Nigeria has seen interest in cryptocurrency boom among its citizens and the regulatory landscape has only recently started to catch up.
From the burgeoning adoption by the Nigerian populace to the Central Bank's directives in response, there's a lot to unpack when it comes to crypto law in this dynamic country.
So, without further ado, let's get stuck in and explore how Nigeria is shaping its crypto laws & regulations for its digital financial future.
Is Cryptocurrency Allowed or Legal in Nigeria?
In Nigeria, cryptocurrencies aren’t considered legal tender; however, this doesn't mean they’re banned. There have never been any specific laws stopping individuals from using cryptocurrency.
Nigeria has one of the highest crypto usages in the world, and the market grew a further 9% between 2022 and 2023, and the growth is expected to continue for 2024.
As you can see from the Google Trend snippet above, it's very clear that crypto adoption is rising extremely fast in Nigeria. Plus, we also covered more information on that in our previous article on Nigeria's crypto scene. If you are looking for a bit more info on why we look to Nigeria, here's a thorough article on the future of enabling blockchain in Nigeria.
Despite all this, historically the exact position of crypto within the country has been uncertain.
A lack of guidelines left people guessing, and, when in 2021 a ban on traditional banks facilitating crypto transactions was introduced, but with no such restrictions placed on individual trading, the waters were further muddied.
The Current Crypto Law & Regulation in Nigeria as of 2024
Fast forward to 2024, though, and the crypto landscape in Nigeria now offers greater clarity than at any other point in history.
In a landmark decision, the tail end of 2023 saw the Central Bank of Nigeria overturn the 2021 ban on financial institutions dealing in crypto and open the door for a regulated digital currency market.
“Current trends globally have shown that there is a need to regulate the activities of virtual assets service providers which include cryptocurrencies and crypto assets,”—Central Bank of Nigeria.
The new guidelines usher in a greater sense of certainty around how to interact with crypto and reflect the 2022 recommendations from the Financial Action Task Force (FATF) and Nigeria’s Securities and Exchange Commission (SEC), which had issued rules on the issuance, offering, and custody of digital assets in an earlier attempt to create clarity.
Under the new guidelines, banks and financial institutions are still prohibited from holding, trading, or transacting in virtual currencies on their accounts, and cash withdrawals are not allowed.
The guidelines also bar clearing third-party cheques through crypto accounts and limit withdrawals to two per quarter. However, institutions are now allowed to facilitate cryptocurrency transactions for customers, provided they adhere to strict customer KYC (Know Your Customer) and anti-money laundering (AML) checks.
The new regulations stipulate that entities such as cryptocurrency exchanges and digital asset brokers must operate naira-denominated bank accounts exclusively. This move aims to integrate cryptocurrency transactions within the framework of the Nigerian banking system while maintaining a level of control over the operations.
Nigeria Government Laws and Regulation for Crypto Exchanges in Nigeria as of 2024
In 2024, financial VASPs—including crypto exchanges and wallet providers—have a rigorous set of regulations they must adhere to. The repercussions of failing to do so are severe, with heavy fines, revocation of registration, or even a complete ban on operations within Nigeria a possibility.
As things stand, crypto exchanges operating in Nigeria are required to:
- Obtain a license from the SEC and register with the Corporate Affairs Commission (CAC).
- Maintain a minimum paid-up capital of ₦500 million ($553,000).
- Collect the Bank Verification Number (BVN) of crypto company owners.
- Verify the identities of their customers and report suspicious transactions to comply with Know Your Customer (KYC) and anti-money laundering (AML) measures.
- Submit a white paper to the SEC for approval if issuing tokens.
- Have a physical presence in Nigeria to ensure that exchanges are within the regulatory purview of Nigerian authorities and to help support the local economy and create jobs.
These new regulations place heavy emphasis on privacy and data protection. Exchanges need to secure user data adequately and report any data breaches comprehensively, within stipulated periods. They're also obliged to maintain records of all transactions for a minimum of five years to aid in any future investigations or audits by regulatory bodies.
Although these regulations may be considered inhibitory in some quarters, they also signal a level of formal recognition for cryptocurrencies, with the authorities aiming to strike a balance between innovation and protection for the financial system against potential crypto-associated risks.
What the Ban Lifting Means for Crypto Trading for Individuals in 2024
For Nigerian crypto traders, these developments mean hoops to jump through, but they also translate into several benefits:
- Enhanced Financial Services: Bank accounts and transactions linked to cryptocurrency trading are no longer subjected to the previous restrictions, ensuring smoother financial operations.
- Legal Clarity: The new legislation delivers much-needed legal clarity, defining the roles and responsibilities of all stakeholders within the crypto ecosystem.
- Consumer Protection: The updated regulations are designed to offer more security to Nigerians participating in crypto trading by mandating compliance with KYC and AML protocols.
- Economic Growth: Embracing cryptocurrency can contribute to the growth of the Nigerian economy by fostering innovation in the fintech sector, attracting investments, and facilitating trade.
Yet, while these regulations help protect consumers from fraud and diminish the risk of financial crimes, they also fly in the face of anonymity, a value deeply cherished in the crypto community. Adherence to the new rules is not a choice though, it’s a prerequisite for anyone participating in the financial revolution sweeping through Nigeria.
