About cryptocurrencies and consumer protection

Cryptocurrency

Cryptocurrency, commonly categorised under a blanket classification as Bitcoin, is either the most resented terminology in Ugandan finance and money markets or fiercely rivals whichever ranks first. The crypto technology has had its fair share of bad reputation in Uganda and several other countries across the continent. In fact, to many, it is synonymous to scams and ponzi schemes. Owing to the fact that since 2018 till date, Ugandans have lost at least $1 billion in cryptocurrency related fraudulent businesses, the genesis of the cautious approach to anything crypto is understandable. That notwithstanding, let’s start a fresh chapter of learning to understand what really this thing is all about.

A cryptocurrency is a digital store of value or medium of exchange (currency) that runs, and is stored on a block chain. There are thousands of existing cryptocurrencies, however, Bitcoin is the most popular and oldest of them all. A block chain is an extremely secure underlying technology that facilitates the transfer and storage of digital assets (crypto). The above overly simplified definitions illustrate that there is a distinction between cryptocurrency and blockchain and that bitcoin is just one example of crypto. The definition further highlights that a cryptocurrency can either be an asset/investment (store of value) or a currency for transactional purposes.

Scams and fraudulent businesses that have ripped hundreds of their savings and hard earned money thrive on ignorance and misinformation about the cryptocurrency industry. The harsh truth is that the lack of information or one’s ignorance is an absurdity that does not invalidate the beautiful technology that cryptocurrency is.This article is my attempt at bridging the information gap.

The global cryptocurrency industry is a $1.3 trillion industry in market capitalisation. This means that the crypto industry is bigger than the most globally notable companies in valuation and it has only been here since 2009. Cryptocurrencies are entirely virtual and do not take physical form at any stage. The distinct features that have made cryptocurrency the most attractive asset, store of value or currency are the aspects that traditional currencies lack and these include; decentralisation, security, irreversible and negligible(close to zero )or no transactional charges.

Decentralisation is the most crucial feature of crypto technology. It means that in cryptocurrency, there are no authorities or intermediaries that control, regulate or supervise and process transactions. In traditional finance, however, money is issued and controlled by the Central Bank and other financial transactions rely on third parties like banks or mobile money service providers. All these third party players are eliminated in cryptocurrency investment or transactions and thus making it decentralised also known as ‘peer-to-peer’ (directly from one user to another). The decentralisation aspect of cryptocurrency eliminates fees that would be levied by third parties thus making crypto transactions cheap.

Whereas cryptocurrencies are attractive assets or investments, they are equally volatile. Volatility is a term used to describe the drastic upward or downward movement of prices in a short period of time.

Due to the high market volatility, cryptocurrencies do not offer standardised rates of return on investment. It is therefore incumbent upon every prospective investor to understand they are not guaranteed to take a particular percentage of profit after a certain amount of time. In fact, they should also brace themselves to make a loss. Additionally, this means that there is no legitimate crypto business that promises standard return on your investment after a specific investment duration.

For a field that has been riddled with scams, crypto consumer protection is a very pertinent concern that has prompted Bank of Uganda to caution all holders of the National Payment Systems license not to process crypto transactions.

This communication was misconstrued to constitute a ban of cryptocurrency in Uganda. Cryptocurrency investment and trading are not illegal in Uganda. In an effort to counteract scams, sanitise the crypto eco-system and protect consumers of crypto products, the Blockchain Association of Uganda has set up scam alert avenues on her website and hotline contacts to report any suspicious business or individuals in the industry. These measures are interim as we await a comprehensive regulatory framework for the cryptocurrency and blockchain industry.

All principles of investment in traditional finance apply in cryptocurrency and it is recommendable to carry out individual research and due diligence prior to any decision.

Mr  Barry Ainomugisha a Blockchain lawyer, co-founder Skill Haven Africa and a member of the Blockchain Association of Uganda.

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