In June, Ethiopia joined the league of crypto-antagonist countries when its central bank issued a statement call illegal crypto transactions and warn people to avoid using them. The bank claimed that only birr, the national currency of Ethiopia, could be used to settle transactions in the country.
But now, less than three months after that statement, the Ethiopian government seems to have a second thought. Instead of excluding cryptocurrencies, he wants to regulate the space. Therefore, it gave a 10 day ultimatum for cryptocurrency operators to register with the national cybersecurity agency, the Information Network Security Administration (INSA).
The move makes Ethiopia the second African country to reverse a hostile stance on crypto this year. At the end of June, Morocco became the first member of the MENA region to reverse his crypto ban. Morocco has sought to reduce social risks such as terrorist financing and money laundering while promoting innovation and consumer well-being.
In the case of Ethiopia, it is rather a fight against cybercrime and fraud. Through its registration system, Ethiopia wants to be the first African country to offer investors protection against criminal crypto businesses from a cybersecurity perspective. INSA announced in June that it had thwarted 97% of cyberattacks against various institutions in the country since July 2021, save the nation $26.3 million.
“There is interest among individuals and entities to provide crypto services, including mining and transfer,” INSA said while warning to prosecute players who fail to register.
Cryptocurrency exchanges can become targets of cybersecurity hacks because they process and hold large volumes of digital assets. The most notorious example is the multimillion dollar hack of a Japanese crypto exchange Mt. Gox in 2014. In December 2021, hackers made of with 200 million dollars from Bitmart, another trading platform. The FBI’s Internet Crime Report shows that the illicit use of cryptocurrency is among the top three cybercrime incidents reported worldwide.
Cybersecurity awareness is increasing in African countries. Togo makes a notable example of an African nation taking proactive steps to secure activity in cyberspace. However, no one focused on hidden cyberattacks in online crypto markets. Ethiopia wants to lead this front, and it has good reason: it cannot prevent people from entering the market.
What is driving the growth of crypto in Ethiopia?
Despite the government’s frown on cryptocurrencies, Ethiopia has not slowed crypto adoption. The country has the seventh largest number of crypto holders in Africa, with 1.8 million bitcoin merchants.
Ethiopians are looking for alternatives to their weakening currency. In June, the central bank said it had detected an increase in the use of cryptocurrencies and other virtual assets and warned against it. But that same month, the Ethiopian birr lost 26% its value against the dollar on the black market.
Cryptocurrencies give easy access to the dollar, which has been scarce in Ethiopia. Importers have turned to the informal market for their dollars because the government has reduced foreign exchange allocations to the private sector. Therefore, there is an increasing trade-off. The birr trades at 52.5 to the dollar in the official market but 82 to the dollar in the informal market.
A civil war erupted in late 2020, costing Ethiopian donor support and duty-free access to US markets. Recently, civil war resumedtherefore, the dollar is unlikely to become cheaper anytime soon.
More so, Ethiopian inflation is spiraling out of control. Annual inflation jumped to 37% in April – its highest level since November 11 – before falling back to 33.5% in July. Ethiopia has the third highest inflation rate in Africa, by statistics.
A necessary truce
The popular narrative about cryptos is that they are censorship resistant. But although it may have its the good sides, Ethiopia is not wrong to worry about the safety of users. In May, Uganda carried out a campaign of repression throughout the country on payment providers facilitating crypto transactions after 5,000 victims lost an estimated $2.7 million through Ponzi schemes. Between October 2019 and February 2020, five cryptocurrency companies in Uganda shut down, taking $26 million in client funds.
However, Ethiopia cannot make the same drastic decisions as it could backfire. Although it seems skeptical of digital currencies, Ethiopia is exploring innovative uses of blockchain technology. Last year, Cardano, one of the biggest blockchain companies, in partnership with the Ethiopian government to build a national identity system with blockchain technology. And although there were many backlash against Cardano’s operation in the country, Ethiopia should adopt a wait-and-see strategy. So having oversight is a necessary truce with the crypto space for Ethiopia while it figures out where to stand.