A decade after its inception, cryptocurrency still remains a grey area in many parts of the world. However, it appears Nigerian authorities are making plans to regulate its activities in the country.
Late last year, the Nigerian Securities and Exchange Commission (SEC) set up the Fintech Roadmap Committee to develop a framework for the regulation of Virtual Financial Assets (VFAs) and their exchanges in Nigeria among other things.
One of the intentions of the Committee is to determine how cryptocurrencies will be adopted in the country using case studies from countries like Malta, USA, and the UK.
According to the Committee’s plan, it is expected that cryptocurrencies would have been classified by Q4 2019 and by Q1 2020, a framework for the regulation of VFAs and VFA Exchanges, and anti-money laundering (AML), among others, would have been developed as well.
What are industry players saying?
Chris Ani, founder of Cryptohub -- a cryptocurrency trading education platform -- believes that cryptocurrency exchanges in Nigeria can be regulated but that a regulatory approach may hurt the sector as the Nigerian cryptocurrency space is not yet mature for regulation.
Chris insists that the crypto ecosystem needs to develop further before any regulation is imposed.
Apparently, this means that a lot of Nigerians trade with foreign exchanges. Chris avers that our regulatory authorities want to jump through what is supposed to be a gradual process.
“We don’t have any crypto exchange platform owned by Nigerians running daily trade volumes upwards of 100 million,” he told Techpoint.
He calls for the need to understand and then contribute to the development of blockchain technology before any regulatory move.
On the part of a crypto dealer who chose to be unnamed, crypto cannot be controlled like fiat money since no one can lay claim to it.
Buchi Okoro, CEO of Quidax -- a crypto exchange platform in Nigeria -- believes regulation could be both good and bad, depending on how it’s implemented.
“On the one hand, it makes the market more secure for all participants, inputs standardised processes, and brings confidence; on the other hand if not done properly, it could stifle growth and innovation and make it prohibitive for players in the space,” says Buchi
Classification of cryptocurrency around the world
It is worth noting that some countries regulate exchanges -- local or foreign -- being used by their citizens and the laws that apply to them usually depend on how cryptocurrencies are classified.
The US Department of Treasury defines cryptocurrency as a money services business (MSB) and also categorises it as a property for taxation by America’s Internal Revenue Authority.
The Canadian Revenue Authority views cryptocurrencies as commodities and income generated is considered as business income, which may be subject to tax, while Australia treats it purely as a currency that can be mined, traded, or bought.
Finland and some other European countries treat VFAs as commodities with a value-added tax-exempt status.
Despite not being legally recognised as a currency, the South African Revenue Service declares bitcoins as intangible assets subject to income tax in the country.
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According to Chris, the versatile nature of cryptocurrencies makes them fit in seamlessly with any of the listed categories.
Chris opines that bitcoins and other digital assets, depending on how they are used, can be either currency, commodities, or securities.
A senior stockbroker within the NSE also shares a similar view. For him, money or any other item of value will only have the characteristics people attach to it and as long as people accept its credibility it can be used any way the user wants.
Buchi also believes that it would not be wise to throw a blanket on something as complex as cryptocurrencies but it would be better to define the respective properties of each digital asset.
“...there are different cryptocurrencies with different properties that can honestly make them securities or commodities,” Buchi says.
The Fintech Roadmap committee’s final VFA classification will influence how it will be treated for tax, AML laws, and other security measures that need to be taken, to protect the consumers using VFA exchange platforms.