Doubts and caution expressed earlier this week by the Capital Markets Authority on the dangers of participating in initial Cryptocurrency Coin Offerings (ICOs) will be heeded by many enthusiasts of digital currencies.
The warning came as a Kenyan group of tech entrepreneurs is selling their newly developed digital currency known as Nurucoin. The local virtual coin will be among the latest.
But, even without the warnings of exposure to risks of fraud or losing money in a likely bubble-bust, with over 800 cryptocurrencies already in the global market, it is easy to dismiss the proliferation of the digital currencies as a farce.
Yet the lure has proved irresistible, especially with the foremost of the virtual money, Bitcoin, registering astronomical gains in value. Having risen to $20,000 (Sh2m) by early this year, and despite the fall in its value to the current USD11,000 (Sh1.1 m), its wild fluctuations and price crashes have only added to the drama, inviting attention and media coverage.
Though the originator remains unknown, Bitcoin opened the flood and rose from the 2008 global financial crisis. Its developers viewed it as the currency of the future, with one of its major attributes being to bypass banks and government regulation, but offer a way to conduct anonymous financial transactions more cheaply.
But the anonymity of the virtual currency and lack of oversight as governments try to come to grips with the newness of digital currencies has had an unintended effect offering a safe haven for money laundering, terrorist financing, tax evasion and fraud. However, it is the promise of the payoff that has been most appealing. An anecdote is told of how, in 2010, a developer spent 10,000 Bitcoins to buy two pizzas. As you read this, their value is now USD10m (Sh11 billion).
Thus, other than the CMA caution, and despite the 2015 Central Bank of Kenya warning of the risks and warnings that losers will be on their own, enthusiasts and punters remain unfazed.
By December, last year, it was being reported how the cryptocurrency ecosystem in the country had greatly developed, incorporating “bitcoin liquidity, local bitcoin communities, startups and meetups.”
The local enthusiasm is such that a trading group with membership now numbering well over 1,000 has been actively dealing in the trade. With a minimum membership fee of Sh70,000 and a starter trading deposit, some have been confessing in media interviews of having quit their jobs to take up trading in cryptocurrencies as a full-time employment.
Thus, the release of the Nurucoin and the existence of a vibrant virtual currencies market not only mark the deep entrenchment of the block-chain technology and its derivatives in the country, but also the pull of investors already coming in to exploit the opportunity.
As long as the trade continues to be allowed, it is not enough to offer caution on the virtual currencies. It calls for a more proactive policy.
It makes little difference the cryp tocurrencies are not legal tender, or whether they can be defined as assets or commodities to be traded like shares at the stock exchange, it is time the CBK along with the other local financial markets authorities started pondering regulations to oversee the technology and safeguard consumers’ and traders’ rights, alike.
Though countries in the region are unanimous in strongly discouraging investment in the currencies, Kenya remains the most developed in the blockchain derivative in the EAC. It’s also among the foremost in Africa alongside continental hubs such as South Africa, Nigeria, and Ghana.
As for oversight, countries such as Japan and South Korea have already imposed some regulations on cryptocurrency trading, for instance, banning the use of anonymous bank accounts for virtual coin trading.
The Nigerian Central Bank is reportedly working on a white paper, and has created departments to harmonise the paper on cryptocurrency in the country.
In the meantime, much of the world is beginning to reckon with the necessity to regulate. It is expected that blockchain, virtual currencies, automated trading and other technological matters will form an important subject of discussion by some of the world’s most influential finance ministers and central bank heads during the Group of Twenty (G20) meeting in Buenos Aires, Argentina, next month.
It is time Kenya, along with the EAC member states, started taking steps to regulate blockchain technology and its derivatives. Short of a global ban, which is unlikely, the cryptocurrencies are here to stay.
—The writer is commentator on regional issues —@gituram