Kenya’s conflicted position on cryptocurrencies

A day before, Kenya’s President Uhuru Kenyatta had told an audience at a symposium on digital technology at a college in the capital, Nairobi, that the government needed to understand the opportunities and the risks blockchain presents as well as the knowledge and skills needed to make it work for the country. He commented: “As a country, we cannot let these opportunities pass us by”

With the formation of the taskforce, the east African country joined a list of very few countries in the world that have set up bodies to study blockchain potential and recommend policy on its adoption.

And that hasn’t been its only move in this area. During a conference in December 2016, a representative of the ICT ministry told attendees that the government was working with private enterprises to build blockchain solutions for such areas as land registry and health care management.

Land management, in particular, has been a major problem in the country. Record keeping has been the weakest point with it being common for two or more individuals to hold genuine titles on the same piece of land. In a March 2018 interview, the ICT cabinet secretary stated that a land title on a blockchain pilot project had been completed and the results were encouraging.

Pulling in different directions

Kenya’s position on cryptocurrencies, however, remains conflicted. Mucheru, who was an early investor of BitPesa, a Bitcoin exchange, and only sold his shares after being appointed to the government to avoid conflict of interests, has often made positive comments.

The chairperson of the taskforce he appointed, Bitange Ndemo, has encouraged Kenyans in his column in Daily Nation, one of the main dailies in the country, to buy cryptocurrencies as an investment option.

He has taken every opportunity to encourage the country to embrace blockchain technology alongside the likes of Bitcoin. Expect, therefore, the taskforce to produce a policy guideline that is friendly to cryptocurrencies.

Meanwhile, the country’s financial regulator, the Central Bank of Kenya (CBK), has remained adamant in its opposition to the adoption of cryptocurrencies. In December 2015 the regulator issued a notice cautioning the public not to get involved because of the risk of fraud and scams.

An unfriendly environment

It followed this with a circular directing commercial banks and other financial institutions not to offer services to any entities that are involved with cryptocurrencies. This action has made it very difficult for exchanges and other businesses that are in the crypto space to operate.

The first major casualty was BitPesa. The exchange leveraged a mobile service that has achieved widespread use in the country to help consumers convert between Bitcoin and Kenya shilling. After the release of the CBK circular, BitPesa’s payment processor was dropped by major mobile money service providers due to working with a Bitcoin business. BitPesa was forced to close down its operations and move to other African countries that have not been as punitive as Kenya.

Looking ahead

Over the years CBK has not changed its position much in regard to cryptocurrencies. The head of the institution, its governor, Dr. Patrick Njoroge, speaking at an investments event on 22nd May, pointed out that they are concerned by the risks that cryptocurrencies pose.

He said: “There is the question of the creator of Bitcoin. To this day nobody knows the person who created it. And there are concerns that there is a backdoor that he left and he can actually come back and mine more coins. We don’t know how risky that is.”

With the formation of the taskforce many expect that the regulator will have a change of heart and let crypto-related businesses flourish. Mucheru doesn’t believe there is a struggle between different government institutions over the fate of cryptocurrencies and blockchain. He holds the position that as a government they “will reach a point where everyone will be happy.”

Mucheru said: “Central banks have a role and a responsibility to play. And I don’t think we are going to be fighting about it. The world is already moving in that direction.”

It is important to point out there are many cryptocurrency-related businesses that already operate in Kenya. And the community of enthusiasts keeps growing. Almost every week there are two or three crypto-related events one can attend in Nairobi.