REGULATE, NOT BAN CRYPTOS – By Stanley Okwu, Guest Writer
On the 5th of February, 2021, the Central Bank of Nigeria, CBN, released a memo warning banks and non-financial institutions that cryptocurrency activities are prohibited. The Nigerian government is not the first to warn financial institutions or citizens to stay away from cryptocurrency activities.
One of the reasons given for the memo of February 2021 was that citizens participating in it could be exposed to the risk and high volatility associated with the virtual currency.
It is good to talk about how cryptocurrencies can be regulated to enable citizens participate in its operations and be protected at the same time.
No doubt, the blockchain technology behind the disruptive power of cryptocurrencies such as Bitcoin, Ethereum, Cardano and many others cannot be discarded because this technology is capable of disrupting any country’s financial system if not aligned with the digital age whose time has come.
One can understand why governments are wary of cryptocurrencies because they can erode the monopoly of Central Banks to issue and regulate currencies. But the debate remains live whether regulation or a banning is the better strategy for controlling the misuse of cryptocurrencies.
In my view, the best option for containing the misuse of cryptocurrencies for criminal activities and money laundering is a mixture of regulating the exchange players in the industry and the promotion of sovereign or national-backed cryptocurrencies.
I have gone through various comments after the circular was released to the public and note that some policy analysts support a ban on cryptocurrencies because of misuse for criminal activities like cross-border payment system that has traditionally relied on smuggling, money laundering or even in Ponzi schemes. In my view, unregulated cryptocurrency industries are a safe alternative for criminals, given their hard-to-crack anonymity.
On the other hand, if cryptocurrency assets are regulated, cryptocurrency exchanges and traders will have to maintain detailed know-your-client, or KYC as it is called, with proper documentation that might include the NIN or BVN linkage, since most transactions will happen through these exchanges.
The truth is that most citizens do not have faith in governments, even though the governments have done a lot to make them believe in their policies. Therefore, in my view, the government can create enabling environment for the reign of an independent cryptocurrencies regulator who will oversee the affairs of cryptocurrencies since it is not a national currency but a virtual one, neither is it the currency of the people except otherwise the government puts in place policies that will protect its citizens in the cryptocurrency industry; the citizens will then build their faith in a government that have their interest at heart.
What will the independent regulators do? Such independent regulators will have access to the flow of cryptocurrencies across wallets and users through the collaboration of the exchanges which will help provide intelligence and data where needed, for audit purposes. These independent regulators can also work with the government to protect its citizens they represent.
Regulators can also give prior approval for cryptocurrency schemes to protect investor interests.
Many Nigerians already have lots of projects earmarked in the cryptocurrency space, thus an enabling environment will enable citizens to come up with good projects, seek for funding and launch these projects without stress; this approach will further help create employment for youths as well as generate revenue for the country as these companies pay their taxes in return.
Banning citizens from participating in the space might not be the best way but an effective regulation can make a difference and propel our country to further maintain the slogan, “giant of Africa”.
Regulating cryptocurrencies will also make it impossible for Ponzi schemes involving digital currencies, and promoters of such schemes will think twice before they launch any programme of such nature. Regulation will act as a way to stop those running Ponzi schemes because such promoters know that governments can pursue them across jurisdictions for economic offenses and can freeze their assets even in tax havens by using bilateral treaties.
Although regulation may create several issues at first, bringing in experts from the cryptocurrency space together with a well formulated policy to regulate the industry will make the issues non-existent in the long run.
Legitimizing crypto assets means moving from a single currency to almost 8,000 currencies. For an economy with no capital control, this is acceptable, but where a Central Bank maintains control over cross-border capital movement, it is deadly and I believe this could be the fear of many countries’ governments because capital can move out of the economy under the influence of speculators and Central Banks can do nothing about it but regulations might help because everyone, including the government will benefit in the technology and space.
Furthermore, regulation can prevent and put a check on the misuse of cryptocurrencies for laundering purposes to a limited extent even though a feature of cryptocurrencies is their anonymity, and users are not going to give it up.
Despite recent advice from the global Financial Action Task Force advising countries to enforce KYC and reporting norms on crypto-exchanges, peer-to-peer transactions outside exchanges can still happen anonymously which is what Nigerians are adopting as the banks stop them from automatic deposit in crypto purchases.
My view is for Nigeria’s Central Bank to regulate cryptocurrencies and promote a limited number of domestic cryptocurrencies, which will retain all anonymity features. Since it is backed by the Central Bank, domestic citizens could prefer to store their value in the domestic cryptocurrency.
What if the Central Bank releases its own cryptocurrency?
A Central bank can float a cryptocurrency and establish exchanges for its conversion to the local currency. It will sell the cryptocurrency wholesale to financial institutions and this could bring about completion in the space and allow a system that will have distributed records that will be verified by administrators. This way, the Central Bank maintains control or supervision over transactions and ensures that exchange of the cryptocurrency with local currency or any foreign currency is mostly under its supervision.
During the emergence of the internet, many felt it would do more harm than good and today, all of us cannot do without the internet. The applications of the internet today have given room for data consumption which has also contributed to revenue generation in the country.
Therefore, in my view rather than talking of stopping citizens from participating in a virtual currency that is unseen, government can launch its own sovereign-backed asset for anonymous transactions as well for its citizens and the financial sector to participate in the space and shun Ponzi scheme cryptocurrencies that lie outside the country’s control ambit and anti-money laundering regulations.
The technology behind cryptocurrencies blockchain is here to stay and how we tap on the opportunities that come with it rather than looking at the negative aspect, will tell how we are going to survive future global financial crises and truly become the giant of Africa. This is the way for the Central Bank to address major concerns on whether to ban or regulate the cryptocurrency industry and we call on well-meaning Nigerians and citizens to come up with suggestion on ways government can look at the industry for the general good.
Prohibiting Bitcoins and other cryptos use won’t make people stop using the currencies. Indeed, it is precisely because Bitcoin and others can currently be used in a way that provides anonymity and allow people to buy from entities that are currently unregulated, that these cryptos are used. Some people don’t like to use money issued by the government. Others may also value the privacy of a currency that is not accounted in the same way that bank transactions are. Still, others find that cryptos are worth much more than legal tender these days, without problems in the Euro zone and other countries. Some consumers feel that virtual currencies may be more efficient, and may offer newer, more flexible ways to pay for products and services across borders. Prohibition would be over inclusive; it takes a product that has multiple uses – many of them legitimate – and try to ban it or wish it out of existence.
We know of the story of websites like Silk Road, which allows people to buy drugs online and underground take Bitcoins. The criminal side of Bitcoin’s use is what has garnered most headlines and that is why government is working at protecting its citizens, I guess. However, I think regulation will do more good instead of focusing on the negative side of the currency use.
Nigeria is full of brains and this is the time for collaboration between government and the people to embrace this technology for our own good, and to allow companies to participate in it just like PayPal, MicroStrategy and Tesla, just to mention a few, have announced their support for Bitcoin.
Banning Bitcoin and other cryptos is difficult to do since they are not issued by a government, and they can still be recreated. So rather than ban them, the alternative would be to allow some regulatory help.
Should governments allow cryptos to keep operating, as an alternative to banks and to using government-issued currency? The answer is yes – but we should also not over-regulate the crypto currencies at the outset.
Stanley Okwu is a writer, tutor and the Co-founder of Blockchain Mobile Technologies, a company that educate youths on blockchain technology and its application.