By John Okeke
The meeting of the Joint Committees of the ECOWAS Parliament holding in Ouagadougou, Burkina Faso has highlighted the prospects of Cryptocurrencies as facilitator for investment in West Africa.
The Joint Committee which also has in attendance Cryptocurrency experts and resource persons also noted that that there is a cause for concern for Cryptocurrencies with regards to the risk factors involved.
It further noted that the sharp decline in the value of Bitcoin over recent weeks is a reminder for all that Cryptocurrencies are not safe assets hence the use of Cryptocurrencies on the African continent is not without dangers for several reasons. It noted that Cryptocurrencies can be refused for payment without contravening legal provisions.
Furthermore, Crypto-assets are not a means of payment and cannot be likened to e-cash. It also identified Cryptocurrencies as extremely volatile, owing to restrictive issuance mechanism that encourage speculation.
The Joint Committee further highlighted the security risks involved. Like all other digital payment instruments, Bitcoin is always attacked by pirates and therefore Cryptocurrencies enthusiasts need to guard against the risk of theft because if the Cryptocurrency is by nature inviolable, portfolios, on the other hand, are not.
Among the risk factors identified is the fact that Cryptocurrency is an insecure liquidity. Given the shallow depth of the foreign exchange market and high concentration of assets (96% of bitcoins are believed to be held by 2.5% of users), a liquidity problem may arise. One of the risk factors of Cryptocurrencies identified is that it is an irreversible transactions, in other words the transaction cannot be cancelled when the sender notices a mistake, only the receiver can decide to return them. Another source of concern to the use of Cryptocurrency is that there is almost no regulatory authority. However, the boom of Bitcoin and the growing popularity of virtual currencies have caught the attention of financial authorities and governments who have started given them a thought. It has been noted that even some countries have made efforts to put in place regulations, and have made some progress. Another major handicap of Cryptocurrencies identified is the weakness of AML/CFT systems and therefore can be a real cause of vulnerability of mechanism to combat money laundering and terrorist financial. In conclusion, it was highlighted that given the dangers likely to stem from the use of Cryptocurrencies, three specific cases have been identified. -Absolute ban on the use of Cryptocurrencies: namely Algeria, Egypt, Morocco, UEMOA and CEMAC member states and some other countries; – No ban, no authorisation to use Cryptocurrencies and warning to consumers and investors on one hand, and to regulated player (banks) on the other, about the risks associated with the use of virtual currencies: Ghana, Kenya, Nigeria, Uganda and Tunisia. – Authorisation to use Cryptocurrencies subject to applicable taxes (South Africa). It also noted that it is necessary to consider mitigating these dangers to make Cryptocurrencies more profitable to investors.