A survey conducted by Finder.com in 2021 revealed that Nigeria ranked 6th amongst 20 countries in the world that have adopted Non-Fungible Tokens (“NFTs”). The reason for this is not far-fetched. As a result of the continued devaluation of Naira, Nigerians are constantly on the lookout for new ways to stay above inflation. One of such ways appears to be delving into the acquisition and sale of digital assets – NFTs.
Given the rapid growth of the NFT ecosystem in Nigeria, we have provided useful information to guide NFT transactions in Nigeria.
- What is a Non-Fungible Token?
An NFT, also known as a Non-Fungible Token is a digital asset that represents real-world objects like art, music, in-game items and videos which are typically logged and authenticated on cryptocurrency blockchains, primarily Ethereum.
- What is the difference between a Fungible Token and a Non-Fungible Token.
Fungible tokens or assets are divisible and non-unique assets that store value such as a $1 note or 1 Bitcoin whilst Non-Fungible Tokens are unique and non-divisible assets that store data like digital artworks, tweets, music composition, digital shots, etc. They are similar to a deed of title for assets. In 2021, Twitter CEO, Jack Dorsey, sold his first-ever tweet for $2.9 million dollars as an NFT.
- Who are those that can benefit from NFTs?
Artists, buyers, collectors and marketing platforms can benefit from NFTs.
NFTs create a medium for artists to showcase and monetize their work on a broader spectrum. Artists get to retain their intellectual property rights in the works after it is sold and receive royalties on subsequent sales of the digital works. For buyers/collectors, acquiring an NFT gives a right of ownership to a unique asset that cannot be easily replicated and holds the potential for good future profit where the NFT increases in value. NFT marketing platforms, where artists can offer their NFTs for sale, also provide good business opportunities.
- What are the Regulations affecting NFTs in Nigeria?
Since NFTs are quite new in Nigeria, there has been no law or regulation specifically enacted in respect of it. There are, however, certain laws that might affect its operations in Nigeria which are worthy of note as highlighted below:
- Copyright Act: Under the Copyright Act, literary works, musical works, artistic works amongst others are eligible for copyright. Accordingly, authors of digital works – NFTs will be deemed to have copyright in such works (unless as otherwise agreed in writing) and will therefore have the right to seek relief in connection with violation of their intellectual property rights in the NFT.
- Cybercrime (Prohibition, Prevention, etc) Act: Creators of NFTs can seek relief or claims over infringement of their NFTs under the Cybercrime Act where they are able to prove unauthorized use of their unique words or phrases that form the basis of their NFT. There are several penalties the law prescribes for those found guilty of these offenses.
- The Securities and Exchange Commission: The Securities and Exchange Commission ( “SEC”) is the body empowered to regulate securities and investments in Nigeria. SEC through its statement on digital currencies suggests that virtual assets including blockchain based offers of digital assets- within Nigeria; or by Nigerian issuers; or sponsors; or foreign issuers targeting Nigerian investors- shall be subject to the regulation of SEC. In view of this, it is likely that NFTs will be subject to the regulation of SEC unless issuers can prove otherwise.
- Central Bank of Nigeria (the “CBN”):The CBN is yet to release any circulars particularly on the use of NFTs. It has, however, repeatedly prohibited the use of virtual currencies as a legal tender by banks and other financial institutions in Nigeria. The fact that NFTs are traded using blockchain technology such as Ethereum, creates uncertainty as to whether the CBN will fully welcome its operations in Nigeria. There is, however, no indication that Peer to Peer sale of NFTs will be affected by CBN regulations.
Other legal considerations also exist in areas such as taxation and data protection.
Despite the growth of the NFT amongst Nigerians, it remains a novel concept. A large number of the population are still unaware of its operations. Also, the government is yet to provide an elaborate and uniform regulation to guide its usage in Nigeria. It is important for current investors to stay vigilant in their dealings in NFTs in order to protect their assets.
By Seun Timi-Koleolu and Karo Isiorho