The Blockchain Association of Kenya (BAK) has been given the mandate by the Kenyan Parliament to draft a bill that will regulate virtual asset providers (VAPs) in the country. This is a significant step towards creating a legal framework for the emerging digital economy in Kenya.

Blockchain is a technology that enables the creation and transfer of digital assets, such as cryptocurrencies, without the need for intermediaries or central authorities. Blockchain has the potential to transform various sectors of the economy, such as finance, trade, agriculture, health, and education. However, blockchain also poses some challenges and risks, such as cybercrime, money laundering, tax evasion, and consumer protection.

In Kenya, blockchain and cryptocurrency are not legally recognized or regulated by any specific law or authority. Previously the Central Bank of Kenya (CBK) has issued several warnings to the public about the dangers of dealing with cryptocurrencies, such as Bitcoin, Ethereum, and Dogecoin. The CBK has also advised banks and other financial institutions not to provide services to cryptocurrency companies or individuals. However, the CBK has not banned or prohibited the use of cryptocurrencies in Kenya.

The BAK is a non-profit organization that promotes the adoption and innovation of blockchain technology and digital assets in Kenya. The BAK has been working closely with various stakeholders, including the Central Bank of Kenya, the Capital Markets Authority, the Communications Authority of Kenya, and the Kenya Revenue Authority, to develop policy recommendations and best practices for the VAP sector.

According to a report by TechCabal, Kenya’s cryptocurrency transactions reached nearly $20 billion (KES 3 trillion) between July 2021 and June 2022. This makes Kenya one of the leading countries in Africa and the world in terms of crypto adoption and activity. Despite this, Kenya does not have a clear tax framework or revenue guidelines for digital assets.

The Finance Act 2023 introduced a Digital Asset Tax (DAT) provision that requires crypto traders to pay 1.5% of their gross transaction value as tax. However, this provision has been opposed by the Blockchain Association of Kenya (BAK), which argues that it is unfair, unclear, and impractical.

The BAK has proposed key elements for such a framework, including:

A clear licensing framework that defines the types and categories of digital asset service providers and their obligations and responsibilities.

A tax framework that recognizes the different types of digital assets and their characteristics and provides clear and consistent rules for taxation.

A consumer protection framework that ensures the safety and security of digital asset users and their funds and provides mechanisms for dispute resolution and redress.

An anti-money laundering (AML) and counter-terrorism financing (CTF) framework that prevents and combats the misuse of digital assets for illicit purposes and aligns with international standards and best practices.

A regulatory sandbox that allows for experimentation and innovation of digital asset products and services under a controlled environment and with reduced regulatory barriers.

The parliamentary committee has instructed the BAK to draft and submit a bill governing digital assets within two months. This is a unique opportunity for the BAK to partner with the government in shaping the future of blockchain and cryptocurrency regulation in Kenya. The BAK hopes that the bill will be adopted by parliament and enacted into law as soon as possible.

The BAK believes that blockchain regulation in Kenya is necessary and beneficial for both the government and the industry. Regulation will provide legal certainty, legitimacy, trust, and confidence for digital asset service providers and users. Regulation will also enable the government to collect revenue, protect consumers, prevent crime, and promote innovation. Regulation will also position Kenya as a regional and global leader in blockchain technology and adoption.

The VAP bill will aim to provide clarity and certainty for VAPs operating in Kenya, as well as protect consumers and investors from fraud and other risks associated with digital assets. The bill will also seek to foster innovation and competitiveness in the VAP sector, while ensuring compliance with international standards and obligations.

The BAK hopes to present the draft bill to the Parliament by the end of this year, after conducting extensive consultations and research with the VAP industry and other relevant stakeholders. The BAK believes that the VAP bill will be a milestone for Kenya’s digital transformation and economic development, as well as a model for other African countries to follow.

US Lawmakers introduces CLARITY act to prohibit Federal Officials from Engaging with Chinese Blockchain Firms

A group of US lawmakers has introduced a bill that would prohibit federal officials from engaging with Chinese blockchain firms or using their services. The bill, called the Clearing Local Authorities to Regulate and Inspect Technology from China and Yonder (CLARITY) act, aims to protect national security and prevent foreign influence on the US government.

The bill was introduced by Representatives Ted Lieu, Michael McCaul, and Tom Malinowski, who are members of the House Foreign Affairs Committee. They said that the bill is necessary to prevent China from using blockchain technology to undermine US democracy and values.

The bill’s sponsors said that the bill is necessary to protect national security and prevent foreign influence on the US government. They said that China is aggressively pursuing blockchain technology to advance its authoritarian agenda and export its digital surveillance state. They said that the US must not allow China to weaponize this technology against us or our allies.

