As Uganda ponders how to regulate cryptocurrencies, market facilitator, Yellow Card, has expressed willingness to help formalize the market, currently saturated by a stock of informal players, some of whom are fraudsters.

Formalizing the market, Yellow Card says, would kick out wrong elements and create protection for the customers as the government works its way around regulation.

“When we investigated this market a few years ago, we found a large informal market, where people were buying crypto on WhatsApp groups and other informal markets, and therefore, formalizing and modernizing this market, in addition to creating protection for the customers is our target,” Jason Marshal, the Yellow Card chief operations officer recently told Business Vision.

Yellow Card is a US based crypto tech-startup, with several subsidiaries in Africa, including Uganda which is generally referred to as a crore crypto market.

Marshal says the decision to invest in structured technology to protect crypto investors in Uganda is based on the understanding that although the central bank hasn’t yet regulated the market, it will do so very soon, given the size and the growth trend of the market in Uganda.

Although it is not exactly clear how big the crypto market in Uganda is, experts put the volume of transactions at approximately $6b (sh22trn) by the close of 2022, but most of it remains in its crypto (digital) form.

Cryptocurrencies are a digital representation of value that has no legal status but could be digitally traded, and acts as a medium of exchange, a unit of account and a store of value. It is a form of a “cashless economy”.   

The currencies are based on a distributed ledger system, riding on block chain technology, which makes them secure and impossible to counterfeit.

According to Marshal, the company is in the process of incorporating tailor made solutions for the Ugandan market on its digital application, to provide an alternative for structured investment, and encourage other tech investors to do the same as well.

“When you look at the profile of some of these so-called crypto traders, they are merely Ponzi schemes, which have been around for more than 20 years, and they keep rebranding to look new, in order to waylay people’s investments. We must prove to the government, and all Ugandans, that crypto can be safe, in order to encourage regulation,” he said.

According to the (Yellow Card) director for product management, Ogochukwu Omeokafor, crypto is expected to play a major role in facilitating cross border payments on the continent, especially as the continental free market (AFCFTA) takes shape.

Ogochukwo Umeokafor, Yellow Card's product manager. (Photo by Benon Ojiambo)

AfCFTA is part of the African Union Agenda 2063 flagship initiative established to create an integrated continental market for goods and services and to support the movement of capital and natural persons.   

Full implementation of the agreement kicked off in January 2020 and is expected to reshape markets and economies across the region and boost output in the services, manufacturing and natural resources sectors. 

Omeokafor says because of this, borderless transactions are expected to gain on the continent in time, riding on the demographic dividend, where the median African age is recorded at 18 years, a very curious and digitally active age.

She says for instance, that over the past few months, the continent has seen a steep rise in crypto adoption, as more young people get to understand its dynamics.

She says majority of the youth are buying crypto, because of its stability compared to local currencies of most African countries against the US dollar.

“Everyone would like to keep their investment in a stable currency, the youth are simply using crypto to edge against the dollar. This is enough motivating factor to go into crypto, and in the next four years, we suspect the trade volumes on the continent are going to triple,” she says.

According to Martin Barungi, Pesapal Uganda Country Director, digital platforms have increasingly exhibited the potential to enhance financial inclusion and facilitate cross border transfers and drive competition among payment providers.

The rolling out of digital forms of money, such as crypto currencies has also taken the financial services sector by storm, leaving central banks at the crossroads, as they ponder how to deal with nontraditional forms of money.

“The best way forward now is for the central banks to work with us, by regulating the crypto space, because they can give the banking sector a lot of leverage. Remember, the world is moving from analogue to digital, and crypto is native to the digital world,” he says.

At the moment, he says, more people are realising through research, that if crypto is regulated, and put on the payment rails of the national system, it could have many use cases, and quickly become a phenomenon, especially among the urbanites.

The currencies are increasingly playing a significant role in the development of technology-driven markets, and as the country shifts the economy into a digital space, these are expected to become more significant. 

Mobile money, visa payments, crypto trading and other electronic transactions have taken center stage in revolutionising the financial services sector, especially in the wake of changing customer preferences and tech aided convenience.

Fintechs have played a major role in not only digitizing, but transforming the way customers interact with the market and financial institutions.

According to Noah Baalessanvu, Head of Technology at CryptoSavannah, the needs of the world today are demanding cheaper, trusted and sustainable ways of moving money, thus creating space for technologies that facilitate payments to thrive.

At the moment, he says, it costs about 1.5% to send and withdraw money using mobile money, which is still expensive to many users.

“What tech developers are doing is to build systems that are more resilient to structural weaknesses in the current financial system, which in my opinion, should be supported by the central bank,” he says.

He says because cryptocurrencies are rooted in cryptography and blockchain security, decentralized cryptocurrencies are therefore secure forms of payment.

But over time, government through the central bank has warned Ugandans to tread with caution in the crypto markets, because of associated risks, since the market is unregulated in Uganda.

Dr Adam Mugume, the director of research at the Bank of Uganda says at the moment, the use of cryptocurrencies is risky both to the investor and the economy, as they do not protect the private rights and interests of users, consumers and the government.

“We are certainly not ready to use this kind of vehicle to drive our economy at the moment, because it is still very risky. Without regulation, these kinds of exchanges are open to abuse by criminals, including terrorists, and without infrastructure, it becomes hard to efficiently trade due to data limit constraints,” he says.