An overview of the Regulatory Developments in South Africa regarding the use of Cryptocurrencies

• Jurisdiction: South Africa
• Date: 27 November 2019
• Published date: 27 November 2019
• Citation: (2019) 31 SA Merc LJ 1
• Author: None
• Pages: 1-28

Articles

AN OVERVIEW OF THE REGULATORY

DEVELOPMENTS IN SOUTH AFRICA

REGARDING THE USE OF

CRYPTOCURRENCIES

EVESHNIE REDDY*

Lecturer, University of South Africa

VIVIENNE LAWACK**

Professor, University of the Western Cape

Abstract

This article provides an overview of some of the key regulatory

developments in South Africa regarding the use of cryptocurrencies.

Developments have to date been limited to government-issued

notices warning the public of the risks associated with the use of

cryptocurrencies, the legal status of cryptocurrencies within the

wider paradigm of money, and a recent notice by the South African

Revenue Services (‘SARS’) regarding the taxation of

cryptocurrencies. A recent consultation paper published by the

South African Reserve Bank (‘SARB’) proposed a three-phase

regulatory approach to cryptocurrencies, starting with the licensing

and registration of all cryptocurrency service providers. Albeit an

incremental step in the right direction, this article argues that the

regulatory developments have thus far been segmented and do not

address the issues emerging from the use of cryptocurrency such as

consumer protection, and reparation for loss and fraud. This article

argues that although cryptocurrencies are not a widespread medium

of exchange, their use in South Africa is gaining traction and calls

for some level of regulatory oversight.

* BCrim BCrim Hons (UKZN) (UNISA) PhD candidate (UWC). This article forms part of

research undertaken towards the author’s PhD study.

** BJuris LLB LLM (NMMU) LLD (UNISA).

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(2019) 31 SA Merc LJ 1

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I INTRODUCTION

‘Technology and regulation closely interact. As technology alters f‌inancial

service attributes and market structure, f‌inancial regulation must adapt to

remain effective. In turn, regulation has an important inf‌luence on the

development of technology.’

1

The emergence of alternative payment systems and instruments both in

South Africa and globally, is gaining widespread traction. According to

the International Monetary Fund (‘IMF’), such systems fall under the

umbrella term ‘f‌inancial technology’ — also referred to as FinTech —

which refers to the use of technology in f‌inancial applications.

2

Cryp-

tocurrency

3

, also referred to as virtual currency, digital currency, crypto

tokens, digital tokens, and more recently, as adopted by the South

African Reserve Bank,

4

crypto assets, is perhaps the most innovative of

all the f‌inancial technology currently in use. A cryptocurrency is a form

of decentralised virtual currency (‘DVCS’)

5

. In particular, the cryp-

tocurrency, bitcoin, is gathering momentum both in South Africa

6

and

globally

7

and boasts the dual function of a ‘currency’ and a ‘payment

system’. Although bitcoin was created to facilitate the exchange of value,

it is now also used as a store of value due to its high, albeit volatile,

market value.

Cryptocurrencies are created over the internet by using open-source

software on a peer-to-peer network. This enables direct transaction

from one person to another so eliminating the need for intermediaries

such as a f‌inancial institution or a central bank. Key role-players in the

cryptocurrency ecosystem include (but are not limited to) miners,

exchanges, wallet service providers, and the blockchain. Cryptocurren-

cies therefore function in direct opposition to the traditional f‌inancial

system and are consequently not recognised as legal tender in any

jurisdiction. The authority to decree legal tender status vests in central

1

International Monetary Fund (‘IMF’) Discussion Note, Fintech and Financial Services:

Initial Considerations SDN/17/05 (2017) 14.

2

Chishti & Barberis, The FinTech Book: The Financial Technology Handbook for Investors,

Entrepreneurs and Visionaries (Wiley 2016) 12.

3

A note on the terminology: Following established convention, this article uses the term

cryptocurrency/cryptocurrencies. See section IV (a) of this article for more information.

4

Hereafter ‘the SARB’.

5

See section V (a) of this article for more information.

6

See section IV of this article. See also Nieman, ‘A few South African cents on bitcoin’

(2015) 18(5) PER/PELJ 1979 at 1992–1994.

7

See Hileman & Rauchs, Global Cryptocurrency Benchmarking Study (2017), Cambridge

Centre for Alternative Finance, Judge Business School, University of Cambridge, 4. According

to a study by Böhme et al, ‘Bitcoin: Economics, technology, and governance’ The Journal of

Economic Perspectives (2015) 29(2) 213 at 213, in 2015 alone, there were an estimated 62.5

million bitcoin transactions between 109 million accounts.

(2019) 31 SA MERC LJ

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