The payments system is evolving rapidly especially with the increased use of blockchain technology. The emergence of Non-Fungible Tokens is further revolutionising the marketplace for creatives around the world. This thinking looks at the attitude of Nigerian regulators to cryptocurrencies, what NFTs are and how they could be beneficial to creatives in the long run.
The world of finance has gone through a lot of changes, most of which, have benefited people and their businesses. Newer methods of making payments have replaced the conventional ways of carrying out transactions; ‘cryptocurrencies’, ‘blockchains’, ‘tokens’, and the likes are now on everyone’s lips and very rampant especially amongst the younger and more tech-savvy demographic.
In 2009, the first decentralised system of peer-to-peer payment (Bitcoin) was introduced and other novel modes of payment were created subsequently which are known generally as cryptocurrencies. These innovations have received mixed reactions; mostly positive from the general public and, prevalently, disapproval from the government. As a result of this, for example in Nigeria, the CBN has put out a series of circulars mitigating the world of cryptocurrencies and the risks that might be associated with it.
Financial regulators in other countries such as Canada, Japan and the U.K. have recently cracked down on the crypto industry by banning one of the largest cryptocurrency exchanges (Binance). In U.S.A Binance is also being investigated over concerns that the platform is used to carry out illegal transactions and evasion of tax.
All these do not write off the usefulness of the new era in the financial world to a host of people. It has been a huge source of income to people, a means of meaningful investments for Nigeria especially in a time where very own legal tender has been experiencing drastic fluctuations. Nigerians see the need to cast their hopes on the value of the United State Dollars than wallow in the uncertainty of Naira. At the end of the day, it might somewhat, be a battle of opinions as to the usefulness of digital currencies in various jurisdictions.
it is important to note that the regulation, as claimed by the Commission, is not aimed at antagonising technology but establishing rules which will promote ethical behaviours in the industry.
What the law says about Cryptocurrencies in Nigeria
In Nigeria, cryptocurrencies are not labelled illegal rather what the digital currencies are used for is the utmost concern of the government. It is as a result of the unregulated nature of cryptocurrencies that banks and financial institutions were prohibited from dealing in digital currencies and also ordered by the Central Bank of Nigeria (CBN) to deactivate accounts of individuals dealing in cryptocurrency in February 2021.
The CBN has frowned at cryptocurrencies strictly because they are products of unregulated companies and using them in Nigeria would go against the existing laws given that the currency is not the official legal tender of Nigeria. Also, the apex financial body has settled with the fact that the presence of anonymity and the absence of “Know-Your-Customer” (KYC) has made cryptocurrency a red flag.
It has made digital currencies susceptible to criminal uses such as terrorism funding, money laundering, drug trafficking, tax evasion and a host of cyber-criminal activities. As a result of cyber-crimes emanating from cryptocurrency-related activities, and the issues of untraceable data of subscribers/users of digital currencies, the Nigerian Cyber Crime (Prohibition, Prevention) Act 2015 as well as the consumer protection framework of the CBN has given the responsibility to all financial and fintech companies to verify and keep safe the private data of their customers.
The Security and Exchange Commission offered to regulate activities in the crypto world by coming up with strategies and regulations that will guide digital currencies. It also proposed to interact with genuine cryptocurrency innovators seeking legitimacy and relevance. Subsequently, the commission went ahead to release regulatory guidelines for fintech companies and start-ups as well as for cryptocurrencies.
The position of the commission is that cryptocurrencies are securities unless proven otherwise. Therefore, according to SEC, all Digital Assets Token Offering (DATOs), Initial Coin Offerings (ICOs) Security Token ICOs and other Blockchain-based offers of digital assets within Nigeria or by Nigerian issuers or sponsors or even foreign issuers targeting Nigerian investors shall be subject to the regulation of the Commission. Digital assets existing prior to the implementation of the regulatory guidelines will have three (3) months to submit the requirements (initial assessment filing of documents for registration proper as the case may be.
However, it is important to note that the regulation, as claimed by the Commission, is not aimed at antagonising technology but establishing rules which will promote ethical behaviours in the industry. The government seems to have supported this argument by launching the anticipated eNaira through the CBN on the 25th of October, 2021. It adopts blockchain technology and is ‘supposed to be a legal and approved virtual currency that has the same value as the fiat Naira.
Even though Nigeria does not have a legal framework for cryptocurrencies or exchanges, there is a push to create one soon which is evident in the activities by the CBN and SEC highlighted above. Lawmakers have therefore been urged to establish a legal framework for digital currencies in Nigeria. Financial agencies have also been charged to likewise build a strong financial system and regulations that will encourage new innovations to thrive.
The Rise of Non-Fungible Tokens (NFTs)
The use of NFTs is highly dependent on blockchains. Blockchains act as decentralised networks that transparently divulge the history of transactions and make it impossible for recorded digital assets to be pirated, modified or deleted. They are permanent ledgers that are used in recording transactions in blocks of computer codes that are linked together.
The difference between NFTs and other tokens such as Bitcoin and the likes is that NFTs possesses distinct identification codes and metadata that makes them different from one another (non-fungible). Other tokens are identical and are available for exchange which is what we see with tokens/coins like Bitcoin, Litecoin, Etherum, etc. For instance, cryptocurrencies like Bitcoin and the likes can be exchanged for another Bitcoin token in a transaction without losing its value but non-fungible tokens are distinct. It embodies a software code which is known as smart contracts.
