🟠 Crypto sues the government

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Blockchain Association of Kenya drags government to court over new crypto tax

Topline: The Blockchain Association of Kenya (BAK), on Aug. 31, submitted a petition to the High Court of Kenya to contest the digital asset tax amendment within Kenya’s Finance Act 2023. (Details)

Key context: Last Friday, the Kenyan government rolled out a fresh digital asset tax.

• The tax requires Kenyans to pay 3% of the “income derived from the transfer or exchange of digital assets.”

What they said: BAK believes that the newly introduced regulation is strict and could stifle growth and innovation within the industry.

• The trade body intends to examine the constitutional grounds for the government’s decision.
• The organization filed the petition before Honorable Lady Justice Mugure Thande of the High Court of Kenya and is scheduled for hearing on Sept. 28.

Exclusive info: In a chat with Mariblock, S.A. Kakai, BAK’s legal director, highlighted the organization’s concerns about the suit.

• One major concern fueling BAK’s dissatisfaction is the calculation of taxes based on the total asset value exchanged, irrespective of whether these exchanges result in a profit or loss.
• Kakai added that the five-day ultimatum given to exchanges to remit taxes collected is impossible at best.
• He noted a conflict between the new law and the Central Bank of Kenya’s (CBK) stance on cryptocurrencies. The Bank doesn’t recognize cryptocurrencies and has even closed accounts tied to crypto transactions.

“It is impossible for the tax agents to comply with the tax remittance obligations given that the cautionary notices issued by the [CBK] are still in place. Tax can only be paid in Kenyan shillings through Kenyan bank accounts,” he said.

Worldcoin probe: A web of controversies

Topline: The Worldcoin project has been mired in controversy from the outset, and the latest update is no different.

First, the Kenyan parliament established a 15-member committee to probe the decentralized digital identity project, granting it a 42-day window to conclude the investigation. (Details)

• The parliament summoned Cabinet Secretary Kindiki Kithure and ICT’s Eliud Owalo over conflicting statements on Worldcoin.
• Owalo claims no Kenyan laws were violated, as they’ve been aware of Worldcoin since April.
• Kithure suspended Worldcoin due to privacy and security concerns, citing potential Data Protection Act breaches and privacy violations of Kenyans.

Investigation highlights: Upon further scrutiny, the committee found that over 350,000 Kenyans signed up for the Worldcoin project within a week of its launch. (Details)

• David Njoga, Kenya’s head of cybersecurity, policy and standards, also disclosed that Worldcoin’s entry into Kenya did not follow due and legal procedures.
• He claimed the parent company, Tools For Humanity, disguised itself as a research entity before transitioning to data processing.

More controversies: The data storage location was another conflicting aspect of the project.

• Njoga contradicted Data Protection Commissioner Immaculate Kassait, who had said the collected data was securely stored in Kenya. He claimed that Amazon Web Services held the data in the United States.

Of note: Kenya’s Data Protection Act exempts personal data used for research, history or statistical purposes from certain data minimization, storage limitation and purpose limitation requirements as long as the data is adequately pseudonymized or anonymized.

• Perhaps this has something to do with why Tools for Humanity registered as a research company.
• Also, it’s important to note that the act restricts data transfers outside Kenya unless there’s evidence of robust data protection measures or consent from the data subject.
• Worldcoin developers, having admitted to transferring the data to the U.S., insist that they are committed to protecting user privacy.
• The committee’s report will be released in the coming weeks. In the meantime, Worldcoin’s future in Kenya remains uncertain.

Patricia’s ‘grand’ plan to refund users is based on its profitability

Topline: Embattled Nigerian cryptocurrency exchange Patricia announced on Aug. 18 that they would convert users’ lost funds into the new Patricia Token (PTK). However, users will only gain access to their PTK when the company becomes profitable. (Details)

Quick facts: In PTK’s white paper, the company said it would convert its users' outstanding bitcoin, naira and USD balances to the new token.

• It mentioned that the tokens will be released using a smart contract, and their availability will depend on the company’s profits. As Patricia’s monthly earnings grow, so will the token balances.
• Upon its release, PTK will only be convertible to USDT, which can be exchanged for fiat and other assets. Direct conversion of PTK to fiat is restricted.
• The move to repay its debts based on the company’s profit casts doubts about the repayment timeframe.
• A security breach of this nature erodes trust, prompting users to move funds elsewhere potentially impacting Patricia’s trading and fee earnings.

Essential background: Patricia’s battles began when customers could no longer access their funds. The company later disclosed the reason behind this: a security breach that led to the loss of approximately $2 million worth of bitcoin, naira, and USD assets held in its custody.

• The company then introduced the Patricia Token, which is backed one-to-one with the USD. It also converted users’ existing bitcoin, naira, and USD balances to this new token.
• In the last Mariblock Weekly newsletter, Lead Editor Oluwaseun Adeyanju stressed the importance of the African ecosystem tackling this issue. He asked if it was time the African community took self-regulation seriously.

Coming soon: Mariblock Roundtable

Topline: Mariblock’s top priority is fostering impactful conversations that drive the advancement of the African blockchain and digital assets space.

• We see stakeholder engagement as a significant part of that.
• Mariblock Roundtable will bring builders, talents, investors, enthusiasts and regulators around the continent together to engage in discussions that move the needle for the industry.
• This won’t be a crypto/blockchain education series.
• We’re open to partnerships. Do reply to this email if you’d like to learn more.

Catch up

🇰🇪 Worldcoin controversy: two sides of the ‘coin’ (Mariblock)

🌍 Stablecoins: A key infrastructure for the African market (Mariblock)

🌎 Onboarding crypto users in Africa vs. the West — Fonbnk founder Christian Duffus (Cointelegraph)

🇿🇦South African crypto premium surges after specific banks stop processing payments. (Bitcoin.com News)

🌎 The high proliferation of crypto scams in Africa is linked to limited educational efforts, according to Mitroplus Labs Founder. (Bitcoin.com News)

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That’s it for this week.

See you next week.

Cheers,

Ogechi.