Cryptocurrency In Africa: The Adequate Laws And Regulations Of Cryptocurrency In Africa

The laws and regulations of cryptocurrency in Africa. While cryptocurrency is gaining popularity among users worldwide, several governments are still debating whether it should be legalized. African countries, on the other hand, appear to be warming up to the concept of digital currency, with the Central African Republic adopting Bitcoin as an official currency late last month.

It was the second country in the world to do so, and the first in Africa. El Salvador is the only other country that accepts Bitcoin as legal tender. Following in the footsteps of the Central African Republic, Uganda is now considering a “central bank digital currency,” indicating the continent’s growing interest in cryptocurrency.

Cryptocurrency In Africa

Cryptocurrency In Africa: The Adequate Laws And Regulations Of Cryptocurrency In Africa

Data suggests that African countries are becoming more interested in cryptocurrency. According to a report by blockchain data platform Chainalysis, the African cryptocurrency market grew by more than 1,200 percent between 2020 and 2021. According to the report, while Africa’s cryptocurrency economy was small, with $105.6 billion in cryptocurrency received between July 2020 and June 2021, it was also “one of the most dynamic and exciting”.

Cryptocurrency In Africa

Israel

The cryptocurrency regulations in Israel. Israel’s Supervision on Financial Services or Regulated Financial Services Law 5776-2016 requires persons engaging in providing services involving “financial assets” to obtain a license from the Supervisor of Financial Services. The definition of “financial assets” includes “virtual currency.” 

A license will generally be issued to an Israeli citizen or a resident who has reached the age of majority, is legally competent, and has not been declared bankrupt or, in the case of a corporation, is not required to dissolve. Additional licensing requirements include that the licensee has a minimum specified amount of equity and if an individual has not been convicted of an offense that, due to its nature makes the licensee unfit to handle financial transactions.

The Israeli Central Bank and Finance Ministry have warned the public about the risks associated with virtual currencies. Israel’s central bank has said it would view virtual currencies such as Bitcoin as financial assets, not as a currency. The Israel Securities Authority has recommended lenient ICO regulations, including clear guidance on what constitutes security that triggers securities law. Such is opposed to a utility token, which the Israel Securities Authority indicated should not necessarily be deemed a security by its conferring usage rights in a product or service.

A statement issued by the Bank of Israel and several regulatory agencies on February 19, 2014, warned the public against dealing in virtual currencies. The warning laid out the dangers associated with trading in virtual currencies, including fraud, money laundering, and financing of terrorism, among others. The Bank of Israel said in January 2018 that “it would not recognize virtual currencies such as bitcoin as actual currency.

However, there is some regulatory opening on the horizon. Quite recently, there were official recommendations for considering adjustments to the existing regulation to create a more suitable regulatory infrastructure for trading cryptocurrencies to better cope with the risks incurred in this activity.

Although virtual currencies are not recognized as actual currency by the Bank of Israel, the Israel Tax Authority has proposed that virtual currencies should be considered a “means of virtual payment” and subject to taxation. The Israel Tax Authority requires documentation of trade transactions involving virtual currency to enable verification of their existence and scope.

In January of 2021, the ISA announced that the issuance of crypto tokens would be held as securities rather than assets.

Cryptocurrency In Africa

Iran

The cryptocurrency regulations ins Iran. The Central Bank of Iran officially announced in 2018 that it had prohibited the handling of cryptocurrencies by all Iranian financial institutions, including banks and credit institutions. The decision also bans currency exchanges from buying and selling virtual currencies or adopting measures to facilitate or promote them.

The decision includes banks and credit institutions and prohibits currency exchanges from buying and selling virtual currencies or adopting measures to facilitate or promote them. The Central Bank’s decision was in line with Iran’s recent efforts to address deficiencies in its policies on anti-money laundering and combating the financing of terrorism. Efforts were undertaken to comply with the action plan of the Financial Action Task Force on Money-Laundering or FATF. 

The Central Bank of Iran has released an early draft of its regulations on cryptocurrencies, reversing a previous ban but still imposing restrictions on the use of the digital currency inside the Islamic Republic. However, the central bank said, “Using global cryptocurrencies as payment methods inside the country is prohibited.”

In February 2018, the Minister of Information and Communications Technology of Iran announced a plan to develop Iran’s virtual currency. The project was backed by Iran’s cyber-security authority to support virtual currencies if they were properly regulated. The central bank did not agree.

However, Iran appears to have a chaotic relationship with cryptocurrencies. Iran’s Minister of Information and Communications Technology in February 2018 announced a plan for Iran to develop its own virtual currency, a move that had the backing of Iran’s cyber-security authority, provided that virtual currencies were properly regulated.

Currently, Iran is not exploring this opportunity effectively. The short answer is that, on an institutional level, Iranian policymakers are challenged to understand how blockchain technology works. As a result, they cannot take advantage of its benefits and mitigate its risks. For instance, wariness of its potential to facilitate capital flight and otherwise undermine the country’s vulnerable economic system led parliament to prohibit individuals from using cryptocurrency.

Cryptocurrency In Africa

Jordan

In Jordan, virtual currencies are not legal tender, and the central bank has warned against their use. Banks, currency exchanges, financial companies, and payment service providers operating in Jordan are prohibited from dealing in virtual currencies.

