Minister of State for Budget and National Planning, Prince Clem Ikanade Agba, on Thursday, gave insight into why the federal government placed a ban on cryptocurrencies trading in Nigeria.
The minister said security implications, non inclusiveness and the fear that cryptocurrencies trading could aid tax evasion were among the reasons the federal government, through the Central Bank of Nigeria (CBN), considered before placing a ban on crypto trading.
Agba, who spoke on “Innovation, Regulation and Aftermaths” on the occasion of TechNext Conference 2021 at the Pistis Conference & Zoom, with the theme: “Reimaging Crypto as Future of Finance,” noted that one of the considerations was how cryptocurrencies could be used to fuel and breach the nation’s security.
According to him: “Although significant progress has been made, we are unfortunately not yet where we want to be security-wise in the country which is a key pillar of this administration’s goals.
“To address this, we have been boosting our intelligence, manpower and artillery capabilities, as well as the funding of the relevant security agencies.
“Given this security climate, while regulating, we must consider if cryptocurrencies aid or discount these efforts. Do they make it easier for terrorists and their sponsors to make illicit purchases? Not just terrorist, but does this hold true for traffickers as well?
“This is a situation where a pro could also be a con; the ease of cross-border payments coupled with the anonymity of cryptocurrency holders could possibly pose significant threats to national security.”
The minister said there were other factors that the government looked at before placing the ban.
Read him: “One is the safety of all citizens when participating in the industry. We all know of the good cryptocurrencies are capable of, the inclusivity and wealth creation they have already fostered.
“Thousands have made life-changing gains from trading and holding various cryptocurrencies, but hundreds of thousands have made losses that will be felt by the generation to come through scams in the crypto space.
“I am sure we all remember the $2 billion scam by BitConnect in 2016, the barrage of Initial Coin Offering (ICO) scams in 2017 and most recently the $3.3 million scam of the Squid Game cryptocurrency token SQUID last month.
“Although scams are not exclusive to cryptocurrencies, it is much easier for unsuspecting citizens to fall into these scams in an unregulated field that has a high educational barrier to entry.
“Conceptually, cryptocurrencies, their types such as stablecoins, altcoins, security tokens, value tokens and its terminologies may be harder to explain to the average Nigerian than stocks or regular trading. Despite this, there is still a larger demographic of citizens, educated and not, that fall for various investment scams such as MMM.
“Therefore, there is a consideration to be had that if citizens already fall for these scams in a regulated sector where verifying the legitimacy of a company could be as straightforward as cross checking their registration with SEC, how many more could be victims in a space with no explicit verification method?”
Agba said another consideration was how cryptocurrencies could affect government revenue sources.
According to him: “It is often said that Nigeria has an expenditure problem, especially when an annual budget is released and analysed.
“However, that is not entirely accurate. For example, we tend to analyse that the cost of governance is too high but also conclude that the salaries of the civil workforce such as our police is low. What we are experiencing today is a revenue problem; an issue of how to generate enough revenue to cover our required costs.
“Currently, a major source of our existing revenues is tax collected through the Federal Inland Revenue Service (FIRS). Therefore, there is a consideration of how cryptocurrencies could aid tax evasion and hamper FIRS’ ability to effectively generate the much-needed revenue for the country.”
He stated that this was important especially as this administration was insistently focused on balancing the infrastructure deficit of Nigeria.
The minister further explained that on “one hand, cryptocurrencies and other frontier technologies could lay the golden egg that boosts our economy, while on the other hand, they could discount the government’s efforts towards laying the groundwork and infrastructure that will encourage Foregin Direct Investments (FDIs) and invariably boost our economy.”
He also touched on what he considered as a vital challenge in regulating not just the cryptocurrency space but also fintech and frontier technologies.
“That challenge is systematic bottlenecks; technology is evolving significantly faster than regulations.This phenomenon is inevitable.
“Although, if we could update regulations at a much faster rate than is traditionally done in order to have an updated law once every six months for example, we may be able to address this concern.
“However, the realities today in government which is both widely horizontal and deeply vertical, do not allow for this.
“Simply put, to regulate emerging sectors and technologies, we must first update our systems to be agile enough to iterate on our laws at a faster pace.
“This seems a good solution on the surface as suggested by a few, but it may have its drawbacks as constantly changing laws create uncertainty and thus stifle investments.
“All the challenges and consideration I have put forward to you, our distinguished audience today, are some of the issues we must all collectively solve if we are to turn possibilities into reality.
“The challenges and considerations should not spell doom for the future of the cryptocurrency space but rather act as solid doors to promote conversations, brainstorming and collaboration between all stakeholders, especially we the government and you the experts.
“With this in mind, let us address what government’s plan is for forging a way forward,” he posited.
The minister, however, emphasised that cryptocurrencies could open up numerous possibilities for optimisations in the nation’s current systems across industries.
He said that despite the ban, it could also be the biggest disruptor in finance and governance the world had ever witnessed, “affecting the way we view not just money but assets alike.”
He stated that in real estate and trade, for instance, cryptocurrencies could be used to harness the blockchain to create and store all lands in their base unit of a plot as Non-Fungible Tokens (NFTs), empowering individuals to store and track the historical ownership of land on the blockchain, which allows each plot to be authenticated without the need for third-party verification.
“Such a solution benefits citizens and government on various levels. Government benefits via the cost saved from committing resources and funding specific MDAs and committees in resolving boundary and land issues while citizens in general benefit from the opportunity costs associated with resolving these issues; and those expending their money to purchase land can do so with utmost confidence of its authenticity and peace of mind that they are not being defrauded by the seller.
“This is a real issue we face today in Nigeria, that hopefully can be solved in the near future by the burgeoning developments in the blockchain space.
“The ability to track the ownership of assets provides uncountable benefits to citizens and government alike.
“However, from my perspective as a minister charged with the job of envisioning our great country Nigeria in the next 30 years, I am more interested in the use cases that promote financial inclusivity for all- gor example, and also in Real Estate, the tokenisation of assets like buildings.
“As we all know, in real estate, you have to buy a whole asset at once, meaning a person with five million naira to invest cannot own a hundred million naira property unless financed at high interest rates; essentially losing out on the investment opportunity.
“However, by tokenising the asset, the individual can buy five million tokens of the hundred million asset, thus significantly reducing the barrier to ownership and investment. This could be similar to the share system applied in organisations today.
“The economic benefit such a solution could pose to every Nigerian, especially our citizens with lower net incomes, cannot be understated.”
The minister thanked the organisers of the coinference and assured them that the President Muhammadu Buhari administration would continue to support innovative frameworks that would enhance financial inclusivity.
He said the Ministry of Finance, Budget and National Planning would do all it could, in the process of providing the enabling environment and policy direction to strengthen such operations.
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