Nigeria’s unregulated but flourishing crypto space

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Despite its ban by the Central Bank of Nigeria (CBN), adoption of crypto has been phenomenal in the country. It is projected that by 2030, its adoption could reach 100 per cent. LUCAS AJANAKU reports that in a cash-strapped economy such as Nigeria’s, the government should take another look at the blanket ban on crypto.

Millions of investors have been drawn to cryptocurrency by the prospect of rising prices. To this end, a growing number of young global investors see cryptocurrency as a viable alternative to gold, the world’s oldest safe-haven asset. A recent CNBC Millionaire Survey indicated that 83 per cent of millennial millionaires held cryptocurrency.

Currently, there are around 20,000 cryptocurrencies offered with over 300 million users globally. 48 million of these users are from the African Continent. Crypto’s potential to bridge the economic divide, serving personal and entrepreneurial demands such as remittance, e-commerce, payments, wealth preservation, and social good, is a significant reason for its growing popularity in Africa.

Despite this, African countries have taken a significantly different stance toward cryptocurrency than most other governments around the world. Nigeria and Kenya are two countries in this region that have decided to prohibit the use of cryptocurrencies or have issued warnings and in some instances outright bans to their banking systems about the risks associated with using them. Yet, Nigeria’s enthusiasm knows no bounds, and it is anticipated that the country could reach a rate of 100 per cent adoption by the year 2030. Other countries such as South Africa are simultaneously supporting the exchange of digital assets.

Cryptocurrency regulation has grown in popularity over the years. Globally, 33 countries regulated cryptocurrency in 2018. As of 2021, this number had risen dramatically to 103 nations.

Ban or iron-clad regulation?

According to the Head of Compliance for Africa, at Luno, Johan Hetzel, there are three crucial measures that authorities should consider before implementing stricter or blanket legislation on the industry.

Regulatory framework

According to Hetzel, through virtual assets (VAs) and virtual asset service providers (VASPs), there has been an inflow of $105.6 billion into Africa, the world’s smallest crypto economy, from 2020 to 2021. This suggests that VASPs could prove beneficial to the economies that permit them. “When we look at how countries regulate VAs and VASPs globally, trends show five factors that are considered in this process,” he said. These, according to him,  include the legal status and environment of VAs and VASPs in a country. That is, are there any legal restrictions that apply to the use and operation of VAs and VASPs?

Another is the regulatory framework within a country. That is, what are the rules that apply to the VA and VASP industry and how this is regulated?

Registration and licensing requirements within a country; market surveillance, anti-market manipulation frameworks in place; and anti-money laundering, counter-terrorism financing and counter proliferation financing (AML, CTF and CPF) requirements that are applicable to the industry as well as the focus on consumer protection.

That is customer due diligence (CDD / KYC) requirements, monitoring customer transactions and behaviour, screening, marketing and advertising requirements and associated controls.

Regulatory frameworks developed on the back of these factors prove to be more beneficial to the local market and encourage partnerships between the VASPs, financial institutions and regulators, whilst promoting the innovation that the VA and VASP industry presents.

 



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