LEGAL SIDEPIECE

This article was updated on April 17, 2025 to align with the changes introduced by new legislation.

Written By:

Lucy B. BENSON; Legal & Corporate Governance Professional

Have you ever wondered about investing in cryptocurrency and whether it is legal to do so in most countries? In this article, we discuss the legality of cryptocurrency transactions in Nigeria.

Cryptocurrency has attained a high level of popularity and recogntion over the past years due to the many advantages it offers over traditional forms of money. One of such advantage is that crypto transactions are private since they function outside existing public financial infrastructure. When you transact crypto, there is no need to provide any personal information. This protects a person’s identity and limits the risk of potential identity theft and other fraudulent activities. Another advantage lies in the fact that cryptocurrency has received global acceptance and can be exchanged globally without reference to any specific public authority.

Meaning of Cryptocurrency

A cryptocurrency is a digital currency that is not issued by any central authority and exists on a decentralised network using blockchain technology. Cryptocurrencies allows people to make payments directly to each other through a digital system that does not require a bank or financial institution to verify the transactions. This is because, crypto transactions are verified and recorded on a blockchain technology.

A blockchain technology is a virtual ledger that tracks and records crypto assets and transactions. The blockchain duplicates and distributes transactions across a network of computers participating in the blockchain. Transactions that are recorded and stored on the blockchain can be viewed by any person but they are unchangeable and extremely difficult to manipulate. These transactions are based on a complex system of codes which are compiled and verified through a process that is often referred to as ‘mining’.

Despite the widespread use of cryptocurrency, most forms of cryptocurrency have no intrinsic value because they do not have any issuer or central authority backing them. Their value inherently lies on the users’ trust in the software algorithm that controls the system.¹

Forms of Cryptocurrency

Cryptocurrency can be grouped into four categories namely- payment cryptocurrency, tokens, stablecoins and central bank digital currencies.

Payment Cryptocurrency: This is a digital cryptocurrency that is used as a medium of exchange. It could also be used as a means of facilitating peer-to-peer (P2P) electronic payment transactions. Payment cryptocurrencies such as Bitcoin are intended to serve as a general purpose currency.

Tokens: Tokens are cryptographic assets. They are digital assets that represent transferred ownership rights or asset rights to a blockchain token. In simple terms, a company involved in cryptographic assets, inputs what a token represents and generates the token. The company then offers the token on an exchange or investment platform and investors purchase the token. Thereafter, ownership rights are recorded on the blockchain and tagged with the owner’s blockchain address. Tokens are intended to be used in the same way as a stock, bond certificate or other investment asset. A token could be a Utility token, Service token, Finance token, Governance token, Media and Entertainment token, and Non- Fungible tokens ( NFT) depending on the purpose for which it is meant to be used.

It is noteworthy to state that eventhough bitcoin was created to be used as a payment currency, investors and traders began to treat it as a token when they noticed an opportunity to generate returns from bitcoin.

Stablecoins: Stablecoins are digital coins that possess intrinsic value. They maintain their value because they are pegged to a physical asset such as fiat currencies like US Dollar or Euro that can be traded on exchanges. The company that manages the peg is expected to maintain reserves in order to guarantee the stablecoin value.

Central Bank Digital Currencies (CBDC): This form of cryptocurrency is issued by the central banks of various countries. They may be issued in token form or with an electronic record associated with the currency and are generally pegged to the domestic currency of the issuing country.

The Legality of Cryptocurrency in Nigeria

The young, tech savvy demographic of Nigeria has a robust interest in cryptocurrency. This prompted the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission of Nigeria (SEC) to engage actively in the regulation of cryptocurrency with the aim of providing a stable regulatory framework for the operations of cryptocurrency transactions in Nigeria.

