The Current Status of Crypto Adoption in Namibia
Source: Vecteezy
Crypto adoption in Namibia falls between genuine interest, regulatory caution, and the dark side of scamming targeted at locals and foreign investors.
Whereas Namibians take a liking to cryptocurrency as it serves as an alternative investment option against the harsh economy, the scams are obviously on the rise, giving the technology a bad name.
“Given this legal environment, the Bank does not recognize the use and acceptance of cryptocurrencies as legal tender in Namibia. Additionally, the Bank is strongly against the use of cryptocurrencies as a method of payment for goods and services and the exchange to the Namibia Dollar.”
Namibia introduced the Virtual Assets Act in July 2023, and this move is considered a milestone toward the legitimization and regulation of cryptocurrency activities. Among other things, it seeks to have Virtual Asset Service Providers (VASPs) registered and enforces strict protocols to prevent fraud, money laundering, and terrorist financing.
This regulation framework looks to protect Namibians by setting standards that encourage legitimate crypto businesses while limiting the potential for fraud.
But the growth of cryptocurrency scams, and lately a high-profile bust where 20 suspects were rounded up, underpin the challenges facing crypto adoption in Namibia.
The scam, masterminded by a group of 11 Chinese nationals, five Zimbabweans, and two Namibians, saw it manipulate young Namibians by first recruiting and training them to lure American investors into a sham crypto investment scheme.
It derived its nickname, "pig butchering," from online romance scams where a perpetrator gains the victim's trust before introducing them to a fake cryptocurrency trading platform promising high returns.
This scam not only defrauded foreign investors but also exploited Namibian youths. According to Namibian police, 88 young people, mostly students, were recruited under false job promises, then trafficked and controlled to conduct scams on behalf of their foreign employers.
They were held in accommodation provided by the scam operators, paid roughly 3,000 Namibian dollars, or about $200, per month, and given limited access to phones for contacting potential victims. There are reports that suspects have been withdrawing proceeds from Bitcoin kiosks in Namibia's shopping malls.
Incidents like these illustrate the dual nature of crypto adoption in Namibia: with the development of genuine crypto transactions and interests, there is also an escalation in the exploitation of the technology by scamsters.
These rising risks have pushed Namibian authorities like Bank Windhoek to issue warnings against growing numbers of crypto-related scams while cautioning against crypto investments.
Cryptocurrency is therefore both an opportunity and a risk, factoring into a broader trend across the continent, where digital currencies usage has been extremely strong due to limited access to traditional financial services with the promise of supernormal returns.
However, as scams are becoming more and more sophisticated, the need for robust regulation and public education can no longer be ignored. However, some Namibians are still attracted to the speculative gain of cryptocurrency in a climate where most conservative investment avenues do not offer a high return.
The Namibian government has therefore, imposed policies, restrictions, and possible penalties for violators—including fines and imprisonment.
Crypto Law In Namibia
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Namibia's way of acknowledging cryptocurrencies is an interesting mix of being cautious and gradually opening up to the technology, particularly with the passing of the Virtual Assets Act (VAA), in 2023. This new legislation demonstrates how Namibia tries to keep pace with financial innovation while securing the stability of its finances and the interests of consumers.
The VAA ensures that VASPs operate under a licensing framework with AML/CFT requirements. The VASPs must be registered in Namibia and conduct their business therein, have secured systems to protect the information of customers, and separately account for and hold customers' funds from those used in the operation of the business.
This oversight thus seeks to mitigate the potential risks associated with the quasi-anonymous nature of cryptography, particularly its potential misuse in illegal activities.
This puts the Bank of Namibia in a position, vis-à-vis the VAA, to effectively regulate the cryptocurrency space, going as far as to suspend or withdraw a VASP license if perceived activities appear to threaten the integrity of the financial system.
Besides that, the Payment Management Act of 2023 further extended the legal status to legally recognize cryptocurrency-based payments as one form of payment service—under certain consent conditions. The parties during a transaction must mutually consent to the use of cryptocurrency, and the supplier of the system of payments should be licensed.
Another important factor is the Namibian Currency and Exchanges Act and the Exchange Control Regulations, which deny permission for virtual currency exchanges to be established within the country. Thus, this policy adds another layer of restriction as there is no formal framework for trading or converting any cryptocurrencies to the Namibian dollar or any foreign currency.
“Accordingly, in the recent South African case of Bester NO v Mirror Trading International (Pty) Ltd (in liquidation), it was decided that cryptocurrency, which it likened to money, falls within the definition of property in the context of the Insolvency Act 24 of 1936 (“Insolvency Act”). In Namibia and South Africa, it is considered the law that the meaning of property in the Insolvency Act is wider than under common law.”
These Exchange Control Regulations, amongst other things, ensure that any form of activity with a view to trading or exchanging one currency for another requires the approval of the central bank; hence, in effect, making cryptocurrency exchanges illegal within Namibia.
Taxation of Cryptocurrency in Namibia
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On the taxation side, Namibia does not give any special recognition to cryptocurrencies under its existing tax regime, and capital gains tax, applicable to mining and petroleum activities, is not yet effective in all respects.
