Cryptocurrency: Towards Regulating the Unruly Enigma of Fintech in Nigeria and South Africa

Authors

DOI:

https://doi.org/10.17159/1727-3781/2021/v24i0a10743

Keywords:

Cryptocurrencies, virtual currencies, digital assets, fintech, blockchain, regulation

Abstract

One of the most modern inventions of financial technology (FinTech) since after the global financial crisis of 2008 is the crypto or virtual currency/asset. Since the creation of the first cryptocurrency, the Bitcoin, in 2009, it is estimated that over five thousand variants of the Bitcoin and other cryptocurrencies have emerged. Virtual currencies have become widespread across the globe but their legal status and uses in various countries have remained uncertain. They have been variously classified as currencies, securities, properties, assets, commodities and tokens, and used as means of exchange but are not legally recognised as legal tender. In many jurisdictions their emergence was greeted with scepticism and express or tacit rejection by financial and securities markets regulators, but over time, owing to their increasing popularity, characteristics, positive and negative potentials, there has been a gradual shift towards their formal recognition and regulation. Regulatory authorities in many countries are now grappling with designing appropriate policy and regulatory framework for the crypto phenomenon. This paper interrogates the current legal status and efforts to regulate cryptocurrencies in two leading African nations, Nigeria and South Africa, and highlights the challenges of designing an appropriate regulatory framework for this enigmatic technology. The paper adopts the doctrinal legal research methodology, employing the descriptive, analytical, and comparative approaches. It follows a structured review and analysis of relevant extant legislation on currencies and securities in the countries to ascertain whether they cover cryptocurrencies. It then compares the current position of the law on the subject in the two countries. Bearing in mind that it may not be possible to totally ban dealing in cryptocurrencies, the paper concludes that regulation has become imperative. Drawing from the position on the subject in more developed nations, the United States of America (US) and the European Union (EU), this paper proposes a model of regulation of virtual currency not only for Nigeria and South Africa but also for other African countries.

Downloads

Download data is not yet available.

Metrics

Metrics Loading ...

References

Bibliography

Literature

Antonopoulos AM Mastering Bitcoin – Unlocking Digital Crypto-Currencies (O'Reilly Sebastopol CA 2014)

Armstrong D, Hyde D and Thomas S Blockchain and Cryptocurrency: International Legal and Regulatory Challenges (Bloomsbury London 2019)

Clements R "Assessing the Evolution of Cryptocurrency: Demand Factors, Latent Value, and Regulatory Developments" 2018 MBELR 73-100

Dorfleitner G et al "Definition of FinTech and Description of the FinTech Industry" in Dorfleitner G et al (eds) FinTech in Germany (Springer Cham 2017) 5-10

Ezomike C and Isiadinso O "Cryptocurrency and Taxes: Bridging the Digital Gap" July 2018 Anderson Tax Newsletter 1-4

Franco P Understanding Bitcoin – Cryptography, Engineering, and Economics (Wiley Chichester 2015)

Galavis J "Blame it on the Blockchain: Cryptocurrencies Boom amidst Global Regulations" 2019 U Miami Int'l & Comp L Rev 561-596

Gobble MM "Digitalization, Digitization, and Innovation" 2018 RTM 56-59

He D et al Virtual Currencies and Beyond: Initial Considerations - IMF Staff Discussion Note (IMF New York 2016)

Jia K and Zhang F "Between Liberalization and Prohibition: Prudent Enthusiasm and the Governance of Bitcoin/Blockchain Technology" in Campbell-Verduyn M (ed) Bitcoin and Beyond - Cryptocurrencies, Blockchains, and Global Governance (Routledge London 2018) 89-108

Kemp S Digital 2020: Global Digital Overview - Essential Insights into How People around the World Use the Internet (We are Social and Hootsuite New York 2020)

Krugman P "Bubble, Bubble, Fraud and Trouble" New York Times (29 January 2018) 23

Lansky J "Possible State Approaches to Cryptocurrencies" 2018 J Syst Integrat 19-31

Mention A "The Future of Fintech" 2019 RTM 59-63

Rose C "The Evolution of Digital Currencies: Bitcoin, a Cryptocurrency Causing a Monetary Revolution" 2015 IBER 617-622

South African Reserve Bank National Payment System Department Position Paper on Virtual Currencies - Position Paper No 02/2014 (SARB Pretoria 2014)

