The Three Horsemen: An Analysis of Society’s appraisal of Value, Money and Crypto Currency

Introduction
“Nowadays people know the price of everything and the value of nothing” – Oscar Wilde. The famous poet and playwright in the book ‘The Picture of Dorian Gray’ made this statement whilst critiquing the consumerism of the Victorian society in the 1800s. Oscar Wilde’s observation, if examined in the context of the society today, is critical to understanding one of the core issues facing the world today – the issue of determining the value of commodities and services.  From the stock market to the job market, the quintessential element exchanged and sought after by individuals is value. Each person desires to optimize the value of their time and resources and is constantly appraising their worth and the means of the evaluation has developed in stages over time. Society has adopted barter system, the use of minerals such as gold and the use of formal bank notes to ascertain value. Overtime some of these means to calibrate a price for goods and services have resulted in global metrics and standards.  However, as stated by Oscar Wilde, whilst Society may know the price of everything, it may not know its value.

Thus, there may be no correlation between actual price of goods/ services and their actual value. The prevailing system for appraising value since the 20th century has been the use of bank notes as a legal tender. However, this system has come under criticism due to the perceived deficiency of the formal central banking system, which includes allegations such as secrecy, favoritism of big establishments and the inability to prevent economic crisis such as the Great depression of 1930s and the Global Financial Crisis of 2007. Therefore, there has been acclaim over the advent and use of cryptocurrencies such as Bitcoin, Etherium, Litecoin etc. Cryptocurrencies as defined by Kaspersky is “a peer-to-peer system that can enable anyone anywhere to send and receive payments.” Cryptocurrencies rather than other mediums of payments before it is digital and has entries in an online database that is recorded in a public ledger. Thus, the various forms of cryptocurrencies have been lauded as the people’s currency and the currency of the digital age.

Are cryptocurrencies currency?
A key debate is on whether or not cryptocurrencies can be duly described as currencies as they are not issued by any recognised central authority. Furthermore, by virtue of relevant laws such as Section 2(b) of the Central Bank of Nigeria Act, 2007, cryptocurrencies are not legal tender as the Central Bank of Nigeria (CBN) is to be the sole issuer of legal tender currency in Nigeria. Similarly, in the Canadian Currency Act, R.S.C., 1985, c. C-52, describes a legal tender as “bank notes issued by the Bank of Canada under the Bank of Canada Act” and “coins issued under the Royal Canadian Mint Act.” Other currencies such the Pounds Sterling, the Dollar and the South African Rand have similar legal provisions in support of them. Thus, it can be seen that cryptocurrencies are not legal tender in several jurisdictions. However, legality aside, cryptocurrencies do have the general characteristics of money, which are:
Scarcity
Divisibility
Utility
Transportability
Durability
Counterfeit-ability
Cryptocurrency in other countries

Notwithstanding the seeming similarities, countries such as the United States of America (USA), Canada and Australia only characterised cryptocurrencies as assets and commodities. This classification moves cryptocurrencies from being seen as currency to property and commodities that are exchanged and traded under barter transactions. Thus, cryptocurrencies have been able to be traded and taxed in these countries without the need to recognise it as a legal tender. The USA’s Internal Revenue Service requires citizens to input the market value of cryptocurrencies, measured in Dollars, as of the date that the currency was received when calculating their gross income. Therefore, the IRS Publication 525, Taxable and Nontaxable Income makes cryptocurrencies, seen as property, taxable.

In Canada, cryptocurrencies are also subject to income tax in light of their classification as assets. Thus, the Financial Consumer Agency of Canada stated that “goods purchased using digital currency must be included in the seller’s income for tax purposes” and the Canada Revenue Agency also stated that: where digital currency is used to pay for goods or services, the rules for barter transactions apply. A barter transaction occurs when any two persons agree to exchange goods or services and carry out that exchange without using legal currency. For example, paying for movies with digital currency is a barter transaction. The value of the movies purchased using digital currency must be included in the seller’s income for tax purposes. The amount to be included would be the value of the movies in Canadian dollars.”

What all these jurisdictions have in common is their recognition of cryptocurrencies within their existing legal framework to enable cryptocurrency exist side by side with the prevailing legal tender whilst it is also taxable.

Status of cryptocurrency in Nigeria
In Nigeria, although there is no exact legislation on cryptocurrencies, there are some circulars/ directives that have been issued by regulatory bodies. The earliest circular was that of the CBN, dated January 17, 2017 which warned that cryptocurrencies were not legal tender and that all persons who transacted with them did so at their own peril. This circular was followed by the Securities and Exchange Commission’s (SEC) Notice of September 14, 2020. The SEC Notice was issued to the investing public of its intention to regulate crypto assets and was seen as a recognition of the assets.
Whilst the SEC circular was perceived in certain quarters as heralding the acceptance and/ or regulation of cryptocurrencies, the CBN Circular of February 5, 2021 prohibited the Nigerian banks and financial institutions from using their frameworks for the purpose of transactions relating to cryptocurrencies. According to Bitcoin Magazine a fallout of the Circular is an increase in peer to peer trading of cryptocurrencies by 27%. Also, the SEC on February 12, 2021 stated that there was no conflict between it and the CBN and that the two regulators were working to analyse, and better understand the risks so as to ensure the placement of adequate measures, should securities involving crypto assets be allowed in the future.

Conclusion
As Herbert Spencer stated, society will always evolve and this is evident in society’s use of set standards for storage of value. The latest of these standards, but not the least, is cryptocurrencies for there has also been development in the use of Non – Fungible Tokens (NFT’s). There are claims that NFT’s are the digital answer to collectables as NFT’s simply are digital certificate of ownership of intangible properties.

These new medium of exchange of value pose challenging and intriguing questions for regulators and need not be understood completely before they are regulated. The need for regulation is of importance as regulation is the means of protecting users from unsavory practices. Similarly, a restrictive form of regulation would cause more harm than good as users would be forced to patronise the illegal market to satisfy their requirements. Therefore, it is advised that regulators in performing their duties with the aim to effectively regulate the burgeoning market to protect users and ensure that they derive the maximum benefit from this new wave in the development of value appraisal that is in the form cryptocurrency.
. Muhammed is an Associate at Kenna Partners, Lagos.