A Regulatory Approach to Crypto-Currency in South Africa

Abstract

Payment settlement systems are constantly developing, however, the emergence of Bitcoin in 2009 created a whole new ball game for regulators. This new type of currency did not play by the same rules as other currencies, with the crypto-currency being borderless (not created by any country) and transferable almost instantaneously. Further, its users remained anonymous.

This currency therefore became a breeding ground for illegal activities and disappointment. Users of the currency could use it as a form of payment system for illegal activities, by completely circumventing financial regulators. Other users took advantage of the lack of knowledge surrounding this new type of currency, running Ponzi schemes and defrauding ignorant users of their crypto-currency. Then there were the unfortunate users who, attracted to the notion of reaping large profits from the volatile nature of the currency, often found themselves disappointed when the volatile nature of the currency resulted in large trading losses.

Crypto-currency is not all that bad however. Although many risks exist with this new type of currency, there also exist benefits which conventional fiat currency cannot provide. Regulators are therefore placed in a tricky position in which they must try to regulate this new currency to mitigate the possible risks without completely side-lining the benefits posed by the currency.

However, regulators cannot create legislation without first understanding how crypto-currency functions. The ever-growing popularity of crypto-currency requires that regulators act fast but also provides many global regulatory lessons which South African regulators can learn from and use in drafting the appropriate legislation.

This dissertation considers the nature of this new currency, the way in which it functions and the risks which it comes burdened with, while looking at other regulatory approaches in order to propose legislation which should be adopted in South Africa.