Cryptocurrency: Limited Recourse in Unregulated Waters
Cryptocurrencies such as Bitcoin, Ethereum, and Ripple act as exchange networks via which persons can affect the transfer of funds or wealth without need for oversight by a central regulatory authority, such as a bank, instead making use of peer-to-peer technology.
Being a relatively new method of virtual transaction andinvestment, cryptocurrencies remain largely unregulated in many countries around the world, including South Africa.The consequence of this is that forms of payment and investment such as Bitcoin remain in a legislative void, and parties engaging in crypto-related activities do so entirely at their own risk, with limited to no recourse if or whensomething goes wrong.
Despite this being communicated to the public in 2014, the use of cryptocurrency both locally and abroad has surged, as have cryptocurrency related scams. In the last two years alone, South African crypto–consumers have fallen victim to the nation’s two largest cryptocurrency scams, involvingMirror Trading International and Africrypt respectively. In the latter, it appears crypto–assets worth an estimated R54 billion were funnelled from investor’s wallets as directors ofAfricrypt allegedly engaged in fraudulent trading practises.
In spite of such, the financial regulator has said its hands are tied in assisting consumers with the recovery of such funds as no powers are conferred on the regulator to take remedial action. Further, the decentralised nature of crypto-assets leads to decentralised responsibility in that there is no central intermediary or entity from which consumers may obtain recourse or compensation.
Indeed, consumers may well find difficulty in attempting to recover their money in the event that:
Having regard to this state of affairs, the Intergovernmental Fintech Working Group (IFWG) has proposed that legislation be enacted to impose duties on crypto-asset service providers to:
Imposing regulations may further enhance consumer trust in the market and increase cryptocurrency stability. It remains important, however, that any legislation implemented be continually monitored, reviewed and refined as new developments and risks emerge in the industry at an accelerated rate. In this light, it shall be necessary for South Africa to keep abreast of emerging international best practices, as well as increase consumer awareness and digital literacy.
It has been reiterated, however, that the government’sdecision to regulate cryptocurrency does not suggest its endorsement of these assets, but rather it has been recommended that cryptocurrency remains unrecognised as a legal tender or electronic form of payment. The Financial Sector Conduct Authority has also warned that consumers should remain wary of investment platforms thatpossess tell-tale signs of an old fashioned Ponzi scheme, especially those where exceptionally high and unrealistic returns are offered, as this generally details that fraudulent or unlawful activities are involved.
For more information relating to the legalities surrounding cryptocurrency kindly email us on [email protected].
Written by Dyllon Nicholls – Candidate Attorney.
This article is provided for informational purposes only and should not be substituted for legal advice on any specific matter. Any opinions expressed herein are subject to the law as at the time of writing and will change in accordance with any change in the law. We recommend that you contact HJW ATTORNEYS at [email protected] directly for advice applicable to your specific matter.