Blockchain And Regulatory Uses In Nigeria (Legal Development)

Written by: Chinedum Mbagwu

INTRODUCTION:

A blockchain is a decentralized, distributed, and public digital ledger used to record transactions across many computers so that the record cannot be altered without the consensus of all the networks. It is an advanced database mechanism that allows transparent information sharing within a business network.
Its evolvement has been disruptive and yet transformative across various social and economic sectors worldwide. Its application and usage extend beyond the popular cryptocurrency to include smart contracts and digital identification.
The block-chain innovative technology poses regulatory issues of consumer protection, anti-money laundering compliance (AML), data privacy, and others.

CHARACTERISTICS OF BLOCK-CHAIN

Here are some key characteristics of blockchain technology:

1. Decentralized: Block-chain is a decentralized system, meaning that no single entity controls it. It is a peer-to-peer network of computers working together.
   
2. Immutable: The blockchain ledger is immutable, meaning that once a transaction is recorded, it cannot be altered or deleted.
3. Transparent: All transactions on the blockchain are time-stamped and visible to all participants.
4. Consensus: Block-chain uses consensus mechanism to validate transactions, ensuring that all nodes agree on the state of the ledger.
5. Security: Block-chain uses advanced cryptography to secure transactions and protect user’s data.
6. Open-Source: Most blockchain platforms are open-source, allowing developers to contribute and review the code.
7. Distributed Ledger: The blockchain ledger is distributed across all nodes in the network, ensuring that everyone has a copy of the entire ledger.
   • Autonomous: Smart contracts on the blockchain can automate processes without the need for intermediaries.
     
     There are currently no substantive laws or regulations governing blockchain in Nigeria. However, depending on its uses and industry of application, some regulations and/or laws may become applicable for the purpose of such use.
     
     a. Securities and Exchange Commission (SEC) Rules on Issuance Offering Platforms and Custody of Digital Assets:
     The rules apply to all issuers seeking to raise capital through digital assets (which include the issuance of tokens to the general public in return for cash, cryptocurrencies, or other assets). The rules also provide a limit on funds to be raised by an issuer and an investment limit for individuals.

b. Central Bank of Nigeria (CBN) Regulatory Framework:
The CBN over the years in exercising its regulatory oversight over the finance sector has made a plethora of regulations that entrepreneurs/startups using blockchain in their business processes may do well to consider, even though they are not specifically applicable to blockchain. Some of these regulations include:

i. CBN Consumer Protection Regulation 2019
ii. CBN Anti Money Laundering/Combating the Financing of Terrorism (Administrative Sanctions) Regulation 2019
iii. CBN Three-Tier KYC Requirements 2013

c. Other laws and Regulations include:

i. The Nigeria Data Protection Act (NDPA) 2023- This is applicable in consideration of the fact that technology firms collect and process the data of Nigerians. Consequently, they are expected to comply with the provisions of NDPA on the protection of the data of Nigerians.

ii. Nigerian Startup Act 2022- which makes certain provisions to create an enabling business environment for startups in Nigeria, such as the creation of startup portals and procedures for startup labelling.

iii. Cybercrimes (prohibition, prevention etc) Act, 2015- this Act applies to all companies providing services online including those using block-chain technology. Technology firms and entities using block-chain technology should not engage in trafficking of passwords and similar information. Measures should also be put in place to ensure that their technology is not used to commit any cybercrime.

iv. The Money Laundering (Prohibition Act, 2022)- this will apply to financial technology companies utilizing block-chain to receive and transfer funds.

v. The terrorism prevention Act, 2012 (as amended)

vi. The terrorism Prevention (Freezing of International Terrorist Funds and Other Related Matters) Regulations 2013

vii. The Economic and Financial Commission (Establishment)Act, 2004

viii. The National Identity Management Act. 2017

ix. The Finance Act (as amended each year); and general laws and regulations that typically apply to companies operating in Nigeria.

d. National Block-Chain Policy- this was developed by the Federal Ministry of Communication and Digital Economy and it lays the framework for the acceptance and execution of block-chain in Nigeria. Although not a legislative document carrying the force of law, its provisions serve as a guide and pointer for blockchain enthusiasts and users.

CONCLUSION

The framework around blockchain is still within its development phase. We however believe that with the increased acceptance by the government of blockchain technology and its application in the economy, a proper and robust framework for its regulation will be formulated.

          Chinedum Mbagwu is a partner at Bucklers Law Firm