Decoding the Dilemma of Cryptocurrency Regulation in Kenya University of Nairobi

Abstract

Although Kenyans have quickly and enthusiastically adopted cryptocurrency nevertheless the government has not provided an adequate regulatory framework to safeguard their interests. This has created substantial risk which requires to be addressed as it could lead to substantial and negative effect on the Kenyan economy. Cryptocurrency and its underlying blockchain technology are a relatively new phenomenon around the world which have evolved dramatically and are now considered to be a disruptive technology. They have developed to such a point as to become impossible to ignore. Their proponents champion anonymity and security in the transfer of value in digital format with minimal government involvement thereby allowing the community to transact through a spontaneous order dubbed by economists as catallaxy. Though the cost of transaction particularly across borders has been significantly reduced cryptocurrencies have not been without challenges particularly as regards theft, illegal and criminal activities. The pace at which cryptocurrencies are developing has therefore created substantial challenges for regulators around the globe especially in their definition and/or classification (taxonomy) as well as in the manner in which various regulators have chosen to respond to this new phenomenon. The study reveals that Kenya too is grappling with how to deal with cryptocurrencies and the Central Bank of Kenya (CBK) being the mandated regulator for monetary policy and fiscal management of the country in tandem with the Capital Markets Authority (CMA) have advised the public, financial institutions and investors that Bitcoin and by extension all cryptoassets do not fall within the ambit of central bank regulated activities as they are not backed by any government and are indeed not issued or otherwise licensed by any centralised authority thus providing no protection to them in the event such cryptoassets collapse, disappears or otherwise becomes an unsustainable business venture and fails.

The study therefore highlights that there exist substantial gaps in the law and regulatory environment in the country and seeks to glean lessons from other jurisdictions around the world which have succeeded in reigning in the benefits of cryptocurrency while mitigating the risks and challenges it creates including but not limited to terrorism, insurgent and criminal activities. The study concludes that some measure of regulation ought to be considered for adoption geared towards ensuring that the benefits of cryptocurrency are harnessed whilst concurrently ensuring that the illegitimate use and application of cryptocurrencies is less attractive and preferably downright painful for any perpetrators and/or offenders in Kenya. KEY WORDS: Bitcoin; blockchain; cryptoassets; cryptocurrency; currency; digital; innovation; legal tender; minting; mining; money; public interest; regulation; sovereign fiat; tax; technology; Kenya