Advancements in e-commerce have led to an increased usage of digital currencies.
Many jurisdictions do not recognise these digital currencies as legal tenders.
Cybercash is intangible money and has a currency known as the cryptocurrency or virtual currency. Digital currency involves use of blockchain technology. There are many types of cryptocurrencies including bitcoin, litecoin, ethereum and ripple.
In 2018, Facebook announced plans to launch its currency known as libra, which is based on the blockchain technology. The intention is to trade the libra on Facebook messenger and WhatsApp.
This is quite an ambitious project by Facebook, considering that the majority of the global population are already using Facebook and WhatsApp.
Theoretically, it does seem to be a good idea. The digital currency will provide people with an alternative form of money and according to one study, it will help reach the unbanked population. It will also serve as a guard against currency losses arising from dips in mainstream legal tender. While it may seem like an idea whose time has come, there are very many loopholes that may complicate its usage.
First, there is a lack of regulatory support. For any project such as this one to work seamlessly, clear legislation on various aspects is necessary.
Not many countries have regulations to guide cryptocurrencies. It remains a grey area. Some governments have taken a cautious approach to cryptocurrencies by issuing warnings on their dangers, largely due to a lack of regulation. The Central Bank of Kenya, the banking sector regulator, recently warned the public that cryptocurrencies such as bitcoin are not legal tender and therefore those who traded in them were doing so at their own risk.
The fact that most transactions occur in the cyber world where there are no geographical boundaries further complicates trading in cryptocurrencies.
This also complicates the entire structure regarding the choice of law. For example, if a transaction goes wrong and one of the parties is a Kenyan trader then from whom would the aggrieved party seek redress? Which country’s laws would one resort to and what would the applicable legislation be?
There is a very high legal risk involved in cryptocurrencies. Some countries have banned the use of cryptocurrencies.
This is because they carry a risk of usage in criminal activities such as terrorism and money laundering.
However, there are others such as Spain that have taken advantage of the rise of cryptocurrencies and enacted laws to position themselves as the hub of cryptocurrencies.
The unclear or lack of crypto currency law is evidence that at times technology evolve faster than legal changes. Many emerging technologies remain unregulated as legislation is longer. This is not only a Kenyan problem but also a global one.
In Kenya, cryptocurrencies are unregulated even though trading still takes place in a private capacity.
Facebook’s libra project is ambitious especially since the same is being launched in largely unregulated markets.
The Kenyan market is unregulated in this respect and it would be difficult to implement.
Conflict of laws across the jurisdictions would make dispute resolution founded on a libra case difficult.
Facebook has just been fined for data privacy breaches linked to the Cambridge Analytica scandal and it is not clear how data privacy security would be guaranteed in the Libra project.
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