Regulating cryptocurrency represents a challenge for many countries and the technology is still considered illicit in some countries. Since the mysterious “Satoshi Nakamoto” invented Bitcoin, the first digital currency in 2009, many other cryptocurrencies have been created. The main characteristic of these currencies is that they do not require a central bank to exist, but rather depend on decentralized computer networks and an internal protocol. After the collapse of the global banking economy in 2008, the idea of this type of currency generated a lot of interest, which does not depend on central banks or governments like the conventional currency.
Cryptocurrencies cannot be forged and the transactions carried out are recorded in electronic accounting books, so that the same “currency” is not used twice by the same person. Users and transactions are anonymous, of both only a numerical record remains. This inherent flexibility and ability to transfer large sums of this type of money anonymously makes them valuable for many operations, even for illicit activities. Therefore, the state needs to regulate cryptocurrencies to prevent malicious people from misusing them and to resolve conflicts that arise between those who use them to trade.
It may seem like an odd concept for a government to regulate a system that boasts of having no state interference, but due to the increase in its use, many countries had to try to understand how this system works and create policies to regulate cryptocurrencies. Sudan, a nation where some tech-savvy groups and startups have started embracing cryptocurrencies, needs such a legal framework.
Over the course of recent years, many sectors of the country have embraced cryptocurrency. The best example is Softwex, a web hosting company run by Sudanese entrepreneurs, which uses Bitcoin as a payment system. The company also organizes Bitcoin workshops and through social media provides information about it. The Sudanese group Bitcoin Meetup was founded in 2013 and has over 2,800 members. According to a QBIT Times interview with Mohamed Osman Elawad, co-founder of the group, digital currencies are particularly popular with young programmers, so members of the group actively work to make the system viable for transferring money out of the country and acquiring goods abroad. One of the reasons Elawad thinks digital currency can be used in Sudan is because it is a “sanctioned country” and because there is a government-imposed ban on trading in unauthorized foreign currency. “Therefore, remittances are not easy to carry out and involve a high cost through official channels, this makes cryptocurrency the easiest and most affordable way to transfer money.”
A published study corroborates Elawad's analysis by explaining how cryptocurrency has been used to circumvent the economic sanctions that the United States imposed on Sudan in 1997, which prohibit banks from transferring money to Sudan from abroad; however, there are no figures or published studies that estimate the amount of funds transferred.
Cryptocurrency was also an issue that was addressed in the last electoral campaign, when one of the presidential candidates proposed adopting it as a strategy to democratize financial policy. In a country with only 31% internet penetration, however, this sounds unrealistic at this point. Still, the acceptance of Bitcoin by users in Sudan has also been high. In a report recently published by Bitcoin Magazine which analyzed the traffic to cryptocurrency exchanges, mentions Sudan as one of the countries that “showed a high demand for cryptocurrencies, despite the low volume of commercialization.”
Regulating cryptocurrency is not an easy process. The governments that tried it have faced many challenges, from giving an adequate classification for this type of currency. This year, for example, the authorities in France, Germany and Australia “issued resolutions with three different interpretations of the nature of Bitcoin: as a currency, as a financial instrument that is implemented as a means of exchange between natural persons or legal entities and as value”. In Russia, the new legislation defined it as a “good that is not a legal tender”. Central banks around the world differ in their positions, from prohibiting trading using cryptocurrencies to simply issuing warnings.
Those who advocate regulating cryptocurrency cite many examples where it can be used to commit criminal activity. Allen and Overy listed examples that include human trafficking, child pornography, cyberattacks and identity theft, market manipulation, and fraud and money laundering, generally given their intrinsic nature of anonymity and border crossing. The regulation also offers the legal framework to tax people who sell and exchange cryptocurrencies. Regulating them will also benefit and protect the financial system in the event of any systematic risk that manifests itself as a consequence of a cyber attack. The report against money laundering and crimes committed with cryptocurrencies of the second quarter of 2020 mentioned that in the “first months of 2020, crypto thefts, cyber attacks and fraud amounted to 1.36 billion dollars, suggesting that 2020 could see the second highest value in crypto crime ever recorded ”.
Some argue that regulation goes against the basic nature of decentralization and, any attempt to establish a legal framework “will end only in tears, stifles innovation and puts digital currencies at a disadvantage when it comes to becoming monetary units, something that central banks are determined to protect ”.
According to the Central Bank of Sudan (CBoS), there are 34 banks registered in the country's banking system. The Electronic Banking System (EBS) is a company that operates under the supervision of the Bank of Sudan; offers an electronic payment system that includes debit and credit cards and payments through mobile phones. The current legal framework contemplates electronic payment in general but does not include cryptocurrencies, since the Electronic Transactions Law of 2007 was enacted before these virtual currencies emerged. However, this Law still contains many energetic measures, such as the protection of the confidentiality of the information and the details of the electronic contracting process.
In June 2010, Sudan joined the Better Than Cash Alliance, a move in line with the Government's Digital Transformation Agency, which aims to modernize government services and the payment system. This new environment and digital change in culture may contribute to a future adoption of cryptocurrency at the state level.
Given that only about a third of the Sudanese population has access to the internet, cryptocurrencies may not be a payment alternative for much of society, and their adoption may be limited to some areas, such as the capital, Khartoum, and within of technology companies and investors.
Regulating cryptocurrency in Sudan will ensure more security for all stakeholders, it will also protect the country from harmful use and illicit activities. In addition, it will provide the necessary legal framework for the Government and development organizations to adopt cryptocurrency in their future projects. This is the reason why regulators, such as the Central Bank, should initiate a frank discussion with companies and user communities to amend the current law to include articles regulating cryptocurrency.