“Any member of the public or entity in Namibia that engages in mining, online trading (buying and selling) and exchanging of cryptocurrencies are subject to the applicable provisions of the Financial Intelligence Act, 2012 (Act No. 13 of 2012), as amended (FIA).”
It only taxes dividends originating from securities, excluding cryptocurrencies, when paid to non-residents, which may indirectly create an incentive for crypto investments in certain situations.
In 2023, Namibia went a step ahead to introduce a tax on digital assets, including cryptocurrencies and NFTs, as a proactive step in addressing the challenges associated with such assets. This policy aims at capturing revenue from crypto transactions while managing the risks of pseudonymity that make it difficult to enforce.
Its approach to taxing crypto assets as property and not as currency is an idea that has been recommended by the IMF, thus allowing Namibia to balance its protection of financial innovation with fiscal oversight.
On the other hand, such vagueness in asset classification for tax purposes has exposed some of the lingering complexities as authorities work to adapt the tax system to evolving digital markets.
Factors Driving Crypto Adoption in Namibia
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Put together, the following factors create an environment that is unique for crypto adoption to flourish in Namibia. Four of the significant drivers of crypto adoption in Namibia include:
Interest from the Youth
Most crypto investors in Namibia are youthful, with 61.2% falling within the 25-34 age bracket. This demographic is tech-savvy, interested in digital assets, and on the lookout for other financial opportunities. A large population of viable Namibians is bound to encourage crypto adoption in the country.
The Need for Economic Diversification
The poor state of financial resources in Namibia's economic landscape encourages people to explore crypto as some sort of investment as there are limited opportunities in traditional sectors. More people are willing to pivot to an alternative financial tool.
NFT and Cultural Appeal
Platforms like African NFTs allow Namibian artists to monetize digital art and display cultural heritage for broader local interest in digital assets. Since the country is filled with many artisans, cryptocurrency offers an opportunity to monetize their skills.
Dynamic Regulatory Framework
Namibia's Virtual Assets Act and recent tax policies created a legal space in which crypto could be approached with safety, reassuring locals to confidently be involved in digital investments while making sure the government oversees such activities.
Challenges Facing Crypto Adoption in Namibia
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The following challenges reflect the many complexities of Namibia while harnessing the potential of cryptocurrencies within a secure, regulated environment. Four key crypto adoption challenges for Namibia are identified in the succeeding sections.
Regulatory Uncertainty and Pseudonymity
By nature, crypto transactions are pseudonymous, and it is hard for Namibian authorities to make sure that the right taxes are paid and that anti-money laundering controls are in place. This lack of transparency has kept the government busy revising the Virtual Assets Act to ensure better supervision and protection for consumers.
Risk of Scams and Fraud
Scams of high magnitude, such as the latest "pig butchering" scam, have chipped away confidence in crypto. Offshore scammers have taken advantage of youthful Namibians to carry out their operations, scamming both people within the country and foreign investors. This indicates the need for protective regulations and education within the public.
Lack of Technical and Financial Literacy
While the interest in crypto amongst Namibian youth is high, the understanding of blockchain technology and financial risks remains very low. Due to the limited availability of educational resources, making educated decisions for new investors can be challenging and potentially come with losses or involvement in scam activities.
Infrastructure Limitations
This challenge is partly because access to the internet, mobile technology, and payment processing infrastructure in rural areas is limited. The limitations create accessibility issues that, in turn, hold back crypto's adoption by the otherwise underserved communities that would benefit from digital financial tools.
Potential Benefits of Crypto Adoption
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The following benefits illustrate how the adoption of crypto in Namibia could be transformative, opening up new frontiers in Namibia:
Increased Financial Inclusion
Cryptocurrency offers access to financial services for the unbanked, especially in rural areas. With crypto, individuals can take part in financial activities that do not require or rely on any traditional banking infrastructure; thus, this allows people greater economic participation.
Stimulating Digital Entrepreneurship
Crypto adoption can lead to innovations in business models from merely digital tools to active NFT marketplaces where local artists of Namibia can convert art into cash. It also supports creative and digital sectors, hence diversifying the economy more.
Reduced Transaction Cost
International crypto-transactions, in particular, bypass intermediaries; this, in turn, could reduce the cost of remittances and/or cross-border payments for individuals and small enterprises.
Economic Growth and Tax Revenue
With its taxation on digital assets, crypto adoption could contribute toward public coffers. The harnessing of this growing industry, in such a way, could make Namibia look toward increasing revenue that may improve infrastructure, education, or healthcare.
Conclusion
Overall, Namibia's attitude toward cryptocurrency is based on a concern for financial stability, adherence to legal provisions, and reduction of risks that characterize uncontrolled digital currencies.
In addition, it's essential to note that the regulated complexities, scams, and lack of infrastructure have not deterred the young people's interest in the country's policy advancements. With the Virtual Assets Act and recent taxation policies, Namibia may go ahead to lead Africa's evolving crypto landscape and is likely to inspire a model for its neighboring nations in the near future.
