The Concept of Digital Currency in Nigeria: Legality and the Way Forward


Technology has in no little way affected the activities of man in modern times. In its pervasive nature, it has cut across all aspects of human life, even altering well-known means, by introducing new means to assuage the rigors of our daily transactions. One of the major breakthroughs of modern technological advancement is its impact on the evolution of the form of money. Money is one of man’s most remarkable creations has had technology influence its development hugely, now other than the regular physical form of money, it can now be in the non-physical form, Also aside from physical money/currency, digital currency is now a recognized medium of exchange. With the introduction of digital currency, such as Bitcoin, Litecoin, Etherum, iTunes gift cards, Amazon gift cards, etc. as a means of exchange in financial transactions, the world is beginning to tilt toward the use of these non-physical forms of money in daily commercial dealings. Even Nigeria has not been an exception in this regard. However, it has had its challenges, especially the debate about its legality, acceptability, and even more. This research attempts to discuss the attendant issues of using digital currency in financial transactions in Nigeria. The first part outlines the historical background to the digital currency, the general concept of digital currency is examined in the second part, the third part examines the various pronouncements on digital currency by Nigeria financial regulatory institutions, the fourth part examines the legality of using and dealing in digital currency in Nigeria, the fifth part sheds light on some concerns associated with trading and using digital currency and the last part profess some recommendations.



The history of digital currency dates back to the 1983 research paper of American computer scientist, David Chaum: “Blind signatures for untraceable payment”. This paper proposed the idea of digital currency. In 1990, David Chaum founded Digicash, an electronic cash company in Amsterdam to commercialize the ideas canvassed in his research paper.

Also, in the 1990s, was the dot-com bubble, which served as a form of digital currency?

In 1997, the Coca-Cola Company offered mobile payments in buying from a vending machine.

In 1998, PayPal launched its USSD denominated service.

In 2005, in China, QQ coins were used as a type of commodity-based digital currency on Tencent’s QQ messaging platform. QQ coins were reportedly so effective in China, that they were said to have a destabilizing effect on the Chinese Yuan.

In 2006, was it also the liberty reserve? This digital currency service allowed users to convert dollars or euros to liberty reserve with one another at a 1% fee.

Albeit, some digital currency operations were reputed to be used for Ponzi schemes and money laundering, and prosecuted by the US government for operating without “money services business” (MSB) licenses.

In 2009, Bitcoin was launched, which herald the start of decentralized blockchain-based digital currencies with no central server, and no tangible assets held in reserve. This simply means an attempt by the government to regulate them proved abortive, as there was no central organization or body to turn them off. However, BITCOIN has become the most widely and accepted form of digital currency.



Money basically is an accepted means of exchange and measure of value. The word money is used to described the use of banknotes and minted coins in daily commercial transactions. Also, according to the advanced English dictionary “money is a legally or socially binding conceptual contract of entitlement to wealth, void of intrinsic value, payable for all debts and regulated in supply”.

Following from the above, digital currency is an emerging means of exchange, but in a digital format unlike the regular banknotes and minted coins.

Digital currency is the generic term for money that exists in the digital space (non-physical form). It also called digital money, electronic, electronic currency, or cybercash.



To fully understand what digital currency is, it is imperative and important o fully consider the different ways digital currency may manifest. They are as follows,

A: Electronic money

This simply refers to money that exists in the bank computer system, that may be used to facilitate electronic commerce transactions. The value of this type of digital currency is backed by fiat currency (fiat currency is a legal tender whose value is backed by the government that issued it. So the Nigerian naira is fiat money, just like the pounds, euros, dollars, etc. there are currencies of countries in the world). Basically, this is what distinguishes it from virtual and crypto-currency.

They are originally physical cash but stored in electronic systems of banks, to be used via digital means in commercial transactions. Companies such as Paystack, Skrill, PayPal, Neteller, Quickteller, Square, and MasterCard allow for the use of electronic money to ensure seamless financial and commercial transactions. so buy groceries in the supermarket or order items from online stores with the use of ATM cards, only evinces the use of electronic money as a means of exchanges.

The use of electronic money in day-to-day financial transactions has helped to reduce the use and reliance on banknotes or physical currency generally.


Just like electronic money defined above, virtual money represents a form of money albeit not in physical form, but facilitates payments of goods and services. The term came into existence in 2012. The European central bank defines it as “digital money in an unregulated environment, issued and controlled by its developers and used as a payment method among members of a specific virtual community”. However, in 2014, the same European central bank changed its view and redefined virtual currency as “a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat currency, but is accepted by natural or legal persons as a means of payment, and can be transferred, stored or traded electronically”. Unlike electronic money, virtual currency is not backed by fiat currency; it is not like electronic money that is stored in the electronic system of banks. Instead, virtual currency relies on a system of trust and may not be issued by the central bank or any banking regulatory authority. They are mined by developers via electronic means, yet possess monetary value.

