“Bank of Uganda warns the general public that whoever wishes to invest their hard earned savings in cryptocurrency forms such as One-coin, Bitcoin, Ripple, Peercoin, Namecoin, Dogecoin, Litecoin, Bytecoin, Primecoin, Blackcoin or any form of Digital Currency is taking a risk in the financial space where there is neither investor protection nor regulatory purview. The public is hereby warned that whoever deals with “ONE COIN DIGITAL MONEY” does so at his or her own risk.” This was a warning by the Central Bank of Uganda published in NEWVISION, a local newspaper on February 14, 2017.
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When this warning was issued, Katherine Atuhairi of Uganda Bitcoin Network, was full of doubts if her compatriots would heed the warning from the central bank. She went on to say it would only boost the size of the crypto community, as more people would start finding out more about cryptocurrencies and its copious benefits Ugandans, and for that matter, Africans could reap.
Many cryptocurrency enthusiasts in Uganda look at this warning as a damage to fintech. Some Ugandans are aware of what cryptocurrency offers them as compared to fiat money. Fiat money is money that has no intrinsic value but is used as a medium of exchange because a specific government deems it so for example the Uganda shillings, US dollars and so on.
So, what is cryptocurrency?
Cryptocurrency is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets. It is a currency associated with the internet. The generation and regulation of the units of this currency and the verification of the transfer of funds are done by encryption techniques which are independent of the central bank.
According to CoinMarketCap, which tracks the value of nearly 1,500 tokens across the board and ranks them according to their market capitalisation – their perceived total value, the top 10 cryptocurrencies are Bitcoin BTC which was the first cryptocurrency founded by Satoshi Nakamoto in 2009, Ethereum ETH, Ripple XRP, Bitcoin Cash BCH, Cardano ADA, Stellar XLM, NEO NEO, Litecoin LTC, EOS EOS and NEM XEM as of 29th January, 2018.
A company or financial institution needs an e-money licence to process online payments. However, processing cryptocurrency such as bitcoin does not require a licence although setting up a cryptocurrency exchange platform needs a licence. The cryptocurrency is peer-to-peer which means transactions take place between users directly without an intermediary such as the bank. These transactions are verified by network nodes through the use of cryptography and recorded in a public distributed database ledger called a blockchain (a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains cryptographic hash of the previous block, a timestamp and transaction data.).
Cryptography is the process of converting legible information into an almost uncrackable code. According to telegraph.co.uk, Cryptography was born out of the need to secure communication in the second world war and it has now evolved in the digital era with elements of mathematical theory and computer science to become a way to secure communications, information and money online. A cryptocurrency is extremely volatile and very risky to invest in because its value is purely based on demand and supply without any government intervention. However, there are many platforms where you can buy and sell a cryptocurrency.
Conclusion
Despite the warning, the government cannot freeze cryptocurrency accounts and funds cannot be plundered by the state, thanks to the Blockchain’s extraordinary strength. Just as fiat money, the government needs to look at cryptocurrency with a view of adopting it as it may present enormous opportunities such as innovation in the payment system and as a form of new currency as well as a tax base for the government. This can only be done if its generation and use is regulated. However, for the government to adopt it, the cryptocurrency community needs to explain the need and importance of it to the economy of Uganda..