Is Crypto Taxable in Nigeria?
Crypto is taxable in Nigeria.
In fact, a specific bill was signed into law back in May 2023 by then-President Buhari to clear up the tax status of digital assets in the face of ever-growing crypto usage.
The new law took a capital gains approach, imposing a 10% levy on the disposal of all digital assets, including cryptocurrency. The tax applies to both individuals and businesses or any type of entities resident in Nigeria. Just as with standard capital gains tax, the exact amount owed is calculated from the difference between the purchase and sale price of the digital asset in question.
Nigerian crypto enthusiasts should always make a point of keeping track of any transactions with detailed records of their purchases, sales, and transactions to make sure not to fall foul of this law. The responsibility falls on the individual.
Timeline of Nigeria Law Changes from 2020 to 2024
The building momentum of the Nigerian crypto scene along with the promise of providing a platform for unbanked individuals in a country where only around half of the population has access to traditional banking services eventually forced the government’s hand on cryptocurrency measures.
But the journey from initial banking restrictions to the latest inclusive regulations has not been a simple one.
So, how did we get here? Here is a timeline of all the major milestones.
Feb 2021: Central Bank of Nigeria Imposes Ban on Crypto Transactions
- The Central Bank of Nigeria announces a ban on commercial banks from engaging in any cryptocurrency transactions.
- Aimed at protecting citizens from black market criminal and fraudulent activities.
- Financial institutions are instructed to close accounts related to cryptocurrency trading.
Oct 2021: Launch of eNaira, Nigeria's CBDC
- Former President Buhari unveils eNaira on 25 October 2021.
- Nigeria becomes the first African country to launch its own Central Bank Digital Currency (CBDC).
- The launch indicates a possible willingness to engage more with digital currencies.
May 2022: SEC Releases New Rules on Digital Assets
- The Nigerian Securities Exchange Commission published a 54-page document titled “New Rules on Issuance, Offering Platforms and Custody of Digital Assets”.
- The document defines the status of digital assets as securities.
- It regulates all digital asset token offerings, ICOs, and blockchain-based offerings in Nigeria.
May 2023: Introduction of a 10% Tax on Crypto Gains
- The president signs a bill into law introducing a 10% taxation on gains from the disposal of digital assets, including cryptocurrency.
Dec 2023: Overturn of the 2021 Crypto Ban on Banks
- The Central Bank of Nigeria announces a reversal of the original ban on banks.
- A structured regulatory framework is introduced for banks and financial institutions.
- Banks are now allowed to facilitate cryptocurrency transactions with strict customer KYC and anti-money laundering checks.
How to Buy and Sell Cryptocurrency Legally in Nigeria
Buying and selling cryptocurrency in Nigeria requires a thorough understanding of the regulatory framework put in place by the Nigerian government.
Before going any further, if you’re linking your crypto trading to a bank account, to ensure you don’t fall foul of the regulations, you’ll need to make sure you have one set up specifically designated for that purpose. The CBN made it abundantly clear this is a requirement.
“From the commencement of these Regulations, financial institutions shall not open or permit the operation of any account by any person or entity to conduct the business of virtual/digital assets unless that account is designated for that purpose and opened in line with the requirement of these Guidelines.”—Central Bank of Nigeria
With that sorted, you can move on to the next steps.
First off, you'll want to register with a local cryptocurrency exchange that has fulfilled the Nigerian Corporate Affairs Commission (CAC) requirements. These platforms have stringent know-your-customer (KYC) and anti-money laundering (AML) protocols that you'll need to adhere to. By abiding by these, you're also helping maintain a safe environment for all users involved.
Complete KYC Procedures
To start trading, complete the necessary KYC procedures mandated by your chosen cryptocurrency exchange. This typically involves providing personal identification documents, verifying your address, and sometimes even biometric verification.
Use Approved Payment Methods
When it comes to transactions, as we've touched on above, it's crucial to use only approved payment methods, to ensure your fiat transactions are traceable and above board. Keep an eye on bank policies; you may need to clarify the nature of your transactions to avoid any misunderstanding with financial institutions scrutinizing accounts for crypto-related activity outside of the allowed parameters.
Keep a Record of Transactions
Remember that all transactions must be recorded, and exchanges are required to keep these records for a minimum of five years. This transparency is both a safeguard for you as a consumer and a compliance measure for the exchanges.
Regulatory conditions have been known to shift, so always stay vigilant and keep abreast of the latest news.
A Crypto Future for Nigeria
The shift in approach in recent years signals Nigeria's commitment to shaping a digital economy that's robust and forward-thinking, but the way that it’s going about it makes it clear that the government is seeking a balance in its approach.
While on the one hand, it is keen to foster innovation and tap into the vibrant crypto scene on its shores, on the other it understands the necessity of ensuring financial stability and security, something it believes the recent measures will help ensure.
Nigeria has been, and will continue to be, a crypto hot spot, not just in Africa but across the globe as a whole. Despite voices of concern around the restrictive nature of an approach that involves KYC and AML checks aplenty, at least the opacity of previous years has cleared thanks to recent actions.
Really, though, Nigeria’s crypto journey has only just begun, and what’s in store for the future promises to be exciting indeed.