Virtual currency has limited usage. It is used mostly used by members of a specific online community or a group of users on a given platform or close-end community or forum. Virtual currency can be centralized or decentralized, it depends on how it is structured, for instance, Bitcoin is decentralized while Ripple (xrp) is centralized. In it restrictive nature, virtual currencies are mostly used for peer to peer transaction e.g. PSP, for home-sharing, ride-sharing, online market place, even for lending money (KiaKia in Nigeria provides a good example of a peer to peer lending platform).

Technically, gift cards such as iTunes gift cards, Netflix gift cards, Amazon gift cards, Chase gift cards, Wal-Mart gift cards, etc. functions as virtual currency, as they are recognized means of exchange among online members of their different online platforms.


The term “crypto-currency” is derived from the encryption method which is used to secure the network. It is also a form of virtual currency, but there are mainly tokens or coins. It is “crypto” because of the encryption and cryptography (the process of hiding information) that helped safeguard them generally. This simply means that they are files created by electronic means by developers, having monetary values, although using cryptographic methods to secure the integrity of the currency and networks basically. Crypto-currencies generally, with some exceptions are decentralized networks based on blockchain technology; they work using blockchain technology. Blockchain technology is also known as distributed ledger technology (DLT) simply means a distributed ledger that stores the source of digital assets, which is enforced by a disparate network of computers. Essentially, it makes the history of any digital assets unalterable or traceable. International business machine corporations (IBM) is the world largest blockchain technology company, examples of crypto-currency include: Bitcoin, Bitcoin cash, Altcoins, Bitcoin satoshi vision (BSV), Etherum, Ripple (xrp), Tether, Litecoin, Libra (now changed to DEIM), Binance coin, peer coin, name coin, Eos, Dash, Monero, Zcash, etc. The good thing about crypto-currency according to most crypto enthusiasts is that owing to their decentralized and cryptographic nature, they are insulated against any form of attack from government interference, control, or manipulations, and also the notion that they are almost impossible to trace, hack or counterfeit.


Read More: The Role of Money in International Politics: Powerful & Dangerous



Certain advantages have been identified from the use of digital currency. Some of these advantages are outlined as follow

❖ There is no problem associated with the incidence of inflation, which is common with physical cash.

❖ It allows for the ease of trading with international customers

❖ There is a much faster receipt of funds, i.e. virtual and crypto-currency, there are lower transaction fees and elimination of extortionate bank charges upon each transaction.

❖ There is easier access to money via smartphones and computers, unlike the long queues in banks for physical cash.

❖ For virtual and crypto-currency basically, there is users’ autonomy. The user can control how his money is spent without any intermediary such as banks or the government

❖ They are much secured, unlike physical cash that can even be catered away by armed robbers.



This will discuss legality as it affects mainly virtual and crypto-currency in Nigeria, as there is already a well-known established legal framework on electronics in Nigeria. But first, let review the various position of the central bank of Nigeria CBN and the security and exchange commission SEC.

SEC position on virtual and crypto-currency

The SEC defines cryptocurrency as “a digital representation of value, which can be digitally traded and functions as (1) medium of exchange, (2) a store of value, but does not have legal tender status in any jurisdiction. Crypto-assets are neither issued nor guaranteed by any jurisdiction and fulfill the above function only by agreement within the community of users of the crypto-assets; and distinguished from fiat currency and electronic money.

The SEC position is based on section 13 of the investment and securities act 2007, which conferred powers on the commission as the apex regulator of the Nigerian capital market to regulate investments and securities businesses in Nigeria.

Unlike the CBN, the position of the commission is progressive and in conformity with modern realities. The SEC regards virtual currency and crypto-currency as securities unless proven otherwise. This means, that the burden of proving that the crypto-assets proposed to be offered are not securities and therefore not under the jurisdiction of the SEC, is placed on the issuer or sponsor of the said crypto-assets. The commission also recognizes all “digital assets token offering (DATOS), initial coin offerings (ICO), security token (SO), and other blockchain offers of digital assets in Nigeria.

CBN position on virtual and crypto-currency

In a circular issued by the central bank of Nigeria (CBN) on the 12th of January 2017, with reference no (FPR/DIR/GEN/CIR/06/O1O), the CBN warns of the risk and dangers of dealing in virtual and crypto-currency, because the currencies are largely unregulated and untraceable, which can make it susceptible to abuse by cybercriminals. It also warned would-be investors and users to tread with extreme caution as they are yet to be recognized or authorized by them.

Sequel to the circular issued by the CBN in 2017, in 2018, it reiterates its stance through a press release that, crypto-currencies are not licensed or regulated by, and that dealers and investors in any kind of crypto-currency in Nigeria are not protected by law, thus may be unable to seek legal redress in event of failures of the exchanges or collapse of the business.

Apart from the financial regulatory bodies, there have been several announcements by other government agencies and branches regarding the use of virtual and crypto-currency in the past years. In 2018, the Nigerian Senate launched a committee on banking and other financial institutions, to investigate the viability of cryptocurrency as a form of investment and also how it can be regulated.

