Serah Onyeche Sanni
The wide spread in the acceptance of crypto currencies across
the globe has over time projected certain ambiguities in areas
surrounding its usage, operations and regulation. A peculiar
feature of crypto currency transactions is that they are operated
through the use of cryptography (secret codes). The regulation of
crypto currency varies based on different countries, while its
status remains unidentified in some jurisdictions, others attempt
its regulation based on what they categorize crypto currencies to
mean. Although, most countries do not make the usage of crypto
currencies illegal, its status as currency varies in line with
different regulatory implications. The absence of a specific
dedicated central authority and regulation, which supervises
activities and transactions involving the use of crypto currencies
makes it vulnerable to exploitation for illegal purposes such as
This paper aims to identify and review the legal policies
surrounding the use of crypto currencies in a number of
jurisdictions, particularly in Nigeria. The past recent years have
seen crypto currencies become ubiquitous prompting most national
and regional authorities to grapple with a suitable form of
regulation or supervision. The expansive growth and use of crypto
currencies as well as its distinctive features when compared to
other legal tender no doubt sparks the need to question its
legality. The fluidity of this form of currency creates the need to
further beam a search light on its use and operations. Currently,
there is no a global movement in terms of setting policies and
regulations around the use of Crypto currencies, however, its
peculiar nature and features creates a dare need for it.
Crypto currency has been defined in a number of related forms.
It is a digital currency in which encryption techniques are used to
regulate the generation of units of currency and verify the
transfer of funds, operating independently of a central bank. It
has also been defined as digital asset (currency or medium of
exchange) that is designed using cryptography, to be secure and
further defined crypto currency as “electronic money created
with technology controlling its creation and protecting
transactions, while hiding the identities of its users.” The seduction of crypto-currency
is the convenience in its generation, storage, management and
It operates based on a technology called
”Blockchain”. Crypto-currencies are largely
designed to operate without sovereign regulation and are protected
from being discovered by government authorities for supervision, this is the major feature
directly related to the line of discuss. Crypto-currency does not
require any material resources for its production as it is
generated through highly encrypted computer programs, stored on
computers and its transactions are performed through the Internet.
There is no gold or license required to generate crypto currency
unlike in other currencies where governments and central banks
which require certain security, assets and procedure to follow when
deciding how much currency government can print for a state.
Features of Crypto Currencies
The crypto currency market has grown over the years and it keeps
expanding as new crypto currencies emerge more frequently. As at
August 2018, records revealed the existence of over 1,600 crypto
currencies available on the internet. Currently, there are over
2000 crypto currency and virtual currencies, this goes to show the
speed at which it grows.
Some major types of crypto currencies include Bit coins, Lite
coin, Z cash, Dash, Ripple, Ethereum, NEO, Altcoins and Tether.
Bitcoin is widely seen as a pioneer and the most successfully used
in the world of crypto currencies. Bitcoin was first made available
to the public in 2009, and has ever since expanded by maintaining
the highest market capitalization.
Major features associated to crypto currencies include:
- Created to be Anonymous: As the name
implies, crypto means something concealed in secrecy or hidden.
Their operation involves the use of codes in a form known as
- Designed to operate with limited
control from the government: Crypto currencies are modeled to
operate with absolute independence. No central authority,
government or cooperation has access to the funds or personal
information of the currency owners.
- Funds transfer is carried out
directly between parties, and in the absence of any third party
like a bank or credit card company.
Issues Associated to the Use of Crypto currencies
- Very volatile: Crypto currency has
been identified as being liable to rapid and unpredictable changes
as they are prone to fluctuation. The reason for this is that their
prices are based on supply and demand.
- The anonymous/semi-anonymous nature
of crypto currencies makes them susceptible to a host of nefarious
activities such as money laundering and tax evasion.
