The era of blockchain and cryptocurrency is with us. The question that remains is; Are the blockchain transactions legal? In this short journal I will try to bring out the news on the ground and what the Kenyan legislatures have commented on the topic and where they actually hold their ground.

First is to understand what blockchain and cryptocurrencies are. Blockchain in the lay man’s terms is a digital ledger in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly. Cryptocurrency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.

The niche of the cryptocurrency definition that I would like to expound on and which forms the basis for the legal structure is that cryptocurrency operates independently of a central bank.

This takes me back to 2015 when the Central Bank of Kenya (CBK) released two circulars one to the general public and the other to the banks in Kenya.

The circulars had one message in common that the public and the banks should refrain from using or transaction in bitcoin and cryptocurrencies. The bank informed the public that virtual currencies such as Bitcoin are not legal tender in Kenya and therefore no protection exists in the event that the platform that exchanges or holds the virtual currency fails or goes out of business.

Among the reasons they cited by the Central Bank’s stand were:

  • Transactions in virtual currencies such as bitcoin untraceable and anonymous making them susceptible to abuse by criminals in money laundering and financing of terrorism.
  • Virtual currencies are traded in exchange platforms that are unregulated all over the world. Consumers may therefore lose their money without having any legal redress in the event these exchanges collapse or close business.
  • There is no underlying or backing of assets and the value of virtual currencies is speculative in nature. This may result in high volatility in value of virtual currencies thus exposing users to potential losses.

The CBK then cautioned the banks in Kenya and all institutions against dealing in virtual currencies or transacting with entities that are engaged in virtual currencies. They were advised not to open accounts for any person(s) dealing in virtual currencies such as Bitcoin. Failure to comply with the directive would lead to appropriate remedial action from the Central Bank.

This could well be understood from a legal aspect as the Central Bank’s notice could be view as a precautionary measure protecting the interests of the bank. Mainly this could insulate the Central Bank of Kenya from any legal proceedings in relation to cryptocurrencies in the event one loses their money via cryptocurrency.

It should also be noted that the statute creating the bank, The Central Bank of Kenya Act, Cap 491 Laws of Kenya only defines two types of currencies as defined as under Sec 2 of the Act:

·         currency means the currency of Kenya or foreign currency;

·         currency of Kenya means bank notes and coins issued by the Bank under section 22(1) and any right to receive such bank notes or coins in respect of any credit or balance at a bank or financial institution located within or outside Kenya;

·         foreign currency means bank notes or coins which are or have at any time been legal tender in any territory outside Kenya and any right to receive such bank notes or coins in respect of any credit or balance at a bank either within or outside Kenya;

It is thus not in the Central Bank’s power to regulate cryptocurrency, unless the statute is to be amended. The Bank is given the power to regulate transactions relating to currency which is physical unlike cryptocurrency which is virtual. The transactions are not traceable when compared to the normal currency transfer.

This will make one query, who then is to regulate cryptocurrencies? Which institution is to deal with these type of transactions?

These are questions in every investors mind. If I buy a coin in the initial coin offerings (ICO’s), how can I protect myself against fraudsters and business vultures who are only there for the wrong reasons and not investments?

According to research done many have answered these questions with the view that liability should be on the company and/or persons who are selling the cryptocurrency. Thus the only way to regulate the Cryptocurrencies is by regulating the companies that are going into the business. This can be done by analyzing their business projections which are usually laid out in the whitepaper. The company should be kept under checks and balances to ensure that the objectives of the company and promises made to investors have been reached.

Kenya’s Company law gives a company its own entity as a legal person which can own property, do transactions, sue and be sued. The company’s articles and memorandum act as the guiding light for the company. Thus, regulating cryptocurrency on the company level would be the most reasonable approach in regulating cryptocurrencies.


In conclusion to this first part of the journal, it is my recommendation that we should as a country, develop an act regulating the crypto field. The act will seek to establish a body that will, as one of its duties, regulate all companies transacting on cryptocurrency and blockchain technologies.

This in my view will work to regulate the companies and the projects they are to initiate, it will deter those using companies as fronts for their illegal dealings from establishing these schemes in Kenya and finally it will work to protect the consumer in this case, investors, from losing their money on investments.

This will also see the growth of the economy as many investors and innovators in the science and technology department will come up. The misconceptions and myths of the technology will have been fully addressed thus reducing the negativity the technology is facing in the country.


Written by,

Kihara Kang’ethe,

Legal Advisor,

Ubrica Legal Office.


Leave a Reply

Your email address will not be published. Required fields are marked *