- Of all transactions made with cryptocurrencies in 2021, about 0.15% were associated with some type of illicit activity.
- It is important for users to use cryptocurrencies and invest wisely.
There are several risks involved in the cryptocurrency sector in Africa. The Star Newspaper's Victor Amadala had a chat with Binance'sNils Andersen-Röed, head of Intelligence and Investigations, EMEA on how they can be contained.
Current risks and opportunities around crypto
Firstly, I’d like to share some facts about cryptocurrency-related risks in comparison to risks in the traditional financial sector.
According to Chainalysis, a blockchain analysis company, of all transactions made with cryptocurrencies in 2021, about 0.15 per cent were associated with some type of illicit activity.
In the same period, according to a report from the United Nations Office on Drugs and Crime (UNODC), two to five per cent of the world's Gross Domestic Product (GDP) was estimated to be associated with illicit activities, using traditional financial services and fiat currency.
Similar to risks with investing in traditional financial products, there are risks associated with cryptocurrencies, however, these tend to be overstated.
It is important for users to use cryptocurrencies and invest in cryptocurrencies wisely.
People need to know how cryptocurrencies work and what type of tokens, products, or projects to invest in and how they function.
It is also important to practice good security hygiene, ranging from protecting seed phrases to using strong passwords, and to be aware of projects or investments that look too good to be true as they might be scam investments.
Binance helps to close the knowledge gap. Through our education initiatives, Binance is dedicated to helping educate users on basic crypto best practices, including wallet hygiene.
For instance, since the launch of the Binance Masterclass programmes, we have educated over 600,000 Africans on the fundamentals of cryptocurrencies, how to identify scams and safeguard their crypto journey.
Partnerships with Law Enforcement (LE), private sector organisations and cryptocurrency tracing companies to protect users is another great opportunity.
For instance, we are currently collaborating with law enforcement and private sector groups on projects involving cryptocurrency scams, ransomware, terrorism financing, and child sexual abuse material.
We work hand in hand with these groups to undertake preemptive investigations, support ongoing ones, and provide outreach and training.
In addition to this, it's crucial to establish channels for international cooperation in order to share knowledge and best practices in tackling cybercrime.
Most importantly, the immutable ledger of the blockchain provides the greatest opportunity for user safety and crypto security and we use this knowledge to keep our platform safe and protect our users.
Crypto makes a poor choice for money laundering because it allows law enforcement and our own investigators in the Investigations team to uncover and trace illicit activities far more easily than cash transactions.
The public blockchain record means that the platform has greater transparency and more information on the source of funds than traditional financial institutions, making it easier to track and trace.
You simply cannot move large sums of money into crypto without people noticing.
Emerging risks and opportunities associated with Central Banks promoting Central Bank Digital Currencies (CBDC)
We welcome CBDC and it is great to see that policymakers now understand the value proposition and transformative potential of digital currencies.
For instance, CBDC can be a vital step toward financial inclusion when geography prevents physical banking.
On the other hand, because CBDC’s are controlled by a single entity, privacy concerns are a potential risk when it comes to CBDC legislation and adoption.
As a result, policymakers must strike the right balance. We will always support smart regulation as it encourages innovation and helps keep users safe.
Strategic investments to mitigate risks
As cryptocurrency continues to enable Kenyans to generate wealth, my advice is to stay engaged and attentive to changes in the space.
With more people being interested in and entering the space in the region, education is key.
Education has been shown to be instrumental in mitigating risks associated with these technologies by educating users on how to identify scams.
Additionally, taking part in key innovative initiatives like Binance’s Global Law Enforcement Training Programme, is a great way to help law enforcement and the judiciary in the region detect related crimes.
Besides training, law enforcement will also need to invest in blockchain analysis tooling that will enable them to follow the cryptocurrencies across the blockchain.
As regulators have shown an interest in the space, I believe continuous collaboration with industry stakeholders and involving crypto companies in policy formation can help to mitigate these risks.
Additional issues facing the crypto space
Though the numbers are, compared to the traditional (fiat) financial crime, relatively low we do see that cryptocurrencies are being used by criminals.
This ranges from cybercrime to terrorism financing or drug trafficking and the sale of child sexual abuse material.
Sophisticated transaction monitoring systems that detect incoming transactions that are related to illicit activities and prevent transactions to addresses related to illicit activities could be a solution.
On top of that having fiat transaction monitoring systems that screen for money laundering-related activities, sanctions screening systems and onboarding checks also could help to prevent crypto platforms from being used by illicit actors and by doing so protect the users.