Thousands of Kenyans lining up to have their eyes scanned in exchange for a cryptocurrency dubbed Worldcoin was one of the big Kenyan news items in 2023. The WorldCoin episode opened Kenyans eyes to the crypto craze that has been bubbling under the radar for a while.

The rise of crypto is transforming the global financial landscape while also creating both risks and opportunities for new and existing players. Crypto is a transformative and vast world that is growing by the minute, and while it sounds complicated, it doesn’t have to be.

Let’s get you knowledgeable on crypto fundamentals

1. Blockchain – a decentralized ledger of all transactions across a network in which computers operated by individuals can share information and resources directly without relying on a dedicated central server. Blockchain underpins cryptocurrency.

2. Cryptocurrency – a medium of exchange created and stored electronically on the blockchain using cryptographic techniques. Cryptography is the process of hiding or coding information so that only the person a message was intended for can read it.

3. Mining – a process done using specialised hardware and complex software through which transactions are verified (audited) on the blockchain and new crypto is entered into circulation as rewards for undertaking the verification.

4. Digital currency – currencies that are only accessible with computers or mobile phones since they only exist in electronic form. All cryptocurrencies are digital currencies, but not all digital currencies are cryptocurrencies.

5. Traditional v digital – traditional currencies derive their authority from the government or a country’s monetary authority while digital currencies are not backed by anything.

6. Most traded cryptocurrency – Bitcoin (BTC), Ethereum (ETH), Dogecoin (DOGE), Tether (USDT), USD Coin (USDC), Uniswap (UNI). There are thousands of cryptocurrencies available online.

7. Crypto wallet – when you mine or buy crypto you get a public key (like a bank account number) and a private key (like a password) on the blockchain. A wallet is a form of digital storage to store these keys. Hot wallets are online and cold wallets are individual hard drives.

8. Crypto exchange – online trading platform that is used to buy, sell, and exchange cryptocurrencies. Exchanges convert traditional currency (shillings, dollars, etc.) to crypto (Bitcoin, Ethereum, etc.), and vice versa. 

9. Satoshi Nakamoto – this is an individual or a group of people who are anonymous but credited to have invented Bitcoin, which is the world’s largest crypto, written the Bitcoin white paper and initiated the first blockchain in 2008.

Risks of dealing with cryptocurrency:

1. Price volatility – it is not uncommon for the value of cryptocurrencies to quickly drop by hundreds, if not thousands of dollars.

2. Unclear valuation: Given the abstract nature of cryptocurrencies how value is allocated is fuzzy.

3. Unregulated currency: The store of value is not backed by a government or central banks and therefore if you lose it or are robbed there is no fallback.

4. Prone to error and hacking: There is no safe-proof way to prevent technical glitches, human error or hacking that can all result in completely losing your crypto.

State of cryptocurrency in Kenya:

A report by the United Nations Conference on Trade and Development released in June 2022 stated that 8.5 percent of the population or 4.25 million Kenyans own cryptocurrencies.

This is backed up by a survey by Chainanalysis, an American blockchain analysis firm that found that Kenya is Africa’s third most active Bitcoin asset trader, with the largest web traffic to crypto-currency sites.

When he appeared before an ad hoc committee of the National Assembly inquiring into operations of Worldcoin in Kenya in September 2023, the Central Bank of Kenya (CBK) Governor Kamau Thugge illustrated the grey area that is crypto for governments, investors, and regular people.

“In Kenya we have not licensed any cryptocurrency. However, trading in the currency has not been made illegal because there is no regulation or legal framework in place,” explained Dr. Thugge.

Eager to get a slice of the crypto pie, the government through an amendment to Kenya’s Finance Act 2023 which took effect on September 1, 2023, introduced a 3% tax on income derived from transferring or exchanging digital assets.

The Capital Markets (Amendment) Bill, 2023, sponsored by Mosop Member of Parliament, Hon. Abraham Kirwa which seeks to make crypto & digital currencies be regulated by the Capital Markets Authority and proceeds from their trade be taxed is currently in parliament.

Meanwhile, a technical working group set up to advise the Treasury on cryptocurrency is currently preparing draft regulations to be forwarded to the Cabinet for adoption according to a Business Daily article on February 19, 2023. There is a worry that the increase in trade in cryptocurrencies which is unregulated exposes the country to risks of money laundering and terrorism financing.