The world of finance and banking is rapidly changing. The adoption of the blockchain-technology-powered cryptocurrency has disrupted the banking space, the world all over. Despite regulations and policies challenges, cryptocurrency is getting increasingly popular in Africa. This should not come as a surprise to anyone. In April 2019 alone, Google Trends data revealed that Lagos in Nigeria has the world’s highest volume of online searches for Bitcoin.

Interestingly, the Hootsuite’s 2019 Global Digital Yearbook revealed that 10.7% of South Africans possess crypto the highest of any country surveyed and Nigeria also makes the list at 7.8%, with Ghana at 7.3%. According to a US Blockchain research firm, Chainalysis, monthly cryptocurrency transfers to and from Africa under $10,000 (€8,500) shot up by 55% over the past year, reaching a peak of $316 million in June, 2020.As a result of these, there are emerging issues regarding legal regulation of the cryptocurrency and blockchain technology industry in Africa. It is the intention of this article, therefore, to make a critical overview of the regulatory issues, laws, policies and ancillary matters.

Cryptocurrencies are digital currency in which encryption techniques are used to regulate the generation of units of currency, and verify the transfer of funds, operating independently of a central bank. Ryan Farell, a crypto economy expert, defined cryptocurrency as a virtual coinage system that functions much like a standard currency, enabling users to provide virtual payment for goods and services free of a central trusted authority.

Cryptocurrency relies on the transmission of digital information, utilizing cryptographic methods to ensure legitimate, unique transactions where individuals and businesses transact with the coin electronically on a peer-to-peer network. The most famous example of cryptocurrency is Bitcoin. Then, we have others like: Ethereum, Ripple, Litecoin, Monero, to mention a few. The fact that cryptocurrency is powered by blockchain technology makes it efficient, transparent, reliable and immune from the regular central control by the government.

A blockchain is “a distributed database that maintains a continuously growing list of ordered records, called blocks”. It is a digital ledger. Otherwise referred to as Distributed Ledger Technology (DLT), Blockchain Technology is a “chain” of “blocks” used for digital record keeping. The blocks are linked in the form of chains using cryptography. What is cryptography? “It is a method of storing and transmitting data in a particular form so that only those for whom it is intended can read and process it”. Blockchain is used to store and record transactional data across many computers with a view of ensuring that no data can be indiscriminately altered without the consensus of all other networks. Aside cryptocurrency, blockchain technology can be used for payment processing and money transfer, data sharing, supply chains monitoring, copyrights protection, Internet of Things (IOT) network management, digital identities, healthcare recording, digital voting, real estate, land and auto title transfers, tax regulations and compliance, equity trading, to mention a few. As unique advantages, blockchain technology is decentralized, transparent, secured and efficient.

Since cryptocurrency is a peer-to-peer network i.e. it makes no use of middlemen, transactions are faster, easier, efficient, transparent and attract less charges. With crypto, transactions are usually confidential, thereby guarding the “privacy of financial history”. Crypto transactions are immune from international levies, rates and charges. This, invariably, makes international trade easier and faster. Importantly, the advanced encryption technique called cryptography used in blockchain and cryptocurrency transaction reduces issues of account compromise and fraud.

Most often than not, when people hear the word cryptocurrency, they ignorantly associate it with cyber fraud, especially in Africa. Even this writer, at a time, dismissed cryptocurrency as one of those fraudulent online gimmicks. This erroneous notion or opinion is however far away from the gospel truth. Truth is: the economic benefits of the cryptocurrency innovation, which can never be overemphasised, outweigh the seeming disadvantages. The baby must not be thrown away with the bathwater. Regardless of the investment risks, cryptocurrency has come to stay. And Africa must not be left behind.

That said, the cryptocurrency industry is not a bed of roses without thorns. Indeed, there are slight drawbacks in the enjoyment of the disruptive financial technology. First, the crypto industry is quite complex and difficult to understand. Hinged on the fact that cryptocurrency is highly secured, criminal elements have weaponized its secured privacy nature to perpetrate fraud and other cyber crimes.

