Nigeria: Bitcoin Currency Transactions: Benefits Of Blockchain Technology?

Last Updated: 22 June 2018
Article by Theodora Olumekor

The world is largely becoming more of a global village with new innovations and technology springing up everyday. Now we have several Crypto-currencies the most popular amongst them is bitcoin.

Bitcoin is a form of digital currency, created and held electronically. It is not controlled by any government or agency and not printed like dollars or naira. Unlike paper money and gold, they are digital and centralized. Bitcoin was first introduced on October 31, 2008 by software developer called Satoshi Nakamoto. Bitcoin is different than any currency you have used before, so it's very important to understand some key points. Unlike government issued money that cannot be inflated at will, the supply of bitcoin is mathematically limited to twenty-one million bitcoins, and that can never be changed. Bitcoins are impossible to counterfeit, payments are impossible to block, and bitcoin wallets can't be frozen except turning off the entire world's Internet, and keeping it turned off. Bitcoin stores details of every single transaction that has ever happened in the network in a huge version of a general ledger called a Block-chain.

As a global currency, many e-commerce sites are now accepting crypto-currency as a means of payment. It is interesting to note that there are Bitcoin ATMs present in major countries all over the world like in the United States, United Kingdom, Canada, Spain, Finland, Austria, Czech Republic, Switzerland, Australia and Japan. Africa has 0.11% of Bitcoin ATMs. 

Now looking at the legality of use of bitcoin as a means of payment for goods and services, we look at various countries. In South Africa, the Reserve Bank of South Africa in 2014 issued a paper declaring that virtual currency had no legal status or regulatory framework. In Canada, Bitcoin is classified as intangible and is regulated under anti-money laundering and counter-terrorist financing laws in Canada. Dealers in digital currency will be regulated as money services businesses under the MSB Act. In Israel, the Tax Authorities issued a statement stating that bitcoin and other crypto-currencies would not be defined as currencies and neither a financial security, but it is a taxable asset. Each time a bitcoin is sold, the seller would have to pay a capital gains tax of 25%. Miners, traders of bitcoins would be treated as businesses and would have to pay corporate income tax as well as a charge of 17% VAT. In the United States of America, the U.S Treasury classified bitcoin as a convertible decentralized virtual currency. The IRS taxes bitcoin as a property.

The Nigerian government is on the fence about bitcoin. On January 18, 2017, the Central Bank of Nigeria gave a Public Cautionary Notice on Virtual Currency Operations stating that it is not a legal tender in Nigeria. It is also stated that it carries great risk, as it is largely untraceable and anonymous. However, rather than over-emphasizing its shortcomings, the Nigerian Government should look at the vices and take active steps to set out regulations as well as draft laws to present before the National Assembly that will regulate crypto-currency transactions in Nigeria. 

In Nigeria, it may be advisable to not deal in virtual currencies until a regulatory regime is put in place by the relevant regulatory bodies. This is where adopting the Blockchain Technology comes to play. Simply put, a Blockchain is a chain of blocks that stores information or data. Therefore, Blockchain is an incorruptible digital ledger of economic transactions that is completely open to the public and anyone can access it. Once data has been recorded in cyber blockchain, it is almost impossible to change it save and except shutting down the internet.

In a block, there is data, hash and previous hash. The hash is basically the unique identity of the block like a fingerprint. Where there is a change to the block that the data is stored, the hash identity will change. In the same block, a new block is created making it a block chain of data and the previous hash is stored in that block. This is what makes the blockchain so secure. Blockchain uses peer to peer network and everyone has access to the information and can join because of the transparency of the technology. The great benefits of this technology are that it can be used to store any type of data like medical records, legal files and can even be used to collect taxes. Blockchain technology creates the backbone of a new type of internet. To give a more visual example: imagine an excel spreadsheet that is duplicated a thousand times across a network of computers, the Blockchain technology is designed to regularly update this spreadsheet.

The Blockchain technology can greatly help in not just bitcoin trading but also across several other professions. With Blockchain technology, any document put on it is made visible to both parties like a spreadsheet and updated automatically and visible for all to see.

Blockchain technology is like the internet in that it has a built-in robustness. It stores blocks of information that are identical across its network and cannot be controlled by any single entity and has no single point of failure. It is also a technology that automatically checks in with itself every ten minutes, self-auditing ecosystem of a digital value, making it tamper-proof. This technology solves the problem of manipulation because it is a fully decentralized technology. Anything that happens on it is a function of the network as a whole and by creating a new way to verify transactions.

The Blockchain Technology could be deployed in developing countries like Nigeria to provide essential government services that involve the handling and management of public documents. An implicit link between blockchain technology and e-government does exist, and it is now being explored by several blockchain startups. The case of Ghana is perhaps more interesting as local not-for-profit startups, BitLand, is using Bitcoin's blockchain to manage land titles and settle land disputes. Furthermore, blockchain technology-based identity can be effectively used for managing passports, birth and marriage certificates, national and electoral Identity Cards and handling e-residence programs, among others. More importantly, all transactions on a blockchain are cryptographically secured and provide integrity. In the financial industry, especially in post-trade settlement functions blockchain can play a vital role by allowing the quicker settlement of trades as it does not require a lengthy process of verification, reconciliation, and clearance because a single version of agreed upon data is already available on a shared ledger between the financial organizations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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