- The crypto currency market is known
for being speculative, there is no assurance that what is invested
is what will be reaped or even more
- Non-revenue producing asset to
states: The nature of crypto currencies and its secret operational
system which is not controlled by any government places it in a
position, whereby it operates without remitting any form of revenue
to the government.
- Unstable regulations surrounding its
usage: There is yet to be a recognized regulation on the use of
crypto currencies, although there are countries where there exist
some forms of regulation on its use, there is no specific dedicated
Crypto currency: Economic and Cyber crimes
Cybercrimes exploit vulnerable infrastructural systems that
progressively become interconnected on an almost daily basis. Jesse Bray made the connection
between anonymity, crypto-currency and cybercrime. He posited that
the use of crypto-currency is open to cyber-attacks such as Denial
of Service (DoS) attacks, theft, release or manipulation of
sensitive data. He argued that the anonymity created in cyberspace
allows for the loss of self-regulation, which could amount to
deviant behavior. In 2017 a
ransom ware attack affected over 200,000 computers in 150
countries. Sensitive data on
these computers were encrypted and the owners were asked to pay
ransom amounts to release the information back to them.
There have been a number of criticisms on crypto currencies, and
most have been associated to the criminal tendencies connected with
its usage. The US president, Donald J. Trump stated,
”Crypto currencies are not money given; they are
highly volatile and tend to facilitate criminal
behavior“. In a similar light he again stressed the
potential for using crypto currencies in other illegal activities
such as drug trafficking. A US Senator, Charles Schumer, in another
statement explicitly referred to Bitcoin as a “surrogate
currency” that enabled criminal activities. These observations
and a host of others goes to confirm the that the nature of crypto
currencies make them well suited for a host of nefarious activities
such as money laundering, tax evasion, drug trafficking etc.
The Regulation of Crypto Currencies
As earlier identified, crypto currencies are founded on the
principle of decentralization, meaning that it is consciously
structured in a way that excludes it from being regulated by a
central authority in the manner that a traditional currency would
be. Although, some states have
taken the effort of imposing some form of regulation on the usage
of crypto currencies, some authors however classify those
regulations as quasi-regulatory. The fact is, there are different
views and perspectives to what crypto currencies may be termed as
per time. This and more has contributes to the factors impeding on
its regulatory frame work. The few regulations now obtainable in
certain jurisdictions took a slow turn as most authorities grappled
with getting a grip of what exactly the technology is all about
before attempting to assign certain regulations to its use and
operations. Irrespective of moves taken, there exists no uniform
international approach to regulating virtual currencies. As it
stands, its regulation depends more on efforts taken by individual
In the United State of America crypto currencies are regulated
through at least five (5) different Federal Agencies namely:
- The Internal Revenue Service
- The Financial Crimes Enforcement
- The Securities and Exchange
- The Commodity Future Trading
- Office of Foreign Assets Control
It will interest us to know that each of these Agencies view
crypto-currencies from different standpoint. While the IRS
classifies crypto-currencies as properties which should be taxed,
the FinSEC views crypto-currencies as currencies and not
properties. The SEC on its part views crypto-currencies as
securities, while the CFTC declared crypto currencies as
commodities. The OFAC in its operations tags crypto-currencies as
assets. In a whole the USA is yet to come up with a specific
national regulation which regulates the usage of crypto currencies.
However, some states do have developed guidelines.
China on another hand has out rightly banned the use of crypto
currencies, this action has been confronted with a lot of
resistance, and however the China government is adamant on quashing
the crypto currency market with the purpose of preventing financial
risks. China aims to clamp down on all crypto currency trading with
a ban on its foreign exchange. These regulatory actions by the
Chinese government are aimed at controlling the increasing mania
involving decentralized, non-regulated crypto-currencies which have
recently soared to astronomical valuations. However, despite the
ICO ban and momentary decline, crypto currency trading continued in
China, as many participants switched to foreign exchanges, like
those based in Hong Kong and Japan, to deal in virtual
Data protection has become much more important in recent times
as technology and its use is in boom. Different countries have
enacted various laws, national and regional, to ensure the
protection of consumer data. For example, in 2018 the European
Union enforced the General Data Protection Regulation across the
continent and all organizations were mandated to implement its
provisions. In Nigeria also, there are laws that cater for the
protection of consumer data dating way back to the 1999
constitution (as amended). This provided for the citizen’s
right to privacy of home, correspondence, telephone conversations
and telegraphic communications.
