Cryptocurrency has emerged as one of the most disruptive innovations in modern financial landscape with a rise in their usage in recent years.
Assets like Bitcoin among other digital assets might have created new opportunities as alternatives to traditional banking system, for many, especially for skeptical people. They have exposed people to new ways for investment opportunities, payment services solutions and without passing through the central banks regulations. Behind the scenes of decentralisation lies a complex web of legal, economic, and security risks that are often underestimated by the average user. These include market volatility, regulatory uncertainty, transactional irreversibility, cybersecurity threats, and infrastructural limitations.
We’ll look at it in depth below, the various pitfalls;
- Volatility and Market Instability.
A prominent risk in cryptocurrency has to be extreme price volatility. They lack the backing of tangible assets and stability by higher central authorities. Their values fluctuate dramatically making them often unsuitable and very risky for stable investments purposes.
- Lack of regulation,
Although in Nigeria, digital assets have been partially recognised in Section 357 of ISA 2025, their regulatory framework is still underdeveloped in many jurisdictions. There are still no comprehensive guidelines for regulating cryptocurrency services in Nigeria including operations, consumer protections and financial exchanges. This creates legal ambiguity and exposes users to unregulated operations. Where disputes arise, there is often a lack of clear legal remedies leading to complex litigation challenges. The limited oversight from higher checks and balances increases systemic risks which may contribute to a broader financial instability. However, in Nigeria, due to uncertainty in regulations. The government issued a directive to the Central bank of Nigeria to close down all crypto – related accounts in February 2021 CBN v Nigerian Banks Crypto Circular Enforcement. And froze all accounts linked to a platform like Risevest, CBN V Risevest. The sudden shift could wipe out access to funds and disrupt businesses overnight.
- Irreversible Transactions.
These Financial Digital assets are inherently irreversible. Once a confirmation has been made, it cannot be undone. It is a decision that cannot be reversed, thus placing a careful burden on the users. Errors and mistakes made to wrong identification accounts and addresses result in permanent loss. There is no tracking to correct mistakes or undo an action unlike traditional banking methods.
- Fraud, Scams and Cybersecurity risks.
These are prevalent in the cryptocurrency space. Users are highly susceptible to Fraudulent activities such as Phishing links, fake investment programs, ponzi schemes, hacking attacks and unauthorised access to digital wallets. The anonymous nature of those who run these cryptocurrencies, EFCC v Chinmark Group, makes it difficult to trace or identify the perpetrators, reducing accountability and increasing the likelihood of such crimes. FRN v Abba Kyari, The Lack of transparency enables fraudulent actors to exploit unsuspecting victims. These victims have little to no legal remedy when dealing with these digital assets. Thus, placing a heavy burden on these users to extremely protect their financial information and digital assets. EFCC v MBA Forex Operators. Crypto can be used as a cover for ponzi schemes and investment fraud.
- Loss of Access.
This is a very critical risk associated with cryptocurrency as it is contingent on private keys and access credentials. Users are solely responsible for these. There is no recovery process for the information in the event of it being lost, forgotten or stolen which results in permanent loss of funds or loss of the entire digital asset folder. This places a significant burden of responsibility on the user to safeguard their access credentials. Cases like EndSARS Crypto Donations Freezing Case, where the donations were used after the bank accounts were frozen, however the transactions may be traceable but it’s subject to government intervention.
- Infrastructure and Environmental Constraints.
These digital assets and cryptocurrencies are highly dependent on electronic devices and network availability unlike traditional banking systems that may still function under limited infrastructure conditions.
Environmental factors play a role in the rise and sustainability of cryptocurrency in a region. In developed countries, Cryptocurrency may be moving towards more sustainable growth and a working future.
While in third world countries like Nigeria, where electricity supply remains unstable, the reliability of the cryptocurrency system is significantly affected and the energy consumption to maintain a blockchain raises concerns about environmental sustainability and long term viability.
It is undoubtedly true that cryptocurrency is unlikely to disappear in the foreseeable future due to the rapid growth and advancement of technology within the global financial landscape. In order to keep pace with this development, there is a need for a clear and balanced regulatory framework that evolves alongside technological innovation while remaining under the supervision of legal and regulatory authorities.
This would ultimately lead to stricter measures under Anti-money Laundering (AML) regulations, providing legal certainty, ensuring the implementation of robust Know Your Client/Customer (KYC) obligations, strengthening the oversight by relevant authorities and introducing licensing requirements for cryptocurrency – related businesses. Such measures would help reduce fraud, prevent unauthorised access, promote transparency and improve the monitoring and traceability of transactions.
Furthermore, with the growing relevance of cryptocurrency, there is a need for increased investment in infrastructure, particularly in areas such as providing efficient electricity supply, faster internet connectivity, digital inclusion and public education. These investments would encourage innovation while safeguarding users, promoting market stability, increasing public awareness and financial literacy.
Additionally, greater collaboration should exist among international regulatory bodies, technological experts, financial institutions and governments, given the borderless nature of these digital assets transactions.
In conclusion, the future of cryptocurrency should neither be one of complete restriction nor outright rejection. Rather, it lies in a balanced approach that fosters innovation while ensuring effective regulation, legal protection, enhanced security measures, market stability and consumer confidence. Through such an approach, the benefits of cryptocurrency can be harnessed while mitigating the risks that presently accompany its use.
– Olaoluwapelumi T. Opeodu (Esq).
