The increasing use of bitcoins in Africa has prompted a growing chorus of government officials, legal experts and e-commerce entrepreneurs to call for the virtual currency to be regulated.
In Africa’s largest economy, Nigeria, outlets like leather goods site Minku are now accepting bitcoins. South African bitcoin exchange BitX , which also operates in Nigeria, recently partnered with mobile payment and smartcard company Zazoo to enable bitcoin use via the virtual prepaid MasterCard app, VCpay.
"Bitcoins are becoming increasingly popular in Nigeria," said Victor Munis, a partner at international law and arbitration firm TRPLAW, via email. "A good number of Nigerians are using bitcoins for their day-to-day transactions. Private companies sell bitcoins to interested persons. Retailers are beginning to accept bitcoins as payment for goods and services."
The Central Bank of Nigeria, meanwhile, has indicated its intention to regulate bitcoin use in the country. The deputy governor of CBN’s Financial System Stability unit, Joseph Nnanna, told a recent financial community conference that regulating virtual currencies will protect customers and investors, maintain the stability of the financial system and deter the potential use of bitcoin for money laundering and terrorist financing. The cloak of anonymity that bitcoin payments offer has made it useful to transact illegal business. For example, the Silk Road underground online marketplace took payment in bitcoins.
Munis agreed that regulating bitcoin transactions is necessary.
"Setting up the appropriate regulatory framework will not only regulate its use but also give legitimacy to bitcoin transactions in Nigeria," Munis said, "The intention of the CBN to do so is a welcome development."
Though a growing number of Nigerians use bitcoins regularly to acquire items online, many are afraid to use it because of its instability.
"Volatility does not inspire most of them to put their hard-earned money" into bitcoins,
said Tim Akinbo, CEO of Nigeria-based TimbaObjects, which develops mobile and Web apps. Those who do use bitcoins tend to do so for quick transactions, to minimize risk from rapid fluctuations in the value of the virtual currency.
The situation is however not unique to Nigeria, according to TRPLAW's Munis. "Another country which has a notable use of bitcoins is South Africa," Munis said. "There are a number of bitcoin exchanges there. However, the South African Reserve Bank as well as its financial institutions are reluctant to accept bitcoin use. The situation may change in the future due to increasing use."
Another Bitcoin Africa Conference is scheduled for next March, following its inaugural edition in South Africa. The country also has a dedicated academy, the Bitcoin Academy, that offers courses on bitcoin basics as well as blockchain-based application development. The blockchain is a public database of transactions that can be modified by users.
Regulation will "protect the consumer and weed out all the bad players" and "give businesses (and investors) a lot more clarity and confidence in what can be done in the space, which in turn will attract more capital and innovation to the sector," said the head of business development and growth at South Africa’s BitX, Werner van Rooyen, in email. Meanwhile, "all serious bitcoin companies (at least those who want to be around for more than the next few years) self-regulate by mirroring the KYC (know your customer) and AML (anti money laundering) set in place for other financial institutions," he said.
Van Rooyan noted that BitX has already started to build a compliance framework, working closely with governments, regulators and financial institutions, focusing on adopting financial community best practices.
"We encourage a pragmatic approach that aims to balance the innovative potential of the technology whilst mitigating the key risks," van Rooyan said. "This allows businesses and startups the opportunity to grow, learn and explore the new terrain without overly burdensome regulation."
As an example of a practical approach, van Rooyan noted that some financial sector regulators adopt a "sandbox" approach, allowing regulation to kick in only once a certain size threshold -- such as number of users, or transaction volumes -- is met. He also suggested that the New York BitLicense Regulatory Framework and the now-dormant California Bitcoin Regulation Bill be studied for guidance. The California bill has been shelved, at least temporarily, but New York on Tuesday issued its first BitLicense.
With Unicef now accepting virtual currencies as donations and Barclays becoming the first U.K. bank to help charities accept bitcoin payments, there is an increasing need to regulate virtual currencies in parts of Africa where these and other multinational organizations have strong networks.
Banks across the world have been exploring bitcoin, trying to determine the potential uses for the digital currency and its underlying blockchain technology. The move by Barclays, with operations in 14 countries across Africa, could bring bitcoin into the mainstream as the bank stated that it has the "potential to change financial services."
In addition, a Commonwealth of Nations working group made up of Australia, Barbados, Kenya, Nigeria, Singapore and Tonga agreed after meeting International Monetary Fund and World Bank officials in London last month that virtual currencies could benefit member states and drive development. While recognizing that virtual currencies pose some risks, the group urged Commonweath members to "consider the applicability of their existing legal frameworks to virtual currencies and where appropriate they should consider adapting them or enacting new legislation to regulate virtual currencies."
With 18 African members, The Commonwealth Secretariat will create a digital repository of best practices and model regulations as part of an effort to assist members in developing policy.