The United Nations has asked Kenya to regulate cryptocurrencies.
In its proposals, the UN also wants GoK to tax gains made from cryptocurrency trading, and it is not hiding it, ‘to make the sector less attractive’.
What the UN is missing is that the move towards regulation and taxation of crypto requires recognition first.
Kenya has been adamant to do this, knowing the risks cryptocurrencies, especially Bitcoin, presents to the global central-bank printed currency.
Kenya is cash-strapped and is looking at ways to shore up its financial baskets.
This is seen in the manner in which the country lives from hand to mouth as the collected revenues are depleted by the huge wage bill, recurrent expenditures and loan repayments.
GoK might be desperate for cash. But a proposal to tax crypto will worsen the situation.
Some entities already know the situation is dire by looking at reports, the manner in which the Kenya Revenue Authority (AKRA) acts with businesses that have defaulted on their tax payments and the introduction of new laws to net tax cheats.
Currently, KRA has given businesses up to the end of July 2022, to install electronic tax registers that give real-time data on sales and tax collection to Times Towers.
The above is contained in the Value Added Tax (Electronic Tax Invoice) Regulations, 2020 – KRA.
The manner in which KRA has acted to increase the tax net has pushed some entities out of business.
Recently, KRA collected the most revenue in its history.
The authority collected Ksh2.031 trillion for the 2021/2022 Financial Year compared to Ksh 1.669 trillion collected last year.
What about crypto?
In Crytpo, there’s a funny saying; ‘when the government comes knocking, I’ll say I lost my crypto in a boating accident’, meaning ‘I don’t have any’.
Of course, the UN, govt, Safaricom and banks have done the research and know too well how much the Peer to Peer (P2P) sales of crypto is worth.
But as the above saying goes, crypto traders will be more cautious to use other ways to transact other than banks or/ and Safaricom’s MPESA.
Many will use some other payment apps to do transactions.
But the govt is big and knows how to be incessant in its quest for revenue, they might force the cryptocurrency exchanges operating in Kenya to share all the data of Kenya or close shop.
This is where cold storage comes in.
In the crypto world, the term cold storage means, transferring or saving your crypto assets in an offline wallet, usually in a flash disk or such, which are specially made for that purpose.
In the beginning, when Bitcoin was the only crypto, it was not easy to transact for most people. It was a geek paradise, where those who knew how to mine, store and transfer were few.
We had a marketplace that was formed in those early days known as Silk Road. On Silk Road, users could post items for sale, from drugs, guns, utensils etc. It was kinda dark webbish, but thrived and pushed the use of Bitcoin.
There was no central exchange, Bitcoin exchange was purely P2P.
Enter the age of centralized exchanges, many things have been simplified and it is easier to transact. Mining is now done only by huge companies who use millions per month in electricity bills to mine and keep the network safe.
However, while centralized exchanges like Binance, Gate, Cryptocom made it easier to trade Bitcoin, the coins are held in trust by the users.
This is risky because it employs the same mechanism commercial banks do with fiat (Central Bank printed) money.
When banks go under, people lose their money.
In Centralized Crypto exchanges, when the exchange goes under, people lose their crypto assets. This happened in the early days when Mount Gox Exchange was hacked and over 700,000 Bitcoin were stolen. That much remains under the control of the hackers. (As soon as they move it, it is locked by a centralized exchange since the data is publicly available on the Block Explorer).
This was not the vision of Satoshi Nakamoto, the founder of Bitcoin. He built a system that would be fire-proof to manipulation that was witnessed with central bank printed money in 2008 when the global economy collapsed.
Cold storage and pure P2P exchanges that are decentralized are better at this.
With the introduction of regulations and taxes in Kenya, we might witness a new rise of ‘silk road’.
The activity of converting Bitcoin or other cryptocurrencies to fiat for personal use will become minimal, even disappear altogether.
KRA will have an egg on their faces.