Crypto-currencies and financial sector | The New Times

Crypto-currencies are digital currencies that use encryption techniques to regulate the generation of units of currency and verify the transfer of funds. It has been created as an online version of cash for enabling transaction without government interference. Over past three years usage of crypto currency has become quite popular. Usage of crypto currencies has registered significant growth due to their unique characteristics like being difficult to counterfeit and again they are not controlled by monetary authority of a country.

Recently crypto-currencies such as Bitcoin and Ethereum usage in performing online transactions has been on the rise all over the world. Some other popular crypto currencies are LiteCoin and XRP.

Crypto-currencies are used as cash as they have some features of money like being used as medium of exchange and acceptability but they suffer from limitation of being virtual or digital, meaning that there is no physical coin or bill that owners of the currency possess. They can be sent directly between two parties through private and public keys.  These transfers can be done with minimal processing fees, allowing users to avoid the steep fees charged by traditional financial institutions.

Risks of crypto-currencies

Crypto-currencies are combination of financial instruments and a Web-enabled network. They are prone to technological and financial risks. Crypto-currencies are more like a speculative instrument. Today crypto-currencies are generally held as investments by people who expect their value to rise. Some crypto-currencies have risen in value but many have dropped considerably.  Increase in their usage over past few years will create financial bubble due to its volatility. The volatility of the value of crypto-currencies is extremely high both in terms of value and usage. Thus Crypto-currency market requires management of both financial and technical risk in order to avoid volatility in their value and for strengthening cyber-security. Crypto-currency also suffer from high level of liquidity risk.

Affect on Financial sector

There has been a debate on influence of Crypto currencies on financial sector. Some experts from industry assert that their circulation and adoption will in future affect competitiveness of financial sector. Bank of America Corp. listed crypto-currencies among the risk factors that could impact the bank’s competitiveness. Crypto-currencies like bitcoin by providing secure store of value, trust less peer-to-peer payments and having complete monetary independence are becoming quite popular that could be a threat to financial sector. Other upcoming crypto-currencies are also likely to make impact on financial sector through their new projects focusing on helping the unbanked, making block chain technology more scalable, and providing functional interfaces.

Some experts still believe that crypto-currency are not threat to financial sector due to their volatility and low level of acceptance among businessmen and traders.


Experts believe that Africa in future will be popular destination for Cryptocurrencies especially high inflation countries like South Sudan, Egypt, Ghana, Malawi, Mozambique, Nigeria, Zambia and Zimbabwe.  Among Various Crypto currencies, Bitcoin is most popular cryptocurrency in Africa. According to some countries using Bitcoin in Africa are Botswana, Ghana, Kenya, Nigeria, South Africa and Zimbabwe. According to BBC cryptocurrency is gaining ground in Uganda.

According to Emmanuel Tokunbo Darko, vice president of marketing for, Zimbabweans and citizens of other African countries like to transact in Bitcoin as opposed to their local currencies plagued with hyperinflation.

 Due to increase in digital adoption in terms of infrastructure and skills African continent has high scope for growth of Crypto Currency. According to the GSM Association, there will be 725 million mobile phone subscribers in Africa by 2020.


Crypto-currencies have become very popular among in short period of time. Despite of many good features these currencies cannot be left uncontrolled and unregulated. They need to be regulated by some institutional framework to reduce their volatility. Most crypto experts agree that regulation is needed in the crypto-currency space to protect consumers and prevent scams.

In order to protect financial sector some countries may block use of crypto-currency, while others try to restrict its usage. Israel is developing regulations designed to treat crypto-currency as a sector of its financial services industry, with guidelines that will force transparency and provide consumer protections. Australia, Canada, and the Isle of Man recently enacted laws to bring crypto-currency transactions and institutions that facilitate them under the ambit of money laundering and counter-terrorist financing laws.  

Some countries like Bangladesh, Iran, Thailand, Lithuania, Lesotho, China, and Colombia imposed indirect restrictions by barring financial institutions within their borders from facilitating transactions involving crypto-currencies.

Dr Jaya Shukla is a lecturer at Mount Kenya University Kigali

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