Despite being home to arguably Africa’s biggest bitcoin exchange or remittance startup (BitPesa) and ranking as one of the top three countries with the highest peer-to-peer trading volumes on the African continent, Kenya has shown itself to be anything but hospitable to bitcoin-based businesses.
In 2015, the Central Bank of Kenya took a newspaper ad to warn people about bitcoin. They stressed that they are anonymous. Transactions cannot be tracked. And that it can be used in financing terrorism and money laundering. The ad also stressed that bitcoin (and other similar cryptocurrencies) are not backed by assets and are generally unregulated (in Kenya).
Since then, bitcoin startups have had their bank accounts shut down. Even their mobile money partners in Kenya have had to cut them off. Luno has totally removed its exchange service from Kenya. While BitPesa had to remove its MPesa exchange service as well as the automated trading mode in Kenya.
The counter-productiveness of the Central Bank of Kenya’s actions
The warning placed emphasis on some very key points. This includes untraceable transactions, anonymity, lack of regulation, and bitcoin not being backed by any asset. Breaking down these claims show that the main fear is that of anonymous, unregulated transactions. However, the apex bank’s decision to not fully allow bitcoin startups to thrive is actually counterproductive.
Anonymity and untraceable transactions
At most, bitcoin transactions are pseudonymous in that. While every single bitcoin wallet transaction can be tracked by everyone. Which falsifies the claim to the untraceable nature of bitcoin transactions), to a major extent, the owners of such wallets are not be known. And can only be recognized by the wallet addresses.
Bitcoin exchange startups that deal with exchanging bitcoin to fiat(cash) usually implement KYC/AML rules. Where they make users submit identification such as ID/Passport and proof of residence before they can fully use the service. This means that if the central bank was keen on being able to track bitcoin transactions within Kenya, it’d provide more, not less support to bitcoin companies in the country.
This can be useful in tracking down or preventing suspected money laundering and terrorism financing. This is as the exchange companies can track down the public transaction hash to the user.
Lack of regulation
Given the global phenomenon that bitcoin has become and the ever-increasing number of users, it is pretty clear that bitcoin is not going anywhere anytime soon. The astronomical growth this year (price, users, press coverage, etc) alone should prove that it is daily solidifying its place in the global financial world. This is both a store of value and a medium of transaction.
It is puzzling how the Central Bank of Kenya chose to take the decision of strangling bitcoin-related businesses. This is instead of pushing for the regulation of cryptocurrencies.
Ignorance or the fear of rivalry?
Having highlighted how counter-productive the measures taken by the apex bank are, there can only be two reasons why it has maintained its stand. Either it is ignorant of how accepting cryptocurrencies and pushing for regulation would benefit it. The other reason is it, as some major banks and governments, recognizes the long-term threat. And that a decentralized economy poses to their control.
What threat? What rivalry?
One of the fundamentals of bitcoin is the removal of a central party controlling a user’s funds. This means that when you own the private keys to your bitcoin, no one can seize or have control over your funds. This is in contrast to existing monetary policies which give banks and government third party control over users’ funds. During payments, bitcoin totally eliminates the need for trust and replaces it with verification. This is also a top feature of distributed ledger technology (blockchain) on which cryptocurrencies are built.
Unlike with existing systems, decisions as to upgrade the bitcoin protocol, slight changes are not made by individuals but instead, by user consensus.
If bitcoin gets mainstream and achieves its ultimate goal of becoming the global central currency, it’d not only replace today’s currencies. But also, create a total overhaul of existing financial systems.
Whatever the underlying reason is that the Central Bank of Kenya has for its actions, it is better off letting go of its needlessly tough hands-on cryptocurrencies. Irrespective of what bitcoin will become in the long term, one thing is certain — it, alongside other cryptocurrencies, is here to stay.