The use of cryptocurrency, like Bitcoin, is legal in South Africa but largely unregulated, making it important to protect yourself and remain alert to hackers like with any other online financial platform. A new and largely untested market, cryptocurrency is still in the early stages of its development which is why it offers so much opportunity for gain and returns not only for genuine investors but sadly for scammers as well.
Although the above may be true, we have to remember the potential and very real dangers and risks we face with cash, cards and online banking too. Cloning, theft, phishing, hacking, to say the least. This is not true with CryptoCurrency.
Bitcoin is still a contentious issue for regulators and legal practitioners too, who themselves are still trying to understand it at this early stage in the game. Currently, cryptocurrency is unregulated in South Africa with the South African Reserve Bank issuing warnings that Bitcoin has no legal statues or regulatory framework and so Bitcoin still falls outside of the definition of a legal tender. Concerns remain regarding the decentralised nature of the currency.
Ultimately, the legality of your Bitcoin activities depends on who you are and what your intentions are for using it. According to experts in cryptocurrency, the only safe place to store your Bitcoin is in a wallet you control. Leaving your Bitcoin on an exchange is not considered a safe way to store your them since exchanges are still a huge target for hackers and are constantly under attack.
With Bitcoin often used anonymously, it creates a huge opportunity for money laundering and provides rich pickings for criminals to use Bitcoin for illegal activities without being traced.
For example, The Silk Road was an anonymous marketplace that can only be accessed over the TOR anonymous browsing network. Bitcoin was used as its preferred currency when trading on the site and used to sell goods that are illegal in many countries until it was shut down by the US law enforcement.
Regulations and laws differ from country to country, but Bitcoin is of interest to financial regulators as a virtual currency. In South Africa Bitcoin falls under the Financial Intelligence Centre Act 38 of 2001.
There are three main stakeholder categories regarding the use of Bitcoin with each category seeing its own legal deliberations. These are individuals, transmitters and miners. Individuals refer to users who acquire Bitcoins and either save or spend them. Under the FinCEN guidance, these users are using Bitcoin legally. However, users who are involved in creating Bitcoins and exchanging them for fiat currency are seen as ‘money transmitters’ and are not safe under the law. This also applies to miners, but further clarification may be required.
In an attempt to self-regulate, some companies created a committee to form a self-regulatory body called DATA, designed to encourage open conversation with regulators.
In the same vein, the Bitcoin Foundation formed committees to offer legal guidance, steer policy, and liaise with regulators and exchanges in an attempt to secure MTB licenses at the state and federal levels, and some have avoided doing business with US customers until this is resolved.
Currently, Germany is the most advanced in regulating Bitcoin and virtual currencies despite there still being a few issues as yet unresolved. The German government has exempted Bitcoin transactions held for over one year from 25% capital gains tax and has categorized Bitcoin as a form of private money.
According to a Reserve Bank white paper on Bitcoin and Crypto Currencies, Decentralised Convertible Virtual Currencies are not legal tender, but this definition only covers legal tender defined as notes and coins issued by a bank. Since Bitcoin and DCVC's are not physical currencies it, therefore, falls outside of this definition. Regarding import payments, there is no need to report any foreign trade payments made in DCVC's, even if over R50 000.
South African residents are afforded a foreign capital allowance of R4 million per calendar year. Should investors choose to acquire DCs in terms of their foreign capital allowance, they do so at their own risk and have no recourse to South African authorities. This means you can use DCVC's to send funds overseas provided it doesn't exceed your annual per person allowance.
The South African Reserve Bank states: "The Bank does not oversee, supervise or regulate the VC landscape, systems or intermediaries for effectiveness, soundness, integrity or robustness. Consequently, any and all activities related to the acquisition, trading or use of VCs (particularly DCVCs) are performed at the end-user’s sole and independent risk and have no recourse to the Bank."
These are simply old laws for a new era, and we will need to allow these institutions to become comfortable with what they simply don't yet understand.
Be warned therefore that investors have no recourse as there is no bank, no documentation and no one around to hold liable. It good to remember that if the return on investment seems too good to be true, it usually is.
The South African government is currently looking into regulating the cryptocurrency industry. With cryptocurrencies not considered legal tender – according to the SARB’s definition legal tender is simply the notes and coins that are officially issued by a bank – the SARB does not have any objection to the use of cryptocurrencies for the purposes of trading and in exchanges, meaning you are free to trade and exchange Bitcoin and other cryptocurrencies in South Africa.
Bitcoin can be converted to legal tender, just in the same way we use tokens or gift vouchers, but not as a legal form of payment. As with all technologies, hacking remains a very real possibility. If you are considering trading, buying or selling Bitcoin or other cryptocurrencies, remain alert to hackers as you would with any other online financial platform.
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