The Legal Status and Regulation of Cryptocurrency in Ethiopia
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Date
2021-05
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Abstract
Cryptocurrency is a virtual currency formulated to function as a medium of exchange. Cryptocurrencies evolved
on a blockchain altar that functions on a peer-to-peer foundation, enabling a beneficiary to receive encrypted
payments directly from sender. Cryptocurrency transactions disregard intermediaries such as banks and financial
institutions from the spiral. The role of financial intermediaries such as banks in guaranteeing the value of the
currency is not needed in cryptocurrency transactions. Payments in the form of cryptocurrency are not using
sufficiently secure payment systems that are permitted by NBE. This shows that cryptocurrency companies are
not licensed by NBE, thus cryptocurrencies are not regarded as payment systems in Ethiopia. Additionally, Given
the anonymity attached to cryptocurrency payments, it is difficult if not impossible to trace back perpetrators
involved in cryptocurrency payments or reverse the payment back to the consumer. Hence, the Trade Competition
and Consumer Protection Authority could face a challenge in the enforcement of consumer’s right in case of
cryptocurrency disputes. Because enforcing the provisions of TCCPP primarily requires identifying the offenders.
Furthermore, NBE through the mechanism of receivership protects the rights of depositors in case banks are
unable to perform their duties. Nonetheless, because banks in Ethiopia do not issue cryptocurrency wallet, laws
that are applicable in the protection of bank depositors are not applicable to cryptocurrency wallet depositors.
Therefore, in case a cryptocurrency wallet provider fails to perform it duties or if a cryptocurrency is lost, NBE
won’t cover the loss.
In Ethiopia, no person shall transact banking business or provide digital financial services in without obtaining
a banking business license or digital financial services license or authorization from the national bank. However,
cryptocurrency exchangers in Ethiopia are accepting fiat money in exchange of cryptocurrency tokens and this
is clearly a digital financial service even if cryptocurrency is not accorded legal tender status in Ethiopia. Thus
cryptocurrency exchangers in Ethiopia are providing digital financial services without obtaining a digital
financial services license or authorization from the NBE.
Furthermore, the narrow definition provided in the FITP for business income and taxable asset excluded the
applicability of income tax proclamation on persons who earn income as a result of exchanging cryptocurrency
against fiat currency. Thus, the ministry of revenue is not collecting tax from such persons.
Lastly, the PPSMLFT by excluding actors involved in the activity of buying and selling cryptocurrencies, only
obliges financial institutions and designated nonfinancial businesses or professions to keep records and report
to the FIC any suspicious transactions. Nevertheless, because cryptocurrency transaction is conducted without
the involvement of financial institutions or designated nonfinancial businesses or professions, FIC has no power
to oversight the activities of those involved in the cryptocurrency industry. In short actors of cryptocurrency
particularly cryptocurrency exchangers and cryptocurrency wallet providers are out of the ambit of PPSMLFT.
Therefore, the incapability of FIC in accessing data in relation to cryptocurrency transactions could be a major
hindrance towards the effective regulation of cryptocurrency related money laundering and terrorist financing
activities in Ethiopia.
Therefore, in Ethiopia the relevant laws do not accord any legal recognition to cryptocurrencies and regulators
which are entrusted to regulate cryptocurrencies are ignorant of the existing Ethiopian cryptocurrency market.
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Keywords
Blockchain, Virtual Currency, Cryptocurrency, Bitcoin