Rethinking cryptocurrency regulation in South Africa: in search of an effective legal and regulatory framework

Abstract

Cryptocurrency is a digital form of value that is not issued by a central bank. Instead, it uses blockchain technology to record transactions and create new units within a peer-to-peer network. Cryptocurrencies first appeared on the market in 2009 in the form of Bitcoin and were not well known internationally at the time. Over the years, however, cryptocurrency has grown in popularity as acceptance of the technology increased among users worldwide. It finally found its way onto the South African market in 2015. Cryptocurrencies are decentralised, self-governing and pseudo-anonymous, allowing them to bypass the customer identity requirements of the traditional financial sector. This creates a platform for criminal or illicit purposes for those seeking to evade compliance with financial laws, posing risks in terms of consumer and investor protection, AML/CFT, taxation and cross-border currency flows. Cryptocurrency does not only have an impact on payment and settlement systems, but also on the financial markets. It can be deduced from this that the development and gradual integration of cryptocurrency into the overall economy poses a threat to the traditional financial sector as long as cryptocurrency remains unregulated. Currently, South Africa has slowly taken the first steps to regulate cryptocurrencies following increased public interest and participation in cryptocurrency activities. Therefore, the study argues in favour of a comprehensive regulatory framework based on the assumption that bringing cryptocurrencies into the realm of regulation will eliminate the identified risks. Once they can be traced from user to user, cryptocurrencies will no longer be considered for money laundering purposes or the financing of illegal activities. The future of cryptocurrencies is uncertain, but their impact on the global economy and their growth potential are undeniable. Therefore, the need to regulate cryptocurrencies is imminent. From a South African perspective, the question naturally arises as to what extent the existing financial sector regulatory framework can accommodate and better govern the regulation of cryptocurrencies and their