In recent years, there has been increased mainstream adoption of cryptocurrency and blockchain technology in Africa. According to Chainalysis, Africa is the second-largest continent for peer-to-peer (P2P) trading with two African countries ranking in the top eight of Chainalysis crypto adoption index.
Crypto payments and remittances is increasingly becoming a common feature in many parts of Africa, allowing enthusiasts, business owners and individuals to make fast, cost-efficient transactions, thereby, increasing productivity in some of the most underbanked communities.
In 2020, Nigeria led the continent’s growth having weekly P2P volumes within the range of $5 million to $10 million, followed by its runner ups, Kenya and South Africa with between $1 million and $2 million. Bitcoin and other cryptocurrencies have been a revolution in Africa, and investors across the globe are recognising its scope.
The increasing popularity of cryptocurrencies has finally caught the attention of financial regulators in Africa. Cryptocurrencies, as a market full of decentralize innovations has become a viable alternative for many Africans, solving microcredit problems such as high-interest rates, high overhead costs, slow registration times and corruption.
Despite the tremendous merits of cryptocurrencies on the economy, fraudsters and bad players have taken advantage of its decentralized system. Since cryptocurrencies cannot be controlled by a central authority or entity, African governments are taking hostile approache to regulate these digital currencies.
The recent ban of commercial banks and financial institutions from providing crypto related services to Nigerians by the Central Bank of Nigeria (CBN), and the regulation of certain crypto players in South Africa by Financial Sector Conduct Authority (FSCA) is a testament to this.
Considering the massive attention the crypto industry has garnered over the years, the regulation of space is increasingly inevitable. But like every nascent market, bad regulations from the government can stiffen innovation. This is why players in the crypto space believe that regulators should rather create an enabling environment that will further boost the adoption of this new tech, while creating stringent rules to take out bad actors.
Why should there be crypto regulations?
1. Government control and supervision – accountability;
2. Cyber-Crime control;
3. Protection of investors;
4. Accurate valuation on cyptocurrency’s worth;
5. Standards for ethical practices.
Government Control and Supervision – Accountability
Every sector of the economy needs the government’s regulation for increased output and accountability. The cryptocurrency market belongs to the financial sector of the economy, which is already an area that calls for special scrutiny, audit and needs to be regulated, since it measures a country’s economic growth and strength, amongst other things.
Most citizens are now seeing cryptocurrencies as a way of evading tax and enriching their own pockets, with KYC (know your customer) and tight regulations put in place. This will improve the country’s GDP (gross domestic product), thereby, leading to reduced cost of living and enhanced country’s economic health.
Cyber-Crime and Fraud Control
Cryptocurrencies are decentralized and allow anonymity. Bad players and scammers are using them for extortion, laundering, kidnapping, ransomware in darknet marketplaces and fueling terrorism. Transactions in cryptocurrencies do not require real names, so it is easy for criminals to remain unidentified or anonymous as they move and use cryptocurrencies.
Money launderers make use of cryptocurrencies since they have inherently low levels of regulations, and are not governed by a central authority. This essentially means that their transactions cannot be closely monitored. These have made the masses see cryptocurrencies as scams, ponzi or get-rich schemes. With the government providing the structural measures and necessary regulations to curb this negative menace, this will in return, increase crypto adoption in Africa.
Protection of Investors
According to the Securities and Exchange Commission (SEC) in a report of September 2020, they proposed a new set of rules that will regulate cryptocurrency (either coins or tokens) investments when the character of the investments qualifies as securities transactions. The SEC is majorly looking at regulating Initial Coin Offerings (ICOs) as securities and is cracking down on fraudulent means of acquiring wealth through it.
The SEC, as a government organization which is empowered to regulate investments and securities business, should implement laws and regulations that will protect investors from illegal or fraudulent ICOs. Also, if anything goes wrong, the owners of the projects can be held accountable. This will create a system of confidence in the mind of institutional or retail investors, which in turn, acts as a catalyst for crypto adoption.
Accurate Valuation of Cyptocurrency’s Worth
The parabolic climb of Bitcoin in late 2017, led to a cataclysmic price retrace in which many investors faced overwhelming liquidation due to market manipulation, over-valuation, and outright scams. Many Virtual Asset Service Providers (VASPs) helped to facilitate these Wild West conditions. When there are regulations, real identities can be connected to illicit behavior by the regulators or government. Fake buy and sell orders implemented just to generate “pump and dump” action, will be harder to get away with.
Compliant Virtual Asset Service Providers (VASPs) will have the ability to collectively verify and cross-check the real identities behind the public addresses, and pass this information over to the respective authorities when required. This will ensure that cryptocurrencies are judged solely on their merits,thereby, creating a level playing field for all cryptocurrency investors and enthusiasts, leading to growth and crypto adoption in Africa.
Standards for Ethical Practices
There should be rules and regulations for every practice. No action should be discretionary. This will ensure that the masses to have faith in the system, and in turn, boost crypto adoption.