This article provides a comprehensive analysis of the National Blockchain Adoption Strategy (the “Policy”), which was released by the National Information Technology Development Agency (NITDA). It also provides answers to key questions concerning the Policy.

What is a Blockchain?

A Blockchain is simply defined as a sequence of blocks or groups of transactions that are chained together over a network and distributed among its users. It does not rely on an external and centralised authority to validate the authenticity, validity, and integrity of its data because it operates on a decentralised network consensus mechanism. This decentralised mechanism is possible because multiple participants on the network, known as nodes, maintain a copy of the entire blockchain. The distributed nature of blockchain therefore ensures that no single entity has complete control or authority over the network. Instead, the validation and verification of transactions are performed collectively by the participating nodes through a consensus algorithm.

What is the vision of NITDA and how does it translate to the objectives of the Policy?

The vision of NITDA as outlined in the Policy is to use blockchain technology as a platform to transition into the digital economy. As a regulator, NITDA aims to position Nigeria as a leader in blockchain adoption and create an enabling environment for technological innovation and economic growth.

The vision will be accomplished through a set of objectives, which include enhancing transparency, promoting efficiency, fostering trust, and improving service delivery across various sectors of the Nigerian economy through the adoption of blockchain technology.

What are the use cases of blockchain technology in Nigeria according to the Policy?

The Policy outlines various use cases of blockchain technology across sectors such as finance, supply chain management, healthcare, and government services.

1. In the financial services industry, blockchain technology can be used to create more secure and efficient payment systems, clearing and settlement systems, and digital asset trading platforms.
2. In the supply chain management industry, blockchain technology can be used to track the movement of goods and to ensure the authenticity of products.
3. In the healthcare industry, blockchain technology can be used to store patient records, manage medical supplies, and conduct clinical trials transparently.
4. In government services, blockchain technology can be used to improve the efficiency of government operations, reduce corruption, and improve citizen engagement.

Assessing the relevance of these use cases to your business operations may uncover opportunities for innovation, collaboration, and competitive advantage.

What is the regulatory landscape for blockchain technology in Nigeria?

Despite the opportunities to innovate present in blockchain technology, the regulatory landscape in Nigeria is still in the preconception stage. There is currently a dearth of legislations or regulations specifically tailored to the blockchain industry in Nigeria. The absence of clarity on specific regulations creates uncertainties and challenges for businesses operating in the blockchain space. 

We must, however, highlight that the Securities and Exchange Commission (SEC) has made some strides in providing regulatory clarity on digital assets through the publication of the its new Rules on Issuance, Offering Platforms and Custody of Digital Assets (the “SEC Rules”). The SEC Rules cover some aspects of the digital asset ecosystem and provide a crucial framework for businesses and investors operating in this space. 

While the SEC Rules provide a regulatory framework for digital assets, it is important to note that the Central Bank of Nigeria (CBN) plays a significant role in the overall regulatory landscape. As of the time of this note, save for the prohibition on financial institutions from dealing with cryptocurrency, it is still unclear whether the CBN fully aligns with the SEC’s approach to digital assets. 

The approach of the CBN and some other regulators in Nigeria has been one of caution. According to the Policy, this was due to concerns over fraudulent activities related to cryptocurrencies.

It is, however, encouraging to see the proposal of a Blockchain Task Force (the “Task Force”) and the creation of a National Blockchain Sandbox via the Policy. While the Task Force will drive the development of regulatory frameworks, the sandbox will provide a controlled environment for innovation and testing without fear of sanctions or breaches of regulations. 

When we read the foregoing in concert with Section 3 of the Capital Gains Tax Act, as amended by the Finance Act 2023, which provides that the disposal of digital assets such as cryptocurrency will now be subject to a capital gains tax rate of 10%, it is reasonably expected that further directives and guidelines on the regulation of blockchain technology will soon be rolled out by the Nigerian government.

Does the Policy mean that cryptocurrency is now a recognised currency in Nigeria?

While the Policy acknowledges the importance of cryptocurrencies as a use case for blockchain technology, it does not alter the legal status of cryptocurrencies in Nigeria. As of the date of this note, CBN circulars and statements emphasising that cryptocurrencies are not recognised as legal tender in the country, and warnings to financial institutions against conducting cryptocurrency transactions or enabling payments for cryptocurrency exchanges are still in effect.

We are able to address any questions or concerns relating to the Policy and we can be reached via email at info@tlpadvisory.com