Schuefell P "Taming the Beast: A Scientific Definition of Fintech" 2016 JIM 32-54

Sono K "Legal Tender: A Notion Associated with Payment" in International Monetary Fund Current Developments in Monetary and Financial Law (IMF Washington DC 2003) 679-687

Stolpe A "A Theory of Permission Based on the Notion of Derogation" 2010 J Appl Logic 97-113

World Bank Cryptocurrencies and Blockchains - World Bank ECA Economic Update (World Bank Washington DC 2018)

Case law

Amadi v FRN [2011] All FWLR (Pt 561) 1588

Aoko v Fagbemi (1961) 1 All NLR 1

Skatteverket v David Hedqvist Case C-264/14 of 22 October 2015

Legislation

European Union

Directive on Access to the Activity of Credit Institutions and the Prudential Supervision of Credit Institutions and Investment Firms 2013/36/EU

Directive on the Common System of Value Added Tax 2006/112/EC

Directive on the Prevention of the Use of Financial System for the Purposes of Money Laundering or Terrorist Financing 2018/843/EC

Directive on the Prevention of the Use of the Financial System for the Purposes of Money Laundering or Terrorist Financing 2015/849/EU

Directive on the Taking-Up and Pursuit of the Business of Insurance and Reinsurance (Solvency II) 2009/138/EC

Nigeria

Capital Gains Tax Act Cap C1 LFN 2004

Central Bank of Nigeria Act 7 of 2007

Coins Act Cap C16 LFN 2004

Companies Income Tax Act Cap C21 LFN 2004

Constitution of the Federal Republic of Nigeria, 1999

Counterfeit Currency (Special Provisions) Act Cap C35 LFN 2004

Criminal Code Act Cap C38 LFN 2004

Currency Offences Act Cap C44 LFN 2004

Decimal Currency Act Cap D2 LFN 2004

Foreign Exchange (Monitoring and Miscellaneous Provisions) Act Cap F34 LFN 2004

Investment and Securities Act 29 of 2007

Personal Income Tax Act Cap P8 LFN 2004

Value Added Tax Act Cap V1 LFN 2004

South Africa

Currency and Banking Act 31 of 1920

Currency and Banking Act Amendment Act 22 of 1923

Currency and Exchange Act 9 of 1933

Income Tax Act 58 of 1962

Prevention of Counterfeiting of Currency Act 16 of 1965

South African Reserve Bank Act 90 of 1989

Value-Added Tax Act 89 of 1991

United States of America

Code of Federal Regulations 31 CFR § 1010.100

Crypto-Currency Act (Bill) 2020, 116th Congress, 2D Session HR 6154

Internet sources

Abdul AO 2018 Cryptocurrencies in Nigeria: A Legal Analysis https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3106296 accessed 12 September 2020

Adesina O 2020 Nigerians' Love for Cryptocurrencies on the Rise, as it Offers Cheaper Ways to Transfer Funds https://nairametrics.com/2020/05/24/nigerians-love-for-cryptocurrencies-on-the-rise-as-it-offers-cheaper-ways-to-transfer-funds accessed 20 October 2020

Anusionwu F 2020 The Fintech Roadmap Implementation Committee of SEC Nigeria, gets Inaugurated https://www.blockchainafrica.io/the-fintech-roadmap-implementation-committee-of-sec-nigeria-gets-inaugurated accessed 14 October 2020

Central Bank of Nigeria 2017 Circular to Banks and Other Financial Institutions on Virtual Currency Operations in Nigeria https://www.cbn.gov.ng/out/2017fprdaml%20january%202017%20circular%20to%20fis%20on%20virtual%20currency.pdf accessed 15 October 2020

Central Bank of Nigeria 2017 Virtual Currencies not Legal Tender in Nigeria https://www.cbn.gov.ng/Out/2018/CCD/Press%20Release%20on%20Virtual%20Currencies.pdf accessed 12 October 2020

Central Bank of Nigeria 2021 Letter to All Deposit Money Banks, Non-Financial Financial Institutions and Other Financial Institutions https://www.cbn.gov.ng/Out/2021/CCD/Letter%20on%20Crypto.pdf accessed 18 February 2021

CoinMarketCap 2020 Global Charts: Total Market Capitalisation https://coinmarketcap.com/charts accessed 18 February 2021

