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 strategi

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 people 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.

There
are many other technical and legal cum policy issues I would have
loved to address, but I would round-off on this note. Thank you.