarz is a cryptocurrency expert, blockchain programmer, and one of the authors of aBitGreedy.com.