Cryptonews 2020 Countries Where Bitcoin is Banned or Legal in 2020 https://cryptonews.com/guides/countries-in-which-bitcoin-is-banned-or-legal.htm accessed 18 October 2020

Diuto T 2019 SEC Nigeria Sets Up a 10 Member Committee to Draft a Framework for Blockchain and Cryptocurrency https://diutocoinnews.com.ng/sec-nigeria-sets-up-a-10-member-committee-to-draft-a-framework-for-blockchain-and-cryptocurrency/2582 accessed 20 October 2020

European Insurance and Occupational Pensions Authority 2018 ESAs Warn Consumers of Risks in Buying Virtual Currencies https://www.eiopa.europa.eu/content/esas-warn-consumers-risks-buying-virtual-currencies-0_en accessed 12 September 2020

European Central Bank 2012 Virtual Currency Schemes https://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf accessed 12 September 2020

Financial Crimes Enforcement Network 2013 Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies https://www.fincen.gov/resources/statutes-regulations/

guidance/application-fincens-regulations-persons-administering accessed 19 October 2020

Financial Crimes Enforcement Network 2019 FinCEN Guidance: Application of FinCEN's Regulations to Certain Business Models Involving Convertible Virtual Currencies https://www.fincen.gov/sites/default/

files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf accessed 20 October 2020

Fintech Roadmap Committee of the Nigerian Capital Market 2019 The Future of Fintech in Nigeria https://sec.gov.ng/wp-content/uploads/2020/09/Report-of-the-FinTech-Roadmap-Committee-of-the-Nigerian-Capital-Market_-October-14-2019.pdf accessed 30 September 2020

Greenberg A 2011 Crypto Currency https://www.forbes.com/forbes/2011/0509/technology-psilocybin-bitcoins-gavin-andresen-crypto-currency.html#75863f77353e accessed 12 October 2020

Helms K 2020 US Lawmaker Introduces Crypto-Currency Act of 2020 while Under Coronavirus Quarantine https://news.bitcoin.com/cryptocurrency-act-of-2020 accessed 12 October 2020

Henry D and Irrera A 2017 JP Morgan's Dimon Says Bitcoin "is a Fraud" https://www.reuters.com/article/us-usa-banks-conference-jpmorgan/jpmorgans-dimon-says-bitcoin-is-a-fraud-idUSKCN1BN2KP accessed 15 October 2020

Holmes K 2020 South Africa Proposes 30 Rules to Regulate Cryptocurrency https://news.bitcoin.com/south-africa-cryptocurrency accessed 20 October 2020

Intergovernmental Fintech Working Group 2020 Intergovernmental Fintech Working Group (IFWG) Innovation Hub FAQs https://www.resbank.co.za/content/dam/sarb/publications/media-releases/2020/9847/IFWG-Frequently-asked-questions.pdf accessed 18 October 2020

Intergovernmental Fintech Working Group and Crypto Assets Regulatory Working Group 2020 Position Paper on Crypto Assets https://www.ifwg.co.za/wp-content/uploads/IFWG_CAR_WG-Position_Paper_on_Crypto_Assets.pdf accessed 17 October 2020

Imbert F 2017 JP Morgan CEO Jamie Dimon Says Bitcoin is a "Fraud" that will Eventually Blow Up https://www.cnbc.com/2017/09/12/jpmorgan-ceojamie-dimon-raises-flag-on-trading-revenue-sees-20-percent-fall-for-the-third-quarter.html accessed 25 October 2020

Inland Revenue Services 2014 IRS Virtual Currency Guidance: Virtual Currency is Treated as Property for US Federal Tax Purposes; General Rules for Property Transactions Apply https://www.irs.gov/newsroom/irs-virtual-currency-guidance accessed 20 October 2020

LawCareNigeria 2020 CBN and the Question of Regulating or Prohibiting the Nigerian Crypto Market https://lawcarenigeria.com/cbn-and-the-question-of-regulating-or-prohibiting-the-nigerian-crypto-market accessed 23 October 2020

Lexico Dictionary 2020 Cryptocurrency https://www.lexico.com/definition/cryptocurrency accessed 20 October 2020

Library of Congress 2020 Regulation of Cryptocurrency around the World https://www.loc.gov/law/help/cryptocurrency/world-survey.php accessed 22 October 2020

Malmo C 2015 Bitcoin is Unsustainable https://motherboard.vice.com/en_us/article/ae3p7e/bitcoin-is-unsustainable accessed 22 November 2020

