Whilst at a meeting, in the early hours of 8a.m. yesterday, I read a report on Business Day that members of the House of Representatives on Wednesday called on Central Bank of Nigeria (CBN) and Nigerian Deposit Insurance Commission (NDIC) to put in place a legal framework for the regulation of the blockchain technology. Hence, as a technology law and policy consultant, I decided to weigh in on the matter, as a matter of urgent national service and to provide some informed insights that will lead us into a proactive, rather than reactive decision as Africa’s most populous and strategic country.
Firstly, it is important to state that the Nigerian Senate had earlier referred the matter to the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Commission (NDIC), who set up a committee to look at the use of bitcoin. However, the call by the House of Representatives expanded its scope to ‘block-chain (and internet technology)’.
The blockchain is an undeniably ingenious invention – the brainchild of a person or group of peoplecr known by the pseudonym, Satoshi Nakamoto. But since then, it has evolved into something greater, and the main question every single person is asking is: What is Blockchain?
Blockchain has become a user-friendly digital and decentralization (distributed) ledger technology that records all transactions without the need for a financial intermediary such as a bank as a core payment facilitator for the financial services industry. Imagine, using a Google Document, where every edit you do is seen immediately by another, unlike if you typed on a MS Word and sent to another via email for editing. The blockchain technology like Google Document allows for open visibility and transparency on transactions. By allowing digital information to be distributed but not copied, blockchain technology created the backbone of a new type of internet. The first of this, Bitcoin was originally devised for the digital currency, however, the tech community is now finding other potential uses for the technology. In addition to Bitcoin, there are a number of digital currency (“digital monies”) that use blockchain technology for transaction, and they include: Litecoin (LTC), Ethereum (ETH), Zcash (ZEC), Dash, Ripple (XRP), Monero (XMR), to mention a few.
Since its inception there has been successes and rapid developments– alleged hacks and lost currencies, as well as the challenge of whether it is being used for ‘illicit’ trades. To increase trust, some technology solutions have been deployed, which includes, signing the currency for identification. However, there is a widespread debate whether there is a need to regulate the technology or not, whether it is in conflict with the traditional banking system or supports it, and whether it poses serious risks than opportunities to the global and national community?
Thomas Fray in one of his books Communicating with the Future: How Re-engineering Intentions Will Alter the Master Code of Our Future (2011; p. 30), states that cryptocurrencies will displace about 25% of national currencies in the next 12 years. He believes this is because digital currencies are more efficient. In line with Fray’s arguments, Malta is positioning itself as a ‘safe haven’ for cryptocurrency, as it keeps welcoming companies involved in digital currencies. It appears the country has plans towards developing the digital currency industry.
In addition to Malta, Brazil followed suit by re-emphasizing an unwillingness to ‘jump’ into regulating cryptocurrencies. Switzerland, known for its progressive attitudes toward individual rights in banking, has kept a similar attitude, and appears to have an open attitude toward the cryptocurrency industry. Johann Schneider-Ammann, Switzerland’s Economic Minister, told reporters on January 18, 2018, that he wants Switzerland to be “the crypto-nation” of the world. Bank of England’s chief, Mark Carney, who also chairs the G20’s Financial Stability Board, wrote this week that “crypto-assets do not pose risks to global financial stability at this time,” citing the relative size of the overall market cap.
On the other hand, countries such as China, Russia, United States of America, Venezuela and Kenya are taking an increasingly coercive than persuasive policy stand. China out-rightly outlawed cryptocurrencies, whilst the US and Japan, rejected the idea that cryptocurrency is ‘ a form of currency’, but should be seen as property such as gold and real estate, subject to taxation. In Japan, investors are now obliged to declare their profits in the annual tax returns, as Japan’s tax authorities have begun creating a database of cryptocurrency investors (even e-commerce is closely monitored).
The questions here are: what approach should Nigeria take on the issue of regulating crytocurrency in Nigeria? Would it do more good than harm regulating and how? Can blockchain help improve Nigeria’s funding ecosystem for businesses, where the traditional banking system has failed? Can we boast agriculture and food industry with the blockchain? Can blockchain improve Nigeria’s financial inclusion crisis? How can Nigeria apply the Blockchain to improve governance?
