Cryptocurrency or Cryptofraudulency
Author: Shalom Bright Omondi
On the 25th of March 2024, Nadeem Anjarwalla, the regional manager for Binance fled Nigeria using a Kenyan passport. According to the Nigerian authorities, there was reasonable cause to suspect that Binance along with Mr. Anjarwalla had been involved in one way or another of evading taxes. This however was not the first time Binance was making the news in Nigeria. The previous week a Nigerian court had ordered the crypto-exchange to produce data on thousands of users in the country in light of investigations uncovering “illicit flows” worth billions of dollars moving in the crypto-market as well as market manipulation.
The situation presented is not as far-fetched as it may appear in today’s world of crypto-currency especially in Kenya. The rush by Kenyans to obtain virtual assets has heralded an unprecedented rise in virtual asset scams, issues of personal privacy and national security concerns. But why is this the case?
Cryptocurrency
Cryptocurrencies are regarded as a type of digital currency that allows people to make payments to each other through an integrated online system. Unlike a national currency, which has physical value, the value of a cryptocurrency depends on what people are willing to pay for it in the market. Cryptocurrency generally has an array of beneficial uses worldwide. Some of these uses involve, sending money across the border efficiently, digital shopping, transacting directly with peers, and keeping transactions private. With over 6 million people in Kenya currently owning cryptocurrencies, it is seen to be penetrating key markets in Kenya as an inflation mitigation and trading vehicle. Its use amongst Kenyans varies, from being used as a source of investment in the digital world, to online purchases, to sending and receiving money globally. It is a store of value beyond measure.
Furthermore, despite being part of one of the smallest cryptocurrency markets in the world, Kenya ranks 21st according to Global Crypto Adoption Index. This is due to the fact that cryptocurrency is perceived as digital gold in Sub-Saharan African due to the way it can be used as an alternative store of value, preserving savings and attaining greater financial freedom. Take for example Peer-to-Peer trading. P2P trading is gaining significant traction in Kenya. P2P platforms connect buyers and sellers directly, often allowing for transactions in the local currency, such as the Kenyan Shilling (KES). This method has gained favor due to its versatility, enabling individuals to convert cryptocurrencies to and from KES.
Dangers Lurking at Home and Attempts of Regulation
The risks and dangers that come from cryptocurrency use have not only been a concern in Nigeria, but Kenya as well. One famous example is the notorious Worldcoin incident – a virtual coin that quickly gained popularity in Kenya whereby people could exchange their captured biometric data for free digital tokens. However, it was quickly shut down by the Office of the Data Protection Commissioner following concerns of potential data privacy violations. This has led to calls in Kenya for stronger regulations of cryptocurrency in order to protect against financial fraud and data breaches. Currently in Kenya digital asset regulations are undertaken through combined efforts from various agencies such as the Central Bank of Kenya, the Capital market Authority and Kenya Revenue Authority. Attempts have been made to regulate how crypto is transacted and used in Kenya with the legislation such as the Data Protection Act, Computer Misuse and Cybercrimes Act, National Payment Systems Act, the VASP Bill, and a variety of other legislations, however challenges are still being seen in the ability to enforce these Acts of parliament in the crypto space due to the fact that it is decentralised and the push back from innovators.
Conclusion
Traders must exercise caution and conduct due diligence when engaging in transactions. Furthermore, many Kenyans are still unfamiliar with the nuances of cryptocurrencies. This knowledge gap can lead to uninformed investment decisions and increased vulnerability to financial risks. Cryptocurrencies are notorious for their price volatility, which can lead to significant financial losses. The FTX Collapse of 2022 should serve as a warning for Kenyan traders and investors who are looking for the next big thing without checking the dangers that lurk in the shadows. Furthermore, regulators must ensure that any regulations that are implemented are done so with the consideration of consumers and businesses in mind, in order to prevent a limitation of innovation. In regards to developing, regulators and industry players must ensure that the regulatory framework is both efficient and manageable in terms of regulation and compliance.
Dame Deirdre Hutton, Chair of the UK Civil Aviation Authority, mentions that no matter how clear your objectives, or how expert your staff, none of that will suffice without the right relationships with that web of external interests. The collaboration of regulators and industry players in the crypto world, especially in Kenya is no easy task. It would involve an upheaval from traditional norms of thinking in order to provide a solution that not only pushes innovation but allows Kenya to become a top fintech hub.
