Seeing through the Bitcoin illusion

Sometimes being a corporate leader in Kenya among many parts of the world comes with its fair share of risk exposure. In the past week or so, an upcoming blog has had its sights trained on Safaricom. Evidently, articles on Safaricom and its executives tend to work better on the local blogosphere as click baits; never mind the accuracy of a story or not.

However, we got interested in a recent article that was long on narratives about crypto currencies but very short on facts. The article touching on bitcoin trade in Kenya and Safaricom’s role in it provided a good background of the state of crypto currency trade in Kenya but failed to explain that such trade is illegal.

The Central Bank of Kenya outlawed the trade of crypto currencies last December. How Safaricom and Central Bank would relate on such a regulatory matter to an extent of exerting influence to have the same outlawed is quite baffling.

Safaricom may be accused of many ills but the firm’s smarts for commercial opportunities has always been top notch. Globally, virtual currencies are yet to gain popularity to an extent of drawing the attention of mobile operators. Indeed, trade in virtual currencies is considered a hobby with limited commercial impact.

For a company of Safaricom’s commercial magnitude, adherence to national regulatory procedures is a matter of priority. How then would such a firm be expected to facilitate the operation of an unregulated product such as Bitcoin?

The Central Bank of Kenya, while alerting the public on the illegality of using virtual currencies, was quite clear. In December 2015, CBK said:

“The attention of the Central Bank of Kenya (CBK) has been drawn to media reports on the use, holding and trading of virtual currencies such as Bitcoin in Kenya. Bitcoin is a form of unregulated digital currency that is not issued or guaranteed by any government or central bank. The Central Bank of Kenya Act and other legislation, regulate domestic and international money transfer services in Kenya. In this regard, no entity is currently licensed to offer money remittance services and products in Kenya using virtual currency such as Bitcoin.

This is to inform the public that virtual currencies such as Bitcoin are not legal tender in Kenya and therefore no protection exists in the event that the platform that exchanges or holds the virtual currency fails or goes out of business.

Some of the risks associated with buying, holding or trading virtual currencies include the following:

• Transactions in virtual currencies such as bit coin are largely untraceable and anonymous making them susceptible to abuse by criminals in money laundering and financing of terrorism.
• Virtual currencies are traded in exchange platforms that tend to be unregulated all over the world. Consumers may therefore lose their money without having any legal redress in the event these exchanges collapse or close business.
• There is no underlying or backing of assets and the value of virtual currencies is speculative in nature. This may result in high volatility in value of virtual currencies thus exposing users to potential losses. 
CBK reiterates that Bitcoin and similar products are not legal tender nor are they regulated in Kenya. The public should therefore desist from transacting in Bitcoin and similar products.

You can check out more  on CBK’s statement HERE 

It would then turn out, at the risk of sounding repetitive, that cryptocurrency dealers would be better advised to engage the Central Bank of Kenya and not private entities such as Safaricom.

In any case, it’s not just the Central Bank of Kenya that has blocked the usage of cryptocurrencies for their abstractness. Russia is dealing with the same issues and has suspended the drafting of regulations based on evidence-backed concerns that these types of currencies are attracting criminals, money launders and even terrorists.

It’s been recently reported that Russia’s Ministry of Finance is “still convinced about the role of Bitcoin in money laundering, terror financing, and other illegal activities. It is not ready to implement something that could potentially hamper innovation in the cryptocurrency and block chain sector.”

A Russian media outlet has quoted Alexei Moiseev, the Deputy Finance Minister saying (in Russian),

“We need to prevent criminals from using Bitcoin for illegal transactions and money laundering. Data from official European sources indicate the use of Bitcoin in over 80 percent of all suspicious transactions. At the same time, we have to ensure the role of the central bank as the sole issuer of currency in the country. We would like to take a more proactive approach in reviewing the draft by involving experts in the field.”

Rushing into untested and abstract innovations can only potentially hurt the populace. And those rushing into conclusions and attacking the wrong target should know this.

[crp]