What Crypto Actually Needs.
Why has regulating crypto been an uphill climb?
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2022 was a stormy year, and with the heavy winds and rains came a bear market in the overarching financial industry.
Perhaps more so with crypto.
The need for regulation has never been more evident.
Yet this has remained elusive.
Are the federal, state and local governments really powerless against crypto?
The answer is not so straightforward.
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What Crypto Regulation Means?
Regulation, as a broader term, is the imposition of rules by the government, backed by the use of penalties that are intended specifically to modify the economic behaviour of individuals and firms in the private sector.
In this scenario, it’s the act of creating and enforcing rules by government bodies to guide the trading of crypto assets.
Regulation protects us potential investors from fraud and other risks.
This sounds like a good idea, right? But it’s been difficult to hack so far (no pun intended).
See, the problem with crypto regulation is multi-fold.
First, crypto (and decentralisation as a whole) relies heavily on peer-to-peer networking, making it all the more difficult to track. Users are mostly self-leaning, so who really takes responsibility for missteps?
Another considerable quandary has been deciding what category cryptocurrencies fall under.
Are they securities: a financial asset that has value and can be bought or sold? Examples include stocks and bonds.
Are they commodities: a basic unit of raw material used to produce other goods or services? Examples include grains, gold and beef. Remember how Bitcoin is regarded as “digital gold”?
Um, also, yes.
So are cryptocurrencies something else entirely, like a weird hybrid love-child of both?
There’s also the struggle with the ever-evolving landscape (today, it’s non-fungible tokens; tomorrow, it’s semi-fungible tokens). Or the variation in definitions of decentralisation and its concurrent terminologies.
However, for regulators, the overarching questions remain:
a) What old risks are being phased out?
b) What new risks are being introduced?
c) How can they be mitigated?
The Current Regulations Around the World*
My Yoruba people have a saying: beheading is not the solution to a headache.
And in an increasingly crypto world, scepticism reigns supreme as the king sentiment among individuals and governments alike.
But isn’t this the same attitude we adopt with most things we don’t understand? We push and prod and shove and scoff. Change can be uncomfortable.
For example, China outrightly banned cryptocurrencies and their concomitant exchange platforms, tagging them as illegal.
Then some are more open to crypto: El Salvador comes to mind. On the 5th of June, 2021, President Nayib Bukele announced a bill to adopt bitcoin as one of its legal tenders.
Quite the bold leap.
Many other countries haven’t jumped all in but hang around the fringes, waiting to see.
In Australia and Japan, for example, cryptocurrencies are legal and treated as property. Cryptocurrency exchange platforms are equally legal but must be registered with AUSTRAC and Financial Services Agency, respectively.
While crypto isn’t legal tender in the UK (it’s considered property instead), exchange platforms are legal.
Then there’s Nigeria, where it gets a bit more tricky.
Current Crypto Regulations in Nigeria*
In a circular that dates back to the 5th of February, 2021, the Central Bank of Nigeria instructed banks and financial institutions to prohibit crypto transactions, stating that such accounts are closed immediately.
However, in a seeming contradictory move, the Securities and Exchange Commission (SEC) released a document over a year later titled “Rules on Issuance, Offering Platforms and Custody of Digital Assets” (the “Rules”) as a step toward the digital asset regulation in Nigeria.
So who do we believe?
As it stand, crypto isn’t illegal in Nigeria, at least not in a literal sense.
See, according to Section 36(12) of the 1999 Constitution of the Federal Republic of Nigeria—stay with me—for a person to be detained for a crime, there must be an actual, clearly defined written law to the effect of said crime (paraphrasing here).
With crypto, there isn’t.
CBN’s circular doesn’t constitute a law.
And so, the ambiguity remains.
It’s why crypto transactions continue in the country as long as the banks (where CBN has jurisdiction) are somewhat removed from the equation. It’s also why crypto exchanges, like these, exist to solve that problem.
So will we see better crypto regulation (and not just casual dismissal, ignorance and nonchalance) in this big 2023?
I guess we’ll see.
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*: As at the time of this essay.