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Until regulations have been formulated, the Government has advised the public to tread with caution on cryptocurrencies.

Finance minister Matia Kasaija said yesterday that the Government does not recognize any cryptocurrency as a legal tender in Uganda Addressing media at the Uganda Media Centre, Kasaija explained the risks associated with dealing in cryptocurrencies and using them as a medium of exchange.

He explained that most cryptocurrencies, such as Bitcoin and Ethereum, are not backed by assets or government guarantees, making holders fully exposed to the risk of loss or diminishing value as the issuers are not obliged to exchange them for legal currency or other value.

“Cryptocurrencies tend to change value rapidly. While holders may make profits when their value rises, they will be exposed to losses if their value falls,” Kasaija said.

He added: “The nature of cryptocurrencies makes them attractive for use in criminal transactions, such as money laundering, sale of prohibited goods and services and fraudulent ventures like Ponzi and pyramid schemes.” “At the moment, it is dangerous.

The disadvantages seem to be more because the risks seem real. You will put your savings into this system and they will disappear overnight,” Kasaija warned. He described cryptocurrencies as digital assets designed to effect electronic payments, without the participation of a central authority or intermediary, such as a central bank or a licensed financial institution.

“Cryptocurrencies may also be used to effect anonymous electronic payments and can be held for speculative purposes in the expectation that their value will rise at a future time and, therefore, be sold at a profit,” Kasaija said. Cryptocurrencies, also known as virtual currencies, are a digital representation of value that has no legal status but are digitally traded and act as a medium of exchange, a unit of account and a store of value.

Transactions on this platform are made over the Internet and there is no central authority that processes transactions. Users are anonymous and identified only by their virtual identities.

A single user can have several virtual identities. Although still in their infancy, cryptocurrencies are slowly, but steadily gaining momentum in Uganda. However, without authority, Kasaija said “they are a recipe for chaos”. Bitcoin was the first cryptocurrency, created on January 3, 2009, drawing widespread attention. Since then, many other cryptocurrencies have been created.

Binance, a global cryptocurrency exchange platform, has been operating in Uganda since June last year. Kasaija said: “The Government has not licensed any organization in Uganda to sell cryptocurrencies or facilitate the trade and so these organizations are not regulated by the Government or any of its agencies.”

Therefore, unlike other owners of financial assets who are protected by government regulation, holders of crypto-currencies in Uganda do not enjoy any consumer protection, should they lose the value assigned to their holdings of cryptocurrencies. Kasaija urged Ugandans to invest their money in other ventures, such as shares on the stock exchange or to deposit it where there is a degree of confidence that their assets will not “disappear”. Emerging threat Kenneth Muhangi, a partner at Karuhanga, Tabaro & Associates (KTA Advocates), recently alluded to how cryptocurrency is emerging as new avenue for money laundering.

He said given that people use the dark web website on an encrypted network that cannot be found by using traditional search engines where users are invisible, it makes it a good channel to launder money. Muhangi said over $850b (sh3,107 trillion) is traded across the world in virtual currencies.

Muhangi urged the Government to amend the law to enable prosecution of people engaged in cryptocurrency laundering. Speaking during a policymakers’ workshop on disruptive technology in Kampala recently, the Dr Maureen Mapp, a lecturer at the University of Birmingham Law School, also urged Uganda to swiftly develop policies and guidelines to regulate cryptocurrency so as to protect consumers’ interests from potential threats, such fraud.

How it works To trade in cryptocurrency, one buys coins and holds them up until a required price, which is always higher than the purchase price and then cashes out. One can also make money by buying an Initial Coin Offering (ICO), just as the Initial Public Offering (IPO) on the stock market, where a company is selling its shares on the public market for the first time.

To profit on an ICO, one buys the cryptocurrency at the ICO offering and then sells it immediately when it hits trading exchanges if the price has appreciated. Blockchain association speaks Kwame Rugunda, the chairperson of the Blockchain Association of Uganda, said they are having a dialogue with the Government and the central bank on regulating the technology in Uganda.

He said they acknowledged that Blockchain, part of which is cryptocurrencies, is a complex industry that has been characterised by misunderstandings caused by many Ponzi and pyramid schemes “We need a regulation that is progressive,” Rugunda said.

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