Why Banning Cryptocurrencies in Ethiopia Is a Right Move











By- Lewoye Bantie

Cryptocurrency (crypto) is defined as a decentralized digital currency intended to be used in buying or selling goods and services. Cryptocurrency is currently at the frontier of financial development. It provides both opportunities and risks in financial markets and has attracted significant attention in recent years. Accordingly, the number of market players involved in the cryptocurrency business has risen.

Although many central banks issue warnings about the use of cryptocurrency and have explicitly denied its status as a currency, only a few have banned its use as a financial asset. Policy makers are concerned about the low liquidity, the use of leverage, market risks from volatility, and the operational risks of cryptocurrency. Many central banks emphasize that cryptocurrency is not legal tender and that users face the risk of unenforceability of cryptocurrency transactions.

The Global Research Center (2018) compiled regulations on cryptocurrency and its report shows that, in countries where cryptocurrency is allowed, it can be legally traded as long as it follows existing rules or laws related to financial instruments. Regardless of the regulatory stance, policy makers are wary that cryptocurrency would be used for illegal activities, such as money laundering, trade in illegal or controlled substances, or terrorism finance. Policy makers are also aware of the potential lack of consumer and investor protection. Deposit insurance for holders of cryptocurrency is limited and not supplied by domestic monetary authorities. The combination of its potential benefits as well as macroeconomic risks begs the question of what determines policy openness or aversion to cryptocurrency.

Uncertainty over security, the legality of its transactions, and the extent of consumer and investor protection has kept policy makers wary about its operations. Because of this, many central banks around the world try to inform the public about the difference between legal tender, which is backed by their central bank, and cryptocurrency, which is neither backed by the domestic nor other foreign monetary authorities.

Furthermore, the combination of the speculative nature of cryptocurrency and its lack of supervision poses a threat to both investors and consumers. Although the cryptocurrency market itself is not large enough to pose a global risk at this time, it may still pose risks to consumers and investors in smaller countries where cryptocurrencies are being used.

Cryptocurrencies are rapidly gaining popularity, but not everyone is on board, since several governments have outlawed dealing and trading in these digital tokens. While there are apparently over 5,000 recognized cryptocurrencies in the world today, analysts and experts are still anticipating a rapid rise in the value of Bitcoin, the world’s oldest and most valuable cryptocurrency, with only a few months remaining in 2021. However, while some nations, like as India, are fast expanding their crypto markets, others, such as China, Russia, and Bangladesh, have been breaking the code.

China ban cryptocurrency before two months ago. he decision was made in favor of reducing energy prices and greenhouse fuel emissions associated with crypto transactions. The other country Egypt believes that cryptocurrencies might be harmful to the national security and economic health of the country.

According to a source, the Ethiopian central bank has advised citizens against engaging in “illegal” cryptocurrency transactions. The central bank, according to the article, still does not recognize cryptocurrencies such as bitcoin as a payment mechanism.

In Ethiopia cryptocurrencies are primarily used for money laundering schemes. In recent period there were increasing online money laundering schemes. As a digital technology, cryptocurrencies will be subject to cybersecurity breaches, and may fall into the hands of hackers. We have already seen evidence of this, with multiple ICOs getting breached and costing the country millions of dollars in different mechanism as the account is has not KYC.

While cryptocurrencies have become widely known and are still gaining in popularity, it’s worth remembering that they have only been around for just over a decade. The concept only really emerged with the publication of a white paper on Bitcoin in 2008. Nobody really knows what will happen to cryptocurrencies in the future and you need to be brave to enter these uncharted waters as an investor.

If a hard drive crashes, or a virus corrupts data , and the wallet file is corrupted, Bitcoins have essentially been “lost”. There is nothing that can done to recover it. These coins will be forever orphaned in the system. This can bankrupt a wealthy Bitcoin investor within seconds with no way form of recovery. The coins the investor owned will also be permanently orphaned. Since there is no central authority governing Bitcoins, no one can guarantee its minimum valuation.

If a large group of merchants decide to “dump” Bitcoins and leave the system, its valuation will decrease greatly which will immensely hurt users who have a large amount of wealth invested in Bitcoins. The decentralized nature of bitcoin is both a curse and blessing. Since Bitcoins do not have a physical form, it cannot be used in physical stores. It would always have to be converted to other currencies. Cards with Bitcoin wallet information stored in them have been proposed, but there is no consensus on a particular system. Since there would be multiple competing systems, merchants would find it unfeasible to support all Bitcoin cards, and therefore users would be forced to convert Bitcoins anyway, unless a universal system is proposed and implemented.