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In 2009, the world was introduced to a revolutionary technology that would change the way we think about transactions and digital record-keeping. This technology, known as blockchain, was first used as a part of the cryptocurrency Bitcoin. However, over the years, it has found applications beyond cryptocurrency, and its potential impact on industries is becoming increasingly evident.
WHAT IS BLOCKCHAIN?
According to Euromoney Learning, blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. Blockchain technology offers a secure way for individuals to deal directly with each other with no external influence, and without the fear of hacking or alteration of transactions[i].
BENEFIT OF BLOCKCHAIN TECHNOLOGY
The inherent characteristics of blockchain, such as its immutability and decentralization enable secure and transparent transactions and activities through some of its applications, like smart contracts, which have the potential to bring several benefits to the economy. Below are some of the benefits of adopting Blockchain in Nigeria:
1. Improved Transparency and Accountability: It can help to increase transparency and accountability in various sectors in Nigeria. By using a distributed ledger system, all transactions are recorded and can be accessed by anyone on the network. This can help to reduce corruption, fraud, and other illegal activities
2. Enhancing Security[ii]: It is highly secure due to its decentralized nature. Transactions are recorded on multiple nodes, making it nearly impossible to tamper with the data. This can help to protect sensitive data and prevent cyber-attacks across multiple sectors of the economy
3. Increased efficiency: It can also help to improve the efficiency of various processes, such as payment processing, supply chain management, and identity verification. By leveraging Blockchain features like smart contracts, transactions can be executed automatically, reducing the need for intermediaries and streamlining the process
4. Job creation: It has the potential to create significant job opportunities across a range of sectors. With a young and tech-savvy population, Nigeria is well-positioned to become a blockchain hub in Africa. The adoption of Blockchain Technology creates new job roles, such as blockchain developers, cybersecurity experts, and smart contract engineers. Furthermore, Blockchain Technology enables the creation of new industries, such as cryptocurrency exchanges and blockchain-based payment systems, which could create jobs across various sectors, including finance, technology, and manufacturing[iii]
5. Financial Inclusion: It has the potential to increase financial inclusion in Nigeria by providing access to financial services to those who may have not had access before. By using blockchain-based payment systems, individuals can send and receive money easily and securely.
THE IMPLICATION OF BLOCKCHAIN ON VARIOUS INDUSTRIES
Blockchain technological adoption’s impact cut across diverse industries in Nigeria. Some of these industries and how blockchain technology is impacting them are discussed below:
1. Banking and Finance: Perhaps no industry stands to benefit from integrating blockchain into its business operations more than banking. By integrating blockchain into banks, a consumer might see their transactions processed in minutes or seconds. With blockchain, banks also have the opportunity to exchange funds between institutions more quickly and securely. Given the quantum of the sums involved, even the few days the money is in transit can carry significant costs and risks for banks.[iv]
2. Healthcare Industry: Healthcare providers can leverage blockchain to store their patient’s medical records securely. When a medical record is generated and signed, it can be written into the blockchain, which provides the patient with proof and confidence that the record cannot be changed. These personal health records could be encoded and stored on the blockchain with a private key so that they are only accessible to specific individuals, thereby ensuring privacy.
3. Supply Chain Management: Suppliers can use blockchain to record the origins of materials they have purchased. This would allow companies to verify the authenticity of not only their products but also common labels such as “Organic”, “Local”, and “Fair Trade”.
As reported by Forbes, the food industry is increasingly adopting the use of blockchain to track the path and safety of food throughout the farm-to-user journey.
4. Property/Real Estate records: The process of recording property rights is both burdensome and inefficient. Today, a physical deed must be delivered to a government employee at the local recording office, where it is manually entered into the county’s central database and public index. In the case of a property dispute, claims to the property must be reconciled with the public index. This process is not only costly but time-consuming, and is also prone to human error, where each inaccuracy makes tracking property less efficient. [v]
5. Voting: Blockchain could facilitate a modern voting system as it carries the potential to eliminate election fraud and boost voter turnout. Although, this has not been used everywhere, in West Virginia, it was tested in the November 2018 midterm elections.
Using blockchain in this way would make votes nearly impossible to tamper with. Blockchain technology would maintain transparency in the electoral process, reducing the personnel needed to conduct an election and providing officials with nearly instant results
Blockchain has the potential to eliminate the need for scanning documents and tracking down physical files in a local recording office. If property ownership is stored and verified on the blockchain, owners can trust that their deeds are accurate and permanently recorded.
LEGAL AND REGULATORY FRAMEWORK FOR BLOCKCHAIN TECHNOLOGY IN NIGERIA
There are no specific blockchain laws or regulations in Nigeria However, a variety of blockchain applications across numerous industries are generally subject to certain current laws and regulations. Some of these laws are:
1. Central Bank of Nigeria: This is the main piece of legislation governing the financial markets in Nigeria. The CBN’s approach to blockchain technology is currently streamlined to the use of virtual/digital currencies/ assets in financial services. CBN has adopted a cautious position as expressed in various circulars and press releases. According to the CBN, transactions in virtual currencies are largely untraceable and anonymous, making them susceptible to abuse by criminals especially in money laundering and financing of terrorism. Thus, pending the issuance of substantive regulation by the CBN, banks and other financial institutions are prohibited from holding, trading, facilitating, or transacting in any way in virtual currencies. Notably, while the CBN has not outrightly banned trading in virtual currencies, its position implies that persons or entities in Nigeria cannot facilitate the trade or transmission of virtual currencies through the Nigerian financial system thereby crippling virtual currency-based businesses in Nigeria.