Another major disadvantage of cryptocurrency is the no refund or cancellation policy. By this, it means that any fund erroneously paid or transferred to another person may never be refunded or cancelled half-way. The market is also unpredictable; price could be volatile and this poses a great deal of risk to investors. Nonetheless, the adequate knowledge of the pros and cons of the cryptocurrency space gives an average enthusiast or investor the leverage in navigating the risks and complexities.

Cryptocurrency is relatively new and it is just getting increasingly popular. Thus, it is not as regulated as other technologically powered finance system. This would not, however, mean that it is not in any way regulated, all together. Some agitated readers would be tempted to ask: why should we be talking about laws and regulations since the crypto industry is self-governed and decentralized?

The position is that as much as the blockchain powered cryptocurrency is decentralized, there are issues of laws, policies and regulations laid down to govern cryptocurrency companies, investors and legitimization. Taxation, licenses and regulations are some of the areas the web of policy covers.

Additionally, there are issues of basic legal principles and rules guiding relationships between or among industry players: investors, experts, traders and others. Areas of law arising from crypto industry include but not limited to: contract, data protection, security and privacy, Intellectual Property, licences; open source licences, compliance & permits, whitepaper and business model, Initial Coin Offering (ICO) asset offering, Initial Exchange Offering (IEO) asset offering, Security Token Offering (STO) asset offering, Token Generation Events (TGEs), Know Your Customer (KYC) compliance, Anti-money Laundering (AML) compliance, Combating Financing of Terrorism (CFT) compliance.

In Africa, whereas some countries received cryptocurrency with warm embrace, some are still sitting on the fence of indifference and others are greeting it with stiff resistance. In countries like Namibia, Zambia, Zimbabwe, Morocco, Algeria and Libya, cryptocurrency is strictly prohibited. In Nigeria, Ghana, Congo, Ethiopia, Botswana, Tanzania, Kenya, Burundi and Cameroon, the government policies have been neither receptive nor prohibitive – their dispositions have been that of indifference. In countries like South Africa, Swaziland and Mauritius, the government regulations have been friendly and receptive.

In Nigeria, which has the largest economy of Africa, the government has so far been indifferent about its policy on cryptocurrency. Crypto is neither legal nor illegal, it is legal. The Central Bank of Nigeria (CBN) warned Nigerians to be wary of investments in cryptocurrency, stressing that virtual currencies are not legal tender in Nigeria. CBN said dealers and investors in any kind of cryptocurrency in Nigeria were not protected by law, thus may be unable to seek legal redress in event of failure of the exchangers or collapse of the business. However, in 2020, the Securities and Exchange Commission (SEC), exercising its regulatory power under Section 13 of the Investment and Securities Act, 2007 made a statement to the effect that cryptocurrency would be treated as securities unless proven otherwise. Although not yet with a detailed regulatory framework, the categorization of cryptocurrency as securities appears to be a step further in the bid to have a comprehensive legal framework in Nigeria.

In South Africa, the government has also published a position paper wherein 30 regulatory recommendations were made in compliance with the standards set by the Financial Action Task Force, the global money laundering and terrorist financing watchdog. Notably, the South African Revenue Service declares bitcoins as intangible assets subject to income tax. This shows how receptive the government has been to cryptocurrency investments and trade.

In Libya, the Central Bank of Libya (CBL) said virtual currency such as Bitcoin is illegal in Libya and those who use it cannot be protected by the Libyan law.

In the final analysis, it is hoped that the countries of Africa would come up with a more comprehensive legal framework to allow for a safer financial ecosystem. Africa must ensure that it does not shun it eyes from the ongoing global technological revolution in the financial sector. Instead of outrightly prohibiting cryptocurrency or putting up rather aggressive policies, it is advocated that measures should rather be put in place to ensure that the industry is moderately regulated to meet global standards as crypto investment will invariably boost economic growth and development. With the level of poverty here, Africa must endeavour it is not left behind by the rest of the world.