The Nigerian Cyber Crime (Prohibition, Prevention) Act 2015,
requires all financial institutions, including Fintech companies,
to verify the identity of customers involved in electronic
transactions, integrate and implement know-your-customer (KYC)
processes and keep all subscriber data safe for a period of two (2)
years. Also, the Central Bank of Nigeria (CBN) Consumer Protection
Framework requires all financial institutions regulated by the CBN
to keep private consumers’ data and implement protection
measure to prevent unauthorized disclosure of such data. However,
there is a difference between data protection and untraceable data.
Globally, data protection laws are made to protect personally
identifiable information of consumers. This means that the
information is traceable to particular consumers and the financial
institutions affected are required to make these data available
when so directed by a law enforcement agency.
The use of crypto-currency goes beyond data protection and
enters the realm of data that is untraceable. Several governments
have banned the use of crypto-currencies within their realm, others
have advised the public against it as they claim crypto-currencies
cannot be regulated, and yet
others have accepted the use of these digital currencies and
subjected their use to their Fintech laws.
The first legal issue to be considered in the use of
crypto-currency is its legality. Many countries have banned the use
of crypto-currency and have tagged it illegal currency. So, there lies the question of
the consequences of involvement in transactions that have no legal
validity. The answer is the lack of legal recourse to substantiate
claims in court in case of fraud or loss. Most government warnings against
crypto-currencies stem from the fact that they are unregulated and
therefore it is impossible to enforce rights in any court of law.
Secondly, anonymity has always been one of the many appeals
associated with using crypto-currency. Jesse Bray, in his thesis
survey, claimed that the idea of anonymity alone would generally
entice people to engage in online acts and crimes that they would
not normally engage in.
Cybercrimes that stem from this anonymity involve:
- Trade of illegal goods and services
(drugs, weapons, human organs).
- Ransom ware attacks.
- Money laundering.
- Cryptojacking this is where
the processing power of unsuspecting person’s CPU is hijacked
to mine for crypto-currencies without their knowledge.
- Ponzi Schemes such as Bitconnect,
DavorCoin, OneCoin, etc.
- Crypto-currency theft achieved
through exchange hacks.
- Initial Coin Offerings Fraud.
Approach to Crypto-currencies in Nigeria
The global financial system is no doubt embracing the current
transition from physical currency to almost virtual currencies
through the medium of technology. This wave has ushered in the
birth of crypto currencies. In the light of this outbreak, there
has been a lot of positive and negative discourse on the value of
crypto-currencies to the Nigerian fiscal system. Investors have in
their masses invested in crypto currencies, the most common being
Bitcoins all in a bid to some sort of recoup interests in the
nearest future. Over time the awareness that bitcoins like most
crypto currencies operates independently and outside the control or
regulation of any intermediaries such as banks, financial
institutions, or the government triggered a wakeup call directed to
the risks investors may be exposed to when involved in this
Relatively, the Nigeria government has attempted to place a ban
on crypto currency, although its legal status remains ambiguous
unlike in countries like Morocco and Algeria where there is a clear
ban on trading in Bitcoins such that a breach attracts heavy
One of the actions taken by the Nigerian government is by
issuing very strong notices about the pitfalls of investing in the
crypto currency markets. Such warnings were issued by the Central
Bank (CBN) and the Securities and Exchange Commission (SEC). The
warnings are largely designed to educate the citizenry about the
difference between actual currencies; which are issued and
guaranteed by the state, and crypto currencies; which are not. The
government also added the risk resulting from the high volatility
associated with crypto currencies and the fact that many of the
organizations that facilitate such transactions are unregulated. It
was also emphasised that citizens who invest in crypto currencies
do so at their own peril and personal risk and that no legal
recourse is available to them in the event of loss.