2. Securities and Exchange Commission: The SEC recognizes that virtual assets and instruments that qualify as securities fall within the SEC’s regulatory purview. Staying true to this position, on 11th May 2022, the SEC issued the New Rules on Issuance, Offering Platforms, and Custody of Digital to regulate digital and virtual assets in Nigeria (the “Digital Asset Rules”). The Digital Asset Rules regulate digital asset offering platforms; digital asset custodians; digital service providers; and digital asset exchange platforms. In 2021, the SEC introduced the Regulatory Incubator (RI) program, a platform aimed at providing startups with a supportive environment to test innovative products, services, business models, and delivery mechanisms related to the capital market and initiated the application process for the first cohort of the RI on April 28, 2023.[vi] However, the acceptance of blockchain products and developers into the SEC RI remains uncertain.
3. The National Information Technology Development Agency (NITDA): NITDA has on its part focused on the general sphere of blockchain not just virtual and digital currencies/assets. Together with other stakeholders in the eco-system, NITDA developed the recently approved National Blockchain Adoption Strategy12 (the “Strategy”) to serve as a roadmap for the adoption of blockchain technology in the government’s digital transformation agenda. The Strategy encompasses several key elements, including the establishment of a Nigeria Blockchain Consortium, the enhancement of the regulatory and legal framework governing blockchain, and the implementation of blockchain business incentive programs to support small and medium-sized enterprises (SMEs) and startups.
CHALLENGES FACING ADOPTION OF BLOCKCHAIN IN NIGERIA
Blockchain adoption in Nigeria has faced several challenges that have impeded its growth and potential impact on various sectors of the economy. Some of the key challenges include
1. Lack of awareness: a lack of awareness of the technology and a widespread lack of understanding of how it works. Many companies and individuals alike do not understand what blockchain is or what it can do, and this lack of understanding is hampering investment in and adoption of the technology. Additionally, blockchain is often associated with cryptocurrency in the mind of many and the negative press that has shrouded the use of cryptocurrency has been extended to blockchain technology generally. It is important to educate people on the versatility of blockchain technology and how it can be deployed to solve a variety of problems in Nigeria.
2. Regulations and Regulators: The absence of clear guidelines and licenses has created uncertainty, slowing down innovation and investment in blockchain-based startups. To address this issue, the Nigerian government must develop clear and comprehensive regulatory frameworks for the blockchain industry. The government should also collaborate with relevant stakeholders in the blockchain industry, including startups, investors, and industry associations, to ensure that the regulatory frameworks are practical and effective.
3. Security: Another key issue with blockchain technology is security. Despite being more secure than traditional computer systems, blockchain-based applications, networks, and organizations are not immune to vulnerabilities. In addition, due to its largely untraceable nature, criminal elements have adopted cryptocurrencies for their criminal activities including money laundering, drug trafficking, human trafficking, and financing terrorism. To address these security challenges, organizations that use blockchain technology need to implement robust security measures, such as two-factor authentication, encryption, and regular security audits. Additionally, collaboration between blockchain experts, law enforcement agencies, and regulatory bodies can also play a significant role in combating criminal activities related to blockchain technology.
4. Data Protection: Some tension between data protection and blockchain technology include:
CONCLUSION
Blockchain technology adoption can have a tremendous impact on the Nigerian economy. However, the regulatory landscape in Nigeria needs to shift from a state of relative uncertainty as evidenced by the approval of the National Blockchain Adoption Strategy by the federal government. The strategy signifies a commitment to exploring the benefits of blockchain across various sectors. Thus, Nigerian businesses have an exceptional opportunity to harness the transformative potential of blockchain and in doing so, should leverage the expertise of professionals in navigating the varying degrees of legal complexities.
[i] Seun Timi-Koleolu, “The Regulation of Blockchain Technology in Nigeria-Guidance For Businesses”, https://pavestoneslegal.com/the-regulation-of-blockchain-technology-in-nigeria-guidance-for-businesses7015-2/?utm_source=mondaq&utm_medium=syndication&utm_term=Technology&utm_content=articleoriginal&utm_campaign=article , accessed on November 16, 2023
[ii] National Blockchain Policy, https://nitda.gov.ng/wp-content/uploads/2023/05/National-Blockchain-Policy.pdf, accessed on November 16, 2023
[iii] Ibid
[iv] Shivam Arora, “9 Industries that Blockchain Will Disrupt in Future’, < https://www.simplilearn.com/tutorials/blockchain-tutorial/blockchain-industries>, accessed on November 17, 2023
[v] Ibid
[vi] EC, ‘Notice of Acceptance of Applications for the Regulatory Incubation (RI) Program’, https://sec.gov.ng/notice-ofacceptance-of-applications-for-the-regulatory-incubation-ri-program/, accessed at November 17, 2023
[vii] Section 34(1c) of the NDPA, 2023
Written by Deborah Dada for The Trusted Advisors
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