The bill would require federal officials to disclose any engagement with Chinese blockchain firms or their affiliates and prohibit them from using their services or products. The bill would also authorize the Department of State to impose sanctions on any foreign person or entity that provides blockchain services or products to the Chinese government or its affiliates.

The bill defines a Chinese blockchain firm as any entity that is incorporated in China, has its principal place of business in China, or is owned or controlled by the Chinese government or a Chinese national. The bill also defines a blockchain service or product as any software, hardware, platform, protocol, or application that uses distributed ledger technology or cryptography.

The bill’s sponsors said that the bill is a response to China’s efforts to develop its own digital currency and blockchain infrastructure, which could pose a threat to the US dollar and the global financial system. They also said that China’s use of blockchain technology could enable censorship, surveillance, and human rights violations.

The CLARITY act is not the only bill that addresses the issue of blockchain technology and national security. There are other bills that have been introduced in the Congress, such as the Blockchain Innovation Act, the Blockchain Regulatory Certainty Act, and the Digital Commodity Exchange Act. These bills aim to promote innovation and regulation of blockchain technology in the US, while also protecting consumers and investors.

However, the CLARITY act is different from these bills in that it focuses on the specific threat posed by China and its blockchain firms. The CLARITY act is more restrictive and punitive than the other bills, as it bans federal officials from engaging with Chinese blockchain firms and imposes sanctions on those who do. The CLARITY act also covers a broader range of blockchain services and products than the other bills, which mainly focus on digital assets and exchanges.

“China is aggressively pursuing blockchain technology to advance its authoritarian agenda and export its digital surveillance state. The US must not allow China to weaponize this technology against us or our allies,” Lieu said in a statement.

The bill would require federal officials to disclose any engagement with Chinese blockchain firms or their affiliates and prohibit them from using their services or products. The bill would also authorize the Department of State to impose sanctions on any foreign person or entity that provides blockchain services or products to the Chinese government or its affiliates.

The bill defines a Chinese blockchain firm as any entity that is incorporated in China, has its principal place of business in China, or is owned or controlled by the Chinese government or a Chinese national. The bill also defines a blockchain service or product as any software, hardware, platform, protocol, or application that uses distributed ledger technology or cryptography.

“China’s digital currency and blockchain initiatives are part of its broader strategy to challenge US leadership and values. We cannot let China use this technology to erode our democratic institutions, undermine our allies, or violate human rights,” McCaul said.

The bill has been referred to the House Foreign Affairs Committee for further consideration. It is not clear if the bill has any bipartisan support or if it will advance in the legislative process.

What is the Blockchain Innovation Act and how does it compare with other bills?

The Blockchain Innovation Act is a bill that was introduced in the US Congress by Representative Darren Soto and co-sponsored by Representatives Brett Guthrie and Doris Matsui. The bill aims to promote innovation and regulation of blockchain technology in the US, while also protecting consumers and investors.

The bill directs the Department of Commerce (DOC), in consultation with the Federal Trade Commission (FTC), to conduct a study and submit a report to Congress on the state of blockchain technology in commerce, including its use to reduce fraud and increase security. The bill also requires the FTC to report on its authority and activities related to unfair or deceptive acts or practices involving digital tokens.

The bill’s sponsor said that the bill is necessary to support the development and adoption of blockchain technology in the US, which could create new opportunities for economic growth, job creation, and competitiveness. He also said that the bill would provide clarity and guidance for businesses and consumers who use blockchain technology.

“The study mandated by the Blockchain Innovation Act is a starting point meant to give government agencies a chance to make recommendations before any bills pass with a regulatory effect. These recommendations will perform an educational function to Members of Congress and will pave the way for more actionable blockchain-focused legislation,” Soto said in a statement.

The Blockchain Innovation Act is one of several bills that address the issue of blockchain technology and national security. Another bill is the CLARITY act, which stands for Clearing Local Authorities to Regulate and Inspect Technology from China and Yonder, and which aims to prevent federal officials from engaging with Chinese blockchain firms or using their services.

The CLARITY act is more restrictive and punitive than the Blockchain Innovation Act, as it bans federal officials from engaging with Chinese blockchain firms and imposes sanctions on those who do. The CLARITY act also covers a broader range of blockchain services and products than the Blockchain Innovation Act, which mainly focuses on digital tokens.

The Blockchain Innovation Act was passed by the House of Representatives in September 2020 as part of a larger consumer safety package. It has been referred to the Senate Commerce, Science, and Transportation Committee for further consideration. It is not clear if the bill has any bipartisan support or if it will advance in the legislative process.