Nakamoto S 2008 Bitcoin: A Peer-to-Peer Electronic Cash System https://bitcoin.org/bitcoin.pdf accessed 14 October 2020

National Treasury 2014 User Alert – Monitoring of Virtual Currencies https://perma.cc/B3D8-NPYS accessed 23 October 2020

Pilarowski G and Yue L 2017 China Bans Initial Coin Offerings and Cryptocurrency Trading Platforms http://www.pillarlegalpc.com/en/legalupdates/wp-content/uploads/2020/08/PL-China-Regulation-Watch-Cryptocurrency-2017-09-22.pdf accessed 15 October 2020

Polansek T 2016 CME, ICE Prepare Pricing Data that could Boost Bitcoin https://www.reuters.com/article/us-cme-group-bitcoin-idUSKCN0XT1G1 accessed 20 October 2020

Proshare 2019 Cryptocurrency Ban and its Economic Implications https://www.proshareng.com/news/%20BLOCKCHAIN%20&%20CRYPTOS/Cryptocurrency-Ban-and-its-Economic-Implications/56279 accessed 20 October 2020

Redman J 2020 What are Altcoins and Why are There Over 5,000 of Them? https://news.bitcoin.com/altcoins-why-over-5000 accessed 17 March 2021

Richards K 2019 Cryptography https://searchsecurity.techtarget.com/definition/cryptography accessed 17 October 2020

Rooney K 2018 Peter Thiel is Betting on Bitcoin Because One Cryptocurrency Will Become the Online Equivalent to Gold https://www.cnbc.com/2018/03/15/peter-thiel-is-betting-on-bitcoin-to-be-the-online-equivalent-to-gold.html accessed 20 October 2020

Sagewriters 2019 Google Trends: Lagos, Nigeria Top City and Country Searches for Bitcoin https://btc.ng/bitcoin-guide/google-trends-lagos-nigeria-top-city-and-country-searches-for-bitcoin accessed 20 October 2020

South African Reserve Bank 2021 Do Any Compliance Requirements or Exchange Controls Apply to Crypto Assets? https://www.resbank.co.za/en/home/quick-links/frequently-asked-questions accessed 24 February 2021

South African Revenue Service 2018 Press Release: SARS'S Stance on the Tax Treatment of Cryptocurrencies http://www.sars.gov.za/Media/MediaReleases/Pages/6-April-2018---SARS-stance-on-the-tax-treatment-of-cryptocurrencies-.aspx accessed 20 October 2020

Securities and Exchange Commission 2020 Statement on Digital Assets and their Classification and Treatment https://sec.gov.ng/statement-on-digital-assets-and-their-classification-and-treatment accessed 20 October 2020

Telegraph Reporters 2018 What is Cryptocurrency, How Does it Work and What are the Uses? http://www.telegraph.co.uk/technology/0/cryptocurrency accessed 20 October 2020

World Population Review 2021 Richest African Countries 2021 https://worldpopulationreview.com/country-rankings/richest-african-countries accessed 20 October 2020

Xie A 2019 4 Types of Cryptocurrencies — A Framework to Think about Cryptoassets https://medium.com/datadriveninvestor/4-types-of-cryptocurrencies-a-framework-to-think-about-cryptoassets-5cf2670fa1d7 accessed 10 October 2020

Xu X 2018 China to Stamp out Cryptocurrency Trading Completely with Ban on Foreign Platforms http://www.scmp.com/business/banking-finance/article/2132009/china-stamp-out-cryptocurrency-trading-completely-ban accessed 20 October 2020

Young J 2020 Donald Trump Said Bitcoin is Based on "Thin Air," but Wall Street is Buying en Masse https://www.forbes.com/sites/youngjoseph/2020/06/10/donald-trump-said-bitcoin-is-based-on-thin-air-but-wall-street-is-buying-en-masse/#407a0a4b4d27 accessed 15 September 2020

Published

2021-08-20 — Updated on 2021-08-24

Versions

How to Cite

Ukwueze, F. (2021). Cryptocurrency: Towards Regulating the Unruly Enigma of Fintech in Nigeria and South Africa. Potchefstroom Electronic Law Journal, 24, 1–38. https://doi.org/10.17159/1727-3781/2021/v24i0a10743 (Original work published August 20, 2021)

Issue

Section

Special Edition: Corporate and Financial Markets 2021