Crypto regulation in Nigeria

Nigeria has witnessed a surge in the adoption of blockchain technology and cryptocurrencies in recent years, leading to a complex and evolving regulatory landscape. The crypto regulation in Nigeria has undergone significant changes in recent years, shifting from restrictive measures to a more accommodating approach.

Cryptocurrency adoption in Nigeria has been rapidly growing in recent years, making it one of the world's leading markets for crypto usage. As of mid-2023, Nigeria's volume of crypto transactions grew 9% year-on-year to $56.7 billion, despite the global crypto bear market. This made Nigeria one of the largest cryptocurrency markets globally. A 2023 survey found that 47% of Nigerians aged 18-64 have used cryptocurrency before, the highest figure in the world. Another report estimated that over 22 million Nigerians, 10.3% of the population, currently own cryptocurrency. Crypto adoption has continued to grow despite the launch of Nigeria's central bank digital currency (CBDC), the eNaira, in 2021.

However, the regulatory environment has been complex, with the central bank initially banning banks from crypto dealings in 2021 before reversing the ban in late 2023. The government has also taken inconsistent stances, with crypto being a major election issue in 2023. Overall, Nigeria remains one of the world's most crypto-enthusiastic nations despite the regulatory uncertainty.

Cryptocurrencies status

Cryptocurrencies are not considered legal tender in Nigeria, but their use is not explicitly banned. While the Central Bank of Nigeria (CBN) has taken a mixed approach, initially banning banks from facilitating cryptocurrency transactions in 2021, after a cancelation of the ban the Nigeria SEC has issued regulations for the issuance, trading, and custody of digital assets, recognizing cryptocurrencies as securities.

All crypto-related activities fall under AML/CFT regulations and follow rules set by the Nigerian Financial Intelligence Unit and the Economic and Financial Crimes Commission.

Crypto exchanges

Nigeria has emerged as one of the world's leading markets for cryptocurrency adoption and trading, with a vibrant ecosystem of crypto exchanges catering to the needs of local users. The Nigerian crypto market has a mix of homegrown exchanges like NairaEX, BuyCoins and GC Buying, as well as prominent international platforms that have established a presence in the country to cater to the growing demand for digital assets.

However, the Nigerian government has taken actions against some major crypto exchanges like Binance, accusing them of tax evasion, currency speculation and money laundering. Two Binance executives were arrested, though one later escaped, and the company's Naira transactions and trading were halted. The executives were accused of tax evasion, currency speculation, and money laundering and are still remain in custody in Nigeria and are awaiting trial.

Also the Nigerian government is reportedly planning to ban P2P trading of cryptocurrencies against the Nigerian Naira. This is aimed at preventing perceived manipulation of the Naira's exchange rate. Nigerian SEC’s director general stated that «the thing that needs to be done is delisting the naira from the P2P space in order to avoid the level of manipulation that is currently happening».

It seems that the Nigerian government appears to be trying to strike a balance between fostering crypto innovation and maintaining financial stability and control. The proposed restrictions on P2P Naira trading and crackdown on exchanges are aimed at addressing concerns over currency manipulation and illicit activities.

Penalties for rules violation

As it was already told, crypto exchanges and other digital asset service providers in Nigeria are required to obtain a license from the Nigerian SEC and register with the Corporate Affairs Commission (CAC). They must maintain a minimum paid-up capital of ₦500 million ($553,000) to operate in the country.

The penalties for failing to comply with the regulations can be severe, including:

• Heavy fines (depends on company’s turnover);

• Revocation of registration;

• Outright ban on operations within Nigeria.

Crypto exchanges are also required to secure user data adequately and report any data breaches within stipulated periods. They must also maintain records of all transactions for a minimum of five years to aid in any future investigations or audits by regulatory bodies. Violations of these data protection and reporting rules can lead to sanctions.

Nigeria's approach to cryptocurrency regulation has been dynamic, with both restrictive and accommodating measures being implemented by various regulators. Despite the challenges, Nigeria remains one of the world's largest peer-to-peer markets for crypto, with over 40% crypto penetration, higher than traditional banking penetration in the country. The country has the opportunity to position itself as a hub for blockchain and cryptocurrency innovation in Africa by fostering a balanced regulatory environment that supports innovation while addressing risks.