In answering these concerns from a global perspective, at the G20 Finance Ministers’ meeting held in 2017, which set July 2018 as deadline for a unified cryptocurrency regulation, Japan’s Finance Minister Taro Aso was quoted as saying “I told my G20 counterparts that no country would benefit from [strict] inward-looking policies based on protectionism”. In this sense, there are mild approaches to dealing with the blockchain technology beyond protective and coercive policy instruments such as regulations and taxation. It is further argued that money (invented around 5,000 B.C.), came as a clearly identifiable object of value that is generally accepted as payment for goods and services and repayment of debts within a market, even before the advent of a Central Bank in 1668 (first called the “Swedish Riksbank”). No wonder, Sweden is taking the ‘bullish’ lead in adopting cryptocurrency for transactions and social services.
In Nigeria, whilst recovering from a recession, in January this year, ‘SureRemit’ a Nigerian non-cash remittance start-up raised $7 million through blockchain with what is known as initial coin offering (ICO) from a global community, with help from South Korea’s largest cryptocurrency fund ‘Hashed’. SureRemit based in Lagos, Nigeria, leverages on the merchant network of SureGifts and her global partners, to enable immigrants send e-vouchers that can be used to purchase goods and services at several quality merchants and pay bills globally. That is a success story by young ‘Not Lazy Nigerians’, which goes to show Nigeria can create an environment that leverages the blockchain technology to increase alternative finance and global markets for entrepreneurs, where the traditional financial system have failed, as well as create jobs, and increase wealth, whilst minimizing the alleged ‘threats’.
But how could this be done? Here are a few recommendations for the policy makers in Nigeria:
Firstly, seek first to understand blockchain technology from an empathetic point, than dread it out-rightly. A consultation with the brains behind ‘SureRemit’, as well as many other technical, academic, and non-technical stakeholder is key – it is in fact the master key. A multi-stakeholders approach must be adopted by the CBN/NDIC committee and Federal parliament, in ensuring that Nigeria provides a standpoint that benefits from blockchain, whilst minimizing risks proactively, before the next G20 meeting.
Secondly, regulation is desirable but early regulations must not become an instrument that aids the throwing of the baby and the bath water into the canal. However, the Government has to find a way to intelligently regulate crypto-businesses or use existing ‘copious’ laws, with an intent ‘only’ to protect the citizens from plausible risks; largely based on standards of customer care, not necessary to protect an old fiscal order for the sake of protectionism. It is most desirable for deep-necked regulations to evolve with exhaustive consultation, than through forcibly adopted means either from a foreign country or through international consensus. Imagine if the internet had been heavily regulated at its growth yesterday, we might not necessary have seen innovation flow in the direction it has today.
Thirdly, new policy instruments in this regard (not necessarily regulations alone) might be employed instead of amendment to an existing legislation or a new set of regulations, but should ensure it promotes wealth creation for Nigeria, vis-a-vis achieve reasonable standards in security, customer service and risk management standards, as well as other issues around privacy, captive deployment of cryptocurrencies, inward and outward remittances, the definition of ‘currency’, a clear delimitation of crypto-activities, and decentralized and decentralized repositories. Usually, the debate at this level needs be centred on the determination of whether cryptocurrencies should be classified as a currency or as a commodity. Where it is decided that cryptocurrencies be classified as currency, the Central Bank of Nigeria, will rightly exercise regulatory control; otherwise, not. There are also tax considerations that arise from a classification, either way. For instance, if cryptocurrencies is considered a commodity, this classification may awaken sales tax obligations. Also, a classification as a commodity will take cryptocurrencies out of the Exclusive Legislative List in the Nigerian constitution — not being legal tender- and provide state governments with the legislative competence to regulate cryptocurrencies; something I implore the Lagos state Government to be proactive about.
Nigeria must own her decisions, we must ensure and identify key opportunities to prosper Nigerians, without compromising standards or the integrity of our financial markets, with not only legal but also technology solutions to the issue. This is what South Africa is doing – relatively progressive on the subject of cryptocurrencies. South African government began in July of 2017 to work with Bankymoon, a blockchain-based solutions provider, on creating a “balanced” approach to bitcoin regulation. Nigeria can also partner and invest her political will in training young Nigerians with skills in the area of blockchain technology – a step the Kaduna state Government is commended for taking.