The Nigeria Deposit Insurance Corporation (NDIC) has warned Nigerian to beware of trading in bitcoin and other digital currencies because they are not authorised in the country.
NDIC says in a statement that transactions in digital currencies are not authorised by the Central Bank of Nigeria (CBN) and not backed by the country’s law.
NDIC says digital currencies are unregulated electronic forms of monetary value that can act as means of payment. ”A digital currency has no physical form and it is not issued by any central authority and is thus exempted from government support”, the government agency says.
NDIC says that digital currencies are not created, issued or guaranteed by any Central Bank. Digital Currencies are also referred to as Virtual or Crypto currencies.
According to Nigeria’s NDIC, specifically, digital currencies are:
i. Neither currencies nor coins offered by any central bank like the Central Bank of Nigeria (CBN) or a Central Bank of any other country with authority to issue such currency.
ii. Not backed by any physical commodity, such as gold.
iii. Not deposits or instruments authorized by the CBN.
iv. Not insured by the NDIC.
RISKS AND ISSUES FOR USERS AND TRADERS IN DIGITAL CURRENCIES
i. Consumers are not protected when using digital currencies for payments
Digital currency ‘units or accounts’ are not recognized by the CBN and are not insured by the NDIC unlike bank accounts. There is no protection, refund rights or redress for users of digital currencies.
ii. Consumers can lose all their money due to Loss or Theft
Digital currencies are virtual money, stored in electronic medium called e-wallets and are vulnerable to losses due to loss of password, hacking, virus/malware attack etc. The loss of the wallet could result in the permanent loss of the digital currencies held in them.
iii. High price changes that could lead to zero value of the currency quickly
The inherent instability in the rates because digital currencies are not issued or backed by any government, with no investor protection and are not protected by deposit insurance. This exposes the users to potential complete loss of value.
iv. Absence of Authorized Exchange Platforms
Digital currencies are traded on exchanges established in various jurisdictions with unclear legal status. Consequently, the users of these platforms are exposed to financial, operational and legal risks.
v. Misuse for criminal activities
It has being widely reported that digital currencies are used in illicit activities in several jurisdictions, including unintentional breaches of anti-money laundering and combating the financing of terrorism (AML/CFT) laws.
vi. Negative Opinion of Digital Currencies by the world’s central banker
The head of the Bank for International Settlements labelled Bitcoin as “a combination of a bubble, a Ponzi scheme” and, due to the energy consumption required for mining it, an “environmental disaster”.
vii. Negative Opinion of Digital Currencies by the head of the World Bank
Jim Yong Kim, World Bank Group President compared crypto-currencies to “Ponzi schemes.According to him “In terms of using Bitcoin or some of the crypto-currencies, we are also looking at it, but I’m told the vast majority of crypto-currencies are basically Ponzi schemes.”
COUNTRIES THAT BANNED TRADING OF DIGITAL CURRENCIES
i. Bangladesh, Nepal, Ecuador, Bolivia and Iceland and Morocco have all banned Bitcoin in their territories.
ii. South Korea, a global center for crypto-currency trading, said it would ban anonymous trading of virtual currencies.
iii. China’s Central Bank barred financial institutions from taking part in digital currency as well as exchange trading of Bitcoin.
iv. The European Banking Authority banned financial institutions from buying, selling or holding digital currencies.
v. The central banks of India and Mexico have issued a warning on the use of digital currencies.
vi. The central bank of Russia are “…totally opposed to private money, no matter if it is in physical or virtual form.”