In Jordan, the government’s unfavorable attitude towards cryptocurrency has fostered a hostile legal environment for the new technology. The Central Bank of Jordan or CBJ enacted legislation prohibiting all banks, currency exchange companies, financial entities, and payment service providers from facilitating any cryptocurrency transactions, including Bitcoin. Consequently, cryptocurrency trading is virtually prohibited under the laws of Jordan. In addition to the prohibition, the CBJ issued an official warning about the risks of cryptocurrency trading. 

First, the CBJ emphasized that cryptocurrencies do not qualify as legal tender in Jordan. 

Second, the CBJ noted that “there is no obligation on any central bank in the world or any government to exchange its value for real money issued by them nor is a cryptocurrency backed by underlying international commodities or gold.” Essentially, the CBJ is arguing that there are no real assets underlying the value of cryptocurrency. 

Third, the CBJ warned that cryptocurrencies are highly volatile and face a high risk of devaluation. For example, in April 2021, the price of one Bitcoin was approximately 64,000 U.S. dollars. By May 2021, the price of a single Bitcoin dropped to 38,000 U.S. dollars. Thus, if a Jordan citizen invested in cryptocurrency in April, they would have lost their investment less than two months later.

Four, CBJ warned that cryptocurrencies face high risks of cyber attack or hacking and other financial crimes, such as a cryptocurrency exchange named EXMO being hacked in 2020. Consequently, EXMO investors lost around 52 million U.S. dollars in cryptocurrency assets. Cryptocurrency offers no consumer protection measures, and investors who lose funds due to hacking have no viable methods to recover the funds.

Furthermore, finding hackers’ identities is difficult because cryptocurrency is largely anonymous. For these reasons, the CBJ warned investors in Jordan to abstain from cryptocurrency investments and banned financial institutions operating in Jordan from trading cryptocurrencies. Therefore, Jordan does not provide a favorable legal environment for cryptocurrency investors.

Cryptocurrency In Africa

Lebanon

Lebanese laws do not prohibit the ownership, use, or trade of cryptocurrencies, but when it comes to their acceptance as a payment method, regulations only adopt legal tenders/fiat currencies. Thus, the acceptance of cryptocurrencies by retailers, for example, can be ruled under barter provisions.

In 2017, the governor of the Lebanese Central Bank reported that his institution had banned the use of cryptocurrencies. Bitcoin and other cryptocurrencies remain a significant threat to consumers and payment systems. In the next few years, he announced that the central bank would release its digital currency in compliance with Lebanese law, although he did not specify whether this store of value would be a true cryptocurrency.

Cryptocurrency In Africa

Nigeria 

There are several criticisms leveled at cryptocurrencies in Nigeria, the most common is the link to criminal activities associated with its use. Unfortunately for law enforcement agencies, cryptocurrencies are built on the idea of decentralization, which means that they are intentionally designed to prevent them from being controlled by a central authority.

While banks and other financial institutions are banned in Nigeria from trading in cryptocurrencies, cryptocurrency is not illegal but unregulated. The cryptocurrency regulatory challenge may be ascribed to a lack of understanding of how cryptocurrency works and how criminals are beginning to use it. It is therefore critical to raise awareness among law enforcement agencies and then create tools that can aid them in regulating cryptocurrency in Nigeria. 

The Central Bank of Nigeria or CBN, recently sent a letter to banks and other financial institutions in February 2021, stating that trading in cryptocurrencies and enabling payment for cryptocurrency exchanges are banned. The CBN also directed all banks and other financial institutions to identify and cancel the accounts of individuals or businesses that deal in cryptocurrencies or run cryptocurrency exchanges.

The CBN claimed that unregulated and unregistered companies create cryptocurrencies, and hence their usage in Nigeria violates existing laws since they are not legal tender. CBN also noted that cryptocurrency anonymity is a huge problem. CBN states that the anonymity and absence of KYC make cryptocurrency vulnerable to illicit usages, such as money laundering and terrorism funding.

Another reason is the volatility of cryptocurrencies, which CBN claims jeopardize the stability of the financial systems of other countries. Nigeria does not regulate or recognize cryptocurrency as a legal currency. The Central Bank of Nigeria has not approved the use of cryptocurrency for any transactions in the country. Various government agencies have issued warnings about cryptocurrencies and ICOs.

As you can see, there is currently a lot of ambiguity in the legal status and the regulation of cryptocurrencies in different countries, which is one of the reasons why it is quite complicated to determine what laws and regulations must be applied to cryptocurrencies. However, understanding the broad regulatory terms of your country helps to understand different points of view of national regulators. It is therefore beneficial to determine what financial crime compliance measures are likely to find application.

Final Thoughts

African countries are no strangers to the use of digital money transfer solutions, nor to the rapid adoption of such technologies. It is commonly stated that the widespread use of mobile telecommunications in Africa has allowed the continent to leapfrog many first-world countries. So, how widely have blockchain and cryptocurrency been adopted in Africa?

The outcomes are mixed. While the private sector is blazing ahead in many countries, governments have been cautious, reserved, and, in some cases, unresponsive. Zimbabwe and Namibia, according to reports, have taken a tough stance, while Mauritius is a regional frontrunner. The regulatory sandbox established in Mauritius, for example, demonstrates a progressive view of the general economic benefits that could result from a friendly, and even incentivized, approach to cryptocurrencies. This adds another dimension to the potential for African countries to develop regulations around blockchain and cryptocurrency in order to attract foreign direct investment.

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