Okafor: Nigeria Requires Cryptocurrency Regulations

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Vice President, Policy and Regulation for Stakeholders in Blockchain Technology Association of Nigeria, Mr. Arinze Okafor, speaks on the recent ban of cryptocurrency transactions by the Central Bank of Nigeria. Emma Okonji presents the excerpts:

How did you receive the news of the CBN prohibition on banks from transacting with cryptocurrency businesses?

It was a shock to the cryptocurrency industry, not only in Nigeria but across the world. It was not the outright ban that was worrisome; it was the outmoded justification that the Central Bank of Nigeria (CBN) put behind the ban that was a calls for concern. It is quite unfortunate that in a time like this when we should be emulating other strong economic nations of the world who are committing meaningful resources into research for a proper understanding of the digital economy and adoption of innovative technologies, including blockchain technology and its crypto applications such as digital currencies, we appear to be taking many steps back. The CBN had the opportunity to leverage this digital technology to drive a more profitable economic advancement of Nigeria but the fear of the risks and threats often associated with these innovations has overwhelmed our regulators. This calls for a collaborative, multi-stakeholder approach.

What is the immediate impact on your business?

The uproar generated by the recent CBN circular to the Deposit Money Banks (DMBs) and other financial institutions over cryptocurrency transactions has created some level of panic within the Nigerian Blockchain and Fintech space. Cryptocurrency service providers, especially cryptocurrency exchanges, have been the worst hit by the CBN action because there was no prior notice. Many customers of these exchanges and services still have their Naira stock in their accounts with these services, unable to even make withdrawals. There have also been reports that some crypto exchange operators had their bank accounts frozen by some banks perhaps out of unnecessary zealousness or misinterpretation of the circular of February 5th, 2021, that was written by the CBN. On the other hand, since the CBN action, peer-to-peer (P2P) crypto platforms have been experiencing increased transaction volume. For P2P platforms such as Paxful for example, I would say that the CBN’s action is indirectly a blessing in disguise. The CBN action has created some level of publicity and drawn the attention of many to Bitcoin and other cryptocurrencies like Altcoins. It has also effectively redirected the medium/channel of crypto transactions in the industry to P2P transactions, thereby upholding the “Decentralized System”, the original purpose for which Bitcoin was created to serve by Satoshi Nakamoto.

Before the directive was issued, what was the relationship between the market and the regulatory authorities?

The CBN circular was especially a shocker because many stakeholders in the industry had been having productive engagements with other government regulatory agencies such as the Security and Exchange Commission (SEC) and National Information Technology Development Agency (NITDA), among others.. It is particularly worthy of note that CBN is one of the key stakeholders in the National Blockchain Adoption Strategy (NBAS) initiated by NITDA and supported by the federal government. Furthermore, industry stakeholders had worked with the SEC to develop a regulatory approach for digital assets in Nigeria. This eventually resulted in the SEC releasing a statement on the classification and treatment of digital assets in Nigeria, including cryptocurrencies as commodities or securities. As recent as January 2021, industry stakeholders started working with the SEC on synergies that will help establish a robust regulatory framework, protect investors and curb the activities of a few bad actors operating in the crypto and digital assets space in Nigeria. One of such engagements was what gave birth to the Blockchain Industry Coordinating Committee of Nigeria (BICCoN), which is a joint committee of various interest groups, with stakeholders in the industry coming together to work and speak as a unified voice for the industry.

Do you agree with the CBN that the crypto market has led to an increase in money laundering and terrorism funding?

That is not correct. You will agree with me that issues of money laundering, terrorism, kidnapping, or arm banditry in Nigeria have been in existence for many years even before the advent of cryptocurrency. Reports by renowned blockchain analysis and compliance organisations such as CipherTrace and ChainAlysis, show that although the use of cryptocurrencies for money laundering, terrorism financing, and fraud is a concern, the rate is low, falling, and small relative to the use of fiat currencies such as the Naira and the Dollar for the same illicit activities. Besides, Nigeria is not known to be a high-risk country when it comes to the use of cryptocurrencies for illicit transactions. This data is publicly available. Therefore, it is regulation Nigeria needs, not prohibition. Besides, it is important to note that at the heart of the rise in the mass adoption of Bitcoin/ cryptocurrency around the world is the distrust of centralised financial systems and top-down economic control, with government-driven imbalanced monetary policies. These often create persistent hyper-inflation and leave people impoverished, largely resulting in some of the security problems the Nigerian society faces today. Therefore, I will rather say that the cryptocurrency trade has given many youths in Nigeria the ample opportunity to be gainfully self-employed.

Tell us about some of the controls operators and associations like SIBAN in the market has put in over the years to bring some sanity?

It will interest you to know that industry stakeholders /associations such as SIBAN have been at the forefront of fighting against scams and the proliferation of cryptocurrency fraud in Nigeria over the last three years. We had also extended hands of support to some of our African brothers who reached out to us to help them initiate such anti-scam engagements. SIBAN had in the past set up several ad hoc complaint and inquiry committees to check unethical practices as well as possible scams brought before her by some members of the public. We had also in the past, made several public statements against some groups of people and organisations that were involved in promoting questionable investment schemes including Ponzi/pyramid schemes in Nigeria. Some of such awareness campaigns had helped serve as a deterrent to both participants and promoters of such pyramids schemes and saved many from losing their money. Recently, BICCoN, the inter-community working group or joint committee, which SiBAN belongs to, set up Anti-Scam Joint Taskforce saddled with the responsibility of checking the proliferation of crypto scams in the Nigerian market by developing a framework that will assist concerned regulators to identify persons or entities involved in promoting scam projects/activities in the Nigerian blockchain space.