— Brief History of bitcoin/cryptocurrency
— Economic Implications
— Legal Bindings
The Central Bank of Nigeria has warned that people who invest in cryptocurrencies do so at their own risk because they are not protected by the law. This was contained in a statement released on Wednesday, 28th February 2017, by Isaac Okorafor, the acting Director in charge of Corporate Communications.
This warning is in lieu of the fact that more and more Nigerians are beginning to invest in cryptocurrency, following the recent sporadic increase in the value of bitcoin.
Brief history of bitcoin/cryptocurrency
While the cryptocurrency known as bitcoin has gained a lot of recognition around the world, it has been described in many instances as a Ponzi scheme and hence regarded as quite a risky venture to invest in. In the same vein, a lot of governments are reluctant in accepting the cryptocurrency, pointing out the fact that it is untraceable and could be used for anything, from shopping online to sponsoring terrorists.
As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment. A research produced by the University of Cambridge estimates that in 2017, there are 2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using bitcoin.
Economic Implications
According to an article written and published by Andrew Sheng and Xiao Geng on the Market Watch, the concept of private cryptocurrencies was born out of mistrust of official money. In 2008, Satoshi Nakamoto — the mysterious creator of bitcoin, the first decentralized digital currency — described it as a “purely peer-to-peer version of electronic cash,” which “would allow online payments to be sent directly from one party to another without going through a financial institution.”
But the danger of cryptocurrencies extends beyond facilitation of illegal activities. Like conventional currencies, cryptocurrencies have no intrinsic value. But, unlike official money, they also have no corresponding liability, meaning that there is no institution like a central bank with a vested interest in sustaining their value.
Instead, cryptocurrencies function based on the willingness of people engaged in transactions to treat them as valuable. With the value of the proposition depending on attracting more and more users, cryptocurrencies take on the quality of a Ponzi scheme.
As the scale of cryptocurrency usage expands, so do the potential consequences of a collapse. Already, the market capitalization of cryptocurrencies amounts to nearly one-tenth the value of the physical stock of official gold, with the capability to handle significantly larger payment operations, owing to low transaction costs. That means that cryptocurrencies are already systemic in scale.
Legal Bindings
In the statement released by on Wednesday, the CBN said that transactions in virtual currencies were
“largely untraceable and anonymous thereby making them susceptible to abuse by criminals, in money laundering and financing of terrorism.
“Dealers and investors in any kind of cryptocurrency in Nigeria are not protected by law, thus may be unable to seek legal redress in event of failure of the exchangers or collapse of the business.”
In his analysis of the economic and legal implications of cryptocurrencies, with special attention to bitcoin, Swapnil Jariwala, a Blockchain, and Economics expert, indicated that different countries have different opinions on the matter and, while some countries have outrightly declared it illegal, many countries have no policy or intention to regulate bitcoin.
“I believe there’s inherent risk to the country if its people start depending on the Bitcoin more than national currency. Monetary policy is most important tool to control interest rate, money supply etc. and many economic factors like inflation, unemployment rate depend on this. With complete dependence on Bitcoin all the fate of the country will be on mercy of people all over the world who may not even care about mere existence of your country. It’s somewhat similar to situation of Greece and Spain where they cannot mint more Euros or change interest rates as per their countries’ needs. However supportive European central bank and Euro countries may be, economic independence has been compromised.”
The inconsistency of the cryptocurrency and the deficiency in the ability of Governments to regulate it is a major reason why they rather blacklist it, and warn their citizens against investing in it; just as the CBN has done and it is vital that Nigerians who invest in cryptocurrency consider the fact that there is no legal recognition of the scheme in Nigerian constitution.