Prior to the introduction of the regulatory framework set up by the CBN and SEC, cryptocurrency transactions were not viewed as illegal in Nigeria. There were no laws or legislation that criminalised the use of cryptocurrencies. Contrarily, cryptocurrencies were transacted across independent and private exchanges that were not a part of the banking sector of Nigeria. For example, P2P transactions enabled cryptocurrencies to be traded and exchanged amongst individuals directly. These P2P transactions were facilitated by P2P platforms like Paxful and they recorded large trading volumes from Nigeria. Infact, a report by Chainalysis revealed that Nigeria’s volume of crypto transactions grew at a nine percent increase between July 2022 and June 2023 to the sum of $56.7bn.²

However, in February 2021, the CBN via a circular dated February 5, 2021 and titled, Letter to all Deposit Money Banks, Non-Bank Financial Institutions and other Financial Institutions, directed all banks to desist from transacting in and with entities dealing in cryptocurrency.³ The CBN also directed banks to close the accounts of persons or entities involved in cryptocurrency transactions within their systems. Despite this ban, cryptocurrency transactions still occured in large volumes outside the banking sector since the ban only restricted the participation of banks in crypto transactions.

More recently, amid the growing popularity of cryptocurrencies in Nigeria, the SEC in May 2022, published the New Rules on Issuance, Offering Platforms and Custody of Digital Assets also known as The Digital Asset Rule. This rule regulates the trading, exchange and transfer of virtual assets; persons or corporations involved in any aspect of blockchain technology; persons or entities involved in digital asset services; issuers and sponsors of digital assets; and any digital asset operator that actively targets Nigerian investors.

The Rule sought to bring the activities of cryptocurrency operators within the control and supervision of SEC by requiring all digital asset exchange platforms to obtain a virtual asset service provider (VASP) license from the SEC and abide by the provisions of the rules. It also required digital asset exchange operators to disclose information about their trading operations and ensure market transparency.

Following the new legal regime by the SEC, the CBN on December 22, 2023, issued the Guidelines on Operations of Bank Accounts for Virtual Assets Service Providers (VASPs). This CBN guidelines lifted the erstwhile ban that restricted the facilitation of cryptocurrency transactions by banks and other financial institutions. It also introduced a comprehensive regulatory framework for cryptocurrency transactions within the purview of banks and financial institutions. Within this new CBN framework, banks and other financial institutions are permitted to facilitate the opening and operation of accounts for VASPs and crypto exchanges. The CBN guidelines also permits banks to allow their customers utilise their accounts for purchasing and receiving payments related to crypto assets.

In a similar vein, the Federal Inland Revenue Service (FIRS) is empowered by the provisions of the Finance Act, 2022 to extend capital gains taxation to digital assets. This means that cryptocurrency is taxable in Nigeria.

More recently, with the promulgation of the Investments and Securities Act (ISA) 2025, cryptocurrencies and other digital assets are now officially classified as securities. This recognition provides cryptocurrencies with legal status in Nigeria. By this recognition, the SEC is empowered to regulate the issuance, trading and custodianship of cryptocurrencies in Nigeria.

Conclusion

With the above regulatory framework set in motion by both the CBN and SEC including the FIRS, it is safe to infer that these key regulators acknowledge the pervasiveness of cryptocurrency in Nigeria and its possibility for future innovation in the financial system. Thus, cryptocurrency transactions are valid and legal within the Nigerian jurisdiction.

Notwithstanding, it is important to state that cryptocurrency is not regarded as legal tender for transactions between government institutions and Nigerians. Although, private individuals and entities may accept forms of cryptocurrency as monetary compensation if they wish to do so.

In addition, the regulation of cryptocurrency in Nigeria has provided some form of safety measure designed to protect individuals who engage in crypto transactions by imposing specific legal obligations on operators of digital assets exchanges and VASPs. This would definitely go a long way in boosting the trust and confidence of users of cryptocurrency.

Reference List:

1. Richards, T. (2021) Future of Payments: Cryptocurrencies, Stablecoins, or Central Bank Digital Currencies? Address to the Australian Corporate Treasury Association, 18 November 2021. <https://rba.gov.au/speeches/2021/sp-so-2021-11-18.html&gt; ↩︎
2. Okamgba, J. (2024), Bitcoin hits eight-month high at $45,000, Punch Newspaper, January 3, 2024. <https://punchng.com&gt; ↩︎
3. Bakare, A. (2021) ‘Cryptocurrency Trading: CBN Orders Banks to Close Operating Accounts’, CBN UPDATE, 3(2), p. 2. <https://www.cbn.gov.ng&gt; ↩︎