By Aliyu Abdullahi PhD,

The release of New Rules on Issuance, Offering Platforms and Custody of Digital Assets by the Security and Exchange Commission (SEC) few days ago sparked discussion especially among the blockchain and digital market enthusiasts.

The discussion revolves among the seeming controversy on the ban for the use of cryptocurrencies by the CBN in February 2021 and the recent release of the Rules by the SEC. To many, this creates regulatory inconsistency. I write this piece as a quick contribution on the discussion before a detailed academic analysis on the issue is published for two reasons. The first reason is to lend credence to the CBN position on the ban of cryptocurrency as a legal tender on one hand. The second, is to also support the initiative of the SEC for formulating the new Rules on the other hand. Doing this will bring out clearly the fact that, there is no regulatory conflict or inconsistency and to also make case for the need to embrace and regulate our blockchain space.

To start with, the core mandate of the CBN is to regulate the money market, while that of the SEC is to regulate the financial market. Therefore, it is within the regulatory competence of CBN to ban the use and storage of cryptocurrencies by our banks. When the technology further develops, this position might be outmoded and perhaps, cryptocurrency can be accepted as an official medium of exchange. For now, it is not safe for countries especially the developing economies to adopt it, for the simple reason that, it is not issued by any constituted authority thus does not have any legal backing; it doesn’t have an official regulator; and is operated via a cryptographic medium that is based on anonymity. No economy, especially a fragile one would be allowed to operate on this kind of platform.

However, blockchain technology is wider than trading in cryptocurrencies only. Aside from its convenience for speedy and well secured transactions like the execution of smart contracts, there are other assets that can also be traded. Broadly, medium of exchange in the Blockchain space are called “digital assets.” Digital assets are defined as “items you can sell, and hold online, but typically cant’s physically see or touch.” They are classified into two namely, cryptocurrencies and non-fungible tokens (NFTs). The cryptocurrencies are the popular Bitcoin, Ethereum, Cardano, Dogecoin among others while the NFTs comprises of Assets-backed-tokens like equity, debt or physical assets and the Pass-through-tokens that grants revenues, rewards and network benefits to hold. The non-fungible tokens (NFTs) by their nature are tradable as assets or token. Emphasis of the new Rules released by the SEC is mostly for these kinds of assets. It is for this reason that the Rules used the term “digital assets” an umbrella name for all kinds of exchange mediums on the Blockchain space. Although cryptocurrency may not be acceptable as a legal tender, the same stance should not be taken on other digital assets that can be operated on the Blockchain technology. This is more so that, the Blockchain technology has certainly come to stay in our digital ecosystem. It is high time our legal system accepted this unavoidable trend.

Aliyu Abdullahi PhD,
Department of Private Law, A.B.U. Zaria
Partner at Suite and Partners