The various warnings issued also projects the opportunities that
crypto currencies create for illegal activities, such as money
laundering and terrorism, illegal drug trafficking, human
trafficking, and support for radical movements. In January 2017,
the CBN issued a statement banning any transactions in Bitcoins,
this was carried out by the banks’ regulator circulating a
statement to all banks in the country warning them against
facilitating the trading of Bitcoins in the country. The CBN stated
that traders risked losing all their money when they trade in a
currency that is not regulated. This risk is largely associated to
the volatile nature of crypto currencies. However, a lot did not
heed to this warning as most crypto currency exchanges continued to
operate as usual.
The Nigeria’s SEC also made a statement in 2017 warning
Bitcoin traders to exercise extreme caution. Again in March, 2018,
the CBN reiterated its stance on crypto currencies warning traders
that digital assets are a mere gamble.
The trade in crypto currency is not extinguished despite the
series of warnings, the CBN however took decisive steps by having
an organized committee to review and articulate a road map for
blockchain and crypto currency regulation as well as the possible
safety when used as an asset of value and in line with global
Like most African countries, Nigeria is yet to introduce a legal
framework or legislation for crypto currencies or crypto exchanges;
however there is a great interest to develop one very soon.
Following the moves taken by the CBN and SEC, Nigerian lawmakers
have also urged the regulatory authorities to speed up efforts in
introducing a legal frame work for crypto currencies in the
There are legal issues associated with almost every financial
activity in the world and crypto currency is not an exception. The
peculiarity of the currency no doubt has contributed to the
difficulties associated with its regulation globally. Every new
technology is pre-destined to suffer legal setbacks, from
mainstream acceptance to misuse and abuse. In 2018 alone, it was
reported that £4billion was laundered via crypto-currencies
in Europe. An increase in this
special brand of money laundering and other cybercrimes has a
negative impact on the crypto-market, as investors lose confidence
to invest their money into the market. The European Banking Authority
(EBA) explained that crypto-currency falls outside the scope of EU
financial regulations making it almost impossible to regulate.
A call for governmental introduction of a distinctive anti-money
laundering regulations and data recoverability regulations is
therefore eminent, considering the technological advancement in the
use of crypto currencies. The ability to uncloak masked
transactions in the crypto-world is vital to reducing the
associated legal risks, ensuring accountability and eliminating
frauds. As earlier observed some countries have taken notable steps
in expanding their laws on money laundering, counterterrorism, and
organized crime to include crypto currency markets, thereby
requiring banks and other financial institutions to conduct all
necessary due diligence requirements imposed under such laws.
With these evolving global trends in the financial sector,
Nigerian’s financial regulatory institutions have taken the
initiative of developing a robust financial system and regulation
that will accommodate the current tech. This paper concludes that
in spite of the imminent abuse associated with trading in crypto
currency, it should not be condemned in its totality; rather
stringent national and global regulations should be put in place in
curbing its misuse.
 PhD Candidate, University of
Abuja, FCT, Abuja, Nigeria
 V., Sapovadia. (2015).
Legal Issues in Cryptocurrency in Handbook of Digital
Currency, pp253-266. DOI:
 V. Sapovadia. (2015).
Legal Issues in Cryptocurrency in Handbook of Digital
Currency, pp253-266. DOI:
 J., Bray. Anonymity,
Cybercrime and the Connection to Crypto currency, MSc Thesis,
Eastern Kentucky University 2016, p.1
 Constitution, Federal
Republic of Nigeria (as amended) 1999, s37.
 J., Bray. Anonymity,
Cybercrime and the Connection to Cryptocurrency, MSc Thesis,
Eastern Kentucky University 2016, pp.25
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