Also, In 2019, the speaker of the house of representative, Femi Gbajabiamila, on his visit to the NDIC, called for a substantive legal framework for the regulation of cryptocurrency in Nigeria, adding that the house was ready to develop a legal framework to this end, and also, seek the expansion of the statutory functions of NDIC, in order to ensure that it roles did not overlap with that of CBN.

In 2019, the Nigerian deposit insurance corporation (NDIC), also issued a press release, advising Nigerians to exercise caution in the trade of virtual and crypto-currency in financial institutions.

Fintech roadmap committee of the Nigerian capital, in it reports to SEC, at the 2nd capital market committee meeting of the year, which holds on Thursday, August 22, 2019, stated that the SEC needs to decide on the classification of crypto-currency either as mere commodities or securities, however not as a currency and that SEC should be responsible for the regulation of virtual financial assets, exchanges and develop a legal framework to regulate it.

It can be gleaned from the following?

➢ Virtual and crypto-currency are not illegal in Nigeria

➢ They have been regulated by the SEC but not the CBN

➢ They are not yet recognized as legal tender in Nigeria by the CBN

If you say that virtual and crypto-currency are not illegal in Nigeria, you are correct, albeit, Nigeria like many African countries is yet to come up with substantive legislation or legal framework codified into law to regulate the activities of the users and traders of virtual and crypto-currency.



For electronic money, the answer is a straightforward yes, as the business is licensed by the CBN; we have platforms like Paga, Opay, involved in sending and receiving money via digital means. Even persons in shops and kiosks are engaging in the same, this is also inclusive of banks.

However, for virtual and crypto-currency like gift cards, Bitcoin, Etherum, etc., there is no law prohibiting dealing in them yet, what we have best, are just statements advising extreme cautions in the dealings by users, investors, and traders by financial regulating bodies. Also, that, they are not yet recognized legal tenders in Nigeria, but since they can be deemed as properties capable of being owned, they can be sold and bought, until a law is enacted to prohibit this, so, yes. Furthermore, dealing in crypto-currency is considered risky and also involved in criminal transactions, especially as financial crimes, comes criminal liability.



It is safe to say digital currency especially virtual and crypto-currency has met a rocky ground to strive on, in Nigeria. While electronic money has gained widespread acceptance, trading in virtual and crypto-currency is contrastingly clutching at the straws. Below are a number of challenges associated with dealing in virtual and crypto-currency in Nigeria.

  1. Ponzi scheme:- this is one of the general misconceptions towards the adoption of crypto-currency in Nigeria. Many Nigerians still counting their losses from Ponzi schemes are wary of trading in the new currency. Also although crypto-currency has seen a rise in usage in the country, a lot of people still have limited knowledge of how it works. Hence the misguided fear.
  2. Fraud: ask an average Nigerian about crypto-currency today and he/she will associate it with men of the underworld. The popular notion is that crypto-currency is used by cybercriminals and internet fraudsters; this fear is well understandable, just like any currency can be used for illegal means so also is crypto-currency. Even more credible individuals and organizations are moving into the crypto-space.
  3. Lax government regulations:- though crypto-currency is not illegal in Nigeria, but the various pronouncement by the national financial regulators has discouraged many prospective investors, traders, and users.



According to experts and crypto-enthusiasts, Africa is the next frontier for crypto-currency as conditions on the continents are great for virtual currency. As the giants of Africa, it not surprising that crypto-currency users in Nigeria accounted for more than 60% of virtual currency on the continent. However, there are still some issues that are resolved that will lead to higher growth of crypto-currency usage in Nigeria.

  1. Regulation: -Nigeria has adopted a disaggregated approach to regulating digital currencies in general. Though it has not outrightly ban nor prohibits the currency, it, however, lacks a coherent strategy towards regulation at all. It will be relatively easy if the legislative branch passes a law to back the use of digital currencies in Nigeria.
  2. Crypto-education: – Cryptocurrencies have evolved over time, ever since the birth of Bitcoin in 2009 many developments have occurred. Hence it is best if crypto-users and investors continue to learn these new changes, so as not to fall victims to scams.
  3. Awareness: – currently Nigeria has one of the highest rates of crypto-adoption in the world. An awareness campaign should be made to reorient people not to view it as illegal currencies use by fraudsters and scammers alone



The French philosopher Voltaire once said, “all paper money will one day return to their intrinsic value, zero”. This can not be further from the truth, human beings have experimented with different forms of money since time immemorial, hence lack of knowledge about how a system works should not stop us from learning about it.



Ibitomi Ibiwumi Otunola

An undergraduate student of History and Diplomatic Studies, 

University of Abuja


  • Adamu, A U.  (2014) unpublished paper “towards the use and application of crypto-currency in the Nigeria financial ecosystem”.
  • retrieved online html/what you should know about Bitcoin
  • Virtual-lawyers, article “the legality of crypto-currency in West Africa
  • Ezekoka, G K.  (2018) “evaluation on Nigeria laws in relations to digital currency”
  • Abdu, U F (2019) article “the challenges and problems comforting the adoption of Bitcoin And other crypto-currency in Nigeria”

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