These smart contracts are open-sourced blockchain protocols that control the transfer of digital currencies between parties under a series of terms and conditions. After this smart code is written it is permanently minted into a token on blockchain such as Etherum and then it becomes a digital certificate of ownership. Although NFTs based works are quite expensive to purchase, it is important to admire the potentials it possesses. It cuts across contemporary lucrative industries which include creative art, gaming and even real estate.
How important is NFTs to creatives
Creators, before the popularity of NFTs, had challenges of how they could make money effectively off their digital creative works. This was owing to the fact these works could be duplicated severally throughout the internet without reduction in quality. The coming of NFTs has made it easy for the creation of a distinct and finite tokenised version of their works and has also helped in commodifying them.
Utilising NFTs has helped in preventing work from being counterfeited. For instance, NFT creators can determine the price of their works and the maximum number of duplicates of the works they desire to be in circulation online. They can mint only one edition of the work or a number of editions and artwork can be minted in various forms but each still remains unique (animations, still images, etc.) Therefore, it is safe to say that an NFT creator can regulate the availability, value and scarcity of his digital craft on the internet. This way the uniqueness of the work is preserved and he exercises proper control over his craft as the owner. The issue of Piracy is also absent in relation to NFT creations as a result of its irreplicable nature.
Lastly, non-fungible tokens encourage the transfer of digital creative assets without the need for an intermediary and are not restricted to the usual practice of the use of third-party platforms to distribute creative content.
Some Nigerian creatives especially artists, painters, graphic designers have explored the NFT innovation. A good example is the recent ‘1111’ project spearheaded by Oladapo Ogunjobi, Olumide Ameen, Fatola Israel which are available for sale in NFTs.
Also, a Nigerian artist, Jacon Osinachi, since 2017 has sold a good amount of crypto art in his career as an artist. Other Nigerian artistes such as Oyindamola Oyekemi Oyewumi and Anthony Azekwoh have long benefited from the NFT space. This is a cue to business inclined creatives, both budding and established, to take good cognisance of this emerging innovation and use it to their advantage.
The music industry is not excluded from the fun. Artists/Musicians can decide to make money off their music without having record labels sign them or pay radio stations to play their songs. A good example is M.I Abaga and Falz who were listed as one of the top 100 creatives for the Binance NFT marketplace.
NFTs and Intellectual Property Rights
The fact that an NFT is created to represent an underlying work of art or any other creation does not mean that the creator or later owner of the NFT will own the intellectual property rights (IPR) e.g., copyright. It governs the ownership of the token and not the underlying IPRs of the author. The intellectual property rights subsist only in the original owner of the work and can only be assigned or licensed as the practice usually is. Therefore, an NFT owner must be aware that he or she would need to expressly acquire either an assignment or licence of the underlying rights from the original author of the work or subsequent owners of the rights as the case may be.
The author may choose to grant the licence but at the same time place some other constraints as regards its use in NFTs. This is necessary in order for the original work to be reproduced. Lack of guidance in this area may lead to infringement liability on the new NFT owner or NFT owners who are the authors of the original work.
The original creator is the copyright owner who retains the exclusive right to modify, distribute and publicly display the art unless he transfers the right to someone else. The purchaser of the NFT on the other hand only receives the token and the right to utilise the copyrighted art. He does not by virtue of acquiring the NFT own the IPRs in the underlying work. For example, if there’s an NFT for a video of a famous football moment of Kanu Nwankwo released as part of a series of limited-edition digital collector’s cards of Super Eagles highlight clips that can be bought and sold on a platform (Super Online Store), the Nigerian Football Federation (NFF) retains copyright in the original video no matter how many times it is bought, who buys it or how expensive it is.
Alterations cannot be made by the purchaser except prior consent has been sought from the NFF. Recently, King of Leon a rock band released their album as an NFT and specifically stated that the buyer only has the licence to display it for personal use and not for commercial purposes in music or films. Decentraland which is a platform for virtual real estate, has it stated in its terms that Decentraland Foundation owns all the IPRs on the website and the such could not be used for commercial purposes by any NFT purchaser. Breach of these licence terms provided on the sales platform would amount to infringement and potential litigation.
Conclusion
The application of NFT technology to buying and selling is just an area that has been predominantly explored. The hope is that in Nigeria, NFT technology would eventually be utilised in carrying out certain basic and usually physical activities so as to make life easy for people. Already in some jurisdictions, NFT tech is being used to create crypto tickets, stamps and the likes.
This alteration is beginning to change the mindset of creatives and the opportunities could be endless. Usually, before one could make a good profit from his or her work or craft generally, for an artist they would have to have done an exhibition or belong to a big record label, for a musician. With the advent of NFTs, one can advertise their works with little or no money and at the same time target the right audience. However, NFT collectors or purchasers should seek proper guidance as regards the purchase and use of NFTs to escape avoidable actions in court as counterfeiting is a major issue plaguing NFTs.
Author
Makuachukwu Okafor | contact: here
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