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Why Nigeria’s Central Bank Banned Cryptocurrency Trading Accounts

The Central Bank of Nigeria (CBN) has directed Deposit Money Banks (DMBs) and other financial institutions to close accounts of persons who are using their systems for cryptocurrency trading.

A cryptocurrency is a virtual or digital currency that appreciates or depreciates on the whims of market forces.

Trading with Bitcoin, a major digital currency, as well as other digital currencies like Ethereum, Ripple, Litecoin, Bitcoin Cash, has gained traction globally and in Nigeria lately, with most young people investing in the cryptocurrency world, buying and selling bitcoin and making a profit for themselves.

However, in a statement signed by Bello Hassan, Director of Banking Supervision; and Musa Jimoh, Director of Payments System Management Department, the CBN said: “Further to earlier regulatory directives on the subject, the bank hereby wishes to remind regulated institutions that dealing in cryptocurrencies or facilitating payments for cryptocurrencies exchange is prohibited.

“Accordingly, all DMBs, NBFIs and OFIs are directed to identify persons and/or entities transacting in or operating cryptocurrencies exchanges within their systems and ensure that such accounts are closed immediately.”

The CBN also declared that breaches of its directive will attract severe regulatory sanctions.

It is not the first time that the CBN would be showing its dislike for digital currencies. In 2018, the apex bank issued a circular to say cryptocurrencies are not legal tenders in Nigeria.

“For the avoidance of doubt, dealers and investors in any kind of cryptocurrency in Nigeria are not protected by law. Virtual currencies are traded in exchange platforms that are unregulated, all over the world”, the Nigeria’s apex bank said.

Origin of Cryptocurrency

According to Wikipedia, in 1983, the American cryptographer David Chaum conceived an anonymous cryptographic electronic money called ecash.

Later, in 1995, he implemented it through Digicash, an early form of cryptographic electronic payments which required user software in order to withdraw notes from a bank and designate specific encrypted keys before it can be sent to a recipient.

This allowed the digital currency to be untraceable by the issuing bank, the government, or any third party.

In 1996, the National Security Agency published a paper entitled How to Make a Mint: the Cryptography of Anonymous Electronic Cash, describing a Cryptocurrency system, first publishing it in an MIT mailing list and later in 1997, in The American Law Review (Vol. 46, Issue 4).

In 1998, Wei Dai published a description of “b-money”, characterized as an anonymous, distributed electronic cash system.

Shortly thereafter, Nick Szabo described bit gold.[12] Like bitcoin and other cryptocurrencies that would follow it, bit gold (not to be confused with the later gold-based exchange, BitGold) was described as an electronic currency system which required users to complete a proof of work function with solutions being cryptographically put together and published.

The first decentralized cryptocurrency, bitcoin, was created in 2009 by presumably pseudonymous developer Satoshi Nakamoto.

It used SHA-256, a cryptographic hash function, in its proof-of-work scheme.[13][14] In April 2011, Namecoin was created as an attempt at forming a decentralized DNS, which would make internet censorship very difficult. Soon after, in October 2011, Litecoin was released. It used scrypt as its hash function instead of SHA-256. Another notable cryptocurrency, Peercoin used a proof-of-work/proof-of-stake hybrid.

On 6 August 2014, the UK announced its Treasury had been commissioned a study of cryptocurrencies, and what role, if any, they can play in the UK economy. The study was also to report on whether regulation should be considered.

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