Regulation of crypto assets in South Africa: Challenges and opportunities

March 1st, 2024

Picture source: Getty/iSotck


 ‘Crypto-assets, and virtual currencies in particular, are in rapid development and tax policyaakers are still at an early stage in considering their implications … . To date, the tax policy and evasion implications have been largely unexplored, although they form an important aspect of the overall regulatory framework’ (OECD Taxing Virtual Currencies: An Overview of Tax Treatments and Emerging Tax Policy Issues (, accessed 21-2-2023)).

Countries across the globe are increasingly considering adopting crypto assets as a sovereign (national) currency, and this growing interest is echoed in the quote above. It is estimated that over 80% of the world’s central banks are researching central bank digital currencies and of those, 40% are at the pilot stage (M Duggal ‘The Dawn of the Digital Yuan: China’s Central Bank Digital Currency and its Implications’ (, accessed 21-2-2023)). South Africa has chosen to replace the word ‘cryptocurrency’ with ‘crypto asset’ to be ‘in line with the … uniform definition of crypto assets within the South African Regulatory framework’ (Sars ‘Crypto Assets & Tax’ (, accessed 21-2-2023)). The Internal Revenue Service (IRS) of the United States of America announced that it would treat virtual or digital currencies, including crypto assets, like ‘property’ for tax purposes (IRS Notice 2014-21 (, accessed 27-1-2024)). The IRS intended that the general tax principles for a property would have the same application for crypto assets. This assumed that crypto assets are like property in the hands of the owner, like bonds and stock held by an investor. This recognition of crypto assets by the IRS legitimised the digital currencies ‘by deeming it a property asset, thereby eliminating the fear that virtual currency may be “illegal”’ (JA Roman ‘Bitcoin: Assessing the Tax Implications Associated with the IRS’s Notice Deeming virtual Currencies Property’ (2015) 34 Review of Banking & Financial Law 451). While regulators might face enormous challenges when regulating crypto assets, it is evident that crypto assets are gaining popularity. Protecting consumers and monitoring cybercrimes associated with decentralised digital transactions operated anonymously is necessary.

This article will explore the regulatory framework or lack thereof within the South African legal framework and the challenges consumers and regulators face in financial markets.

The classification of crypto assets

Any premature classification of crypto assets could create problems for regulation. It is noted internationally there is a lack of agreement on a legal definition on crypto assets (ASM Irwin and C Dawson ‘Following the cyber money trail: Global challenges when investigating ransomware attacks and how regulation can help’ (2019) 22 Journal of Money Laundering Control 110). ‘Jason de Mink, explains that cryptocurrency is a free open-source decentralised software vetoing the association with any laws, institutions or governments which, therefore, allows users full control of their assets and there is no charge involved in joining the platform. As a result, inflationary effects related to using legal tender linked to governments, theoretically do not have any effects on such virtual currencies nor do the rules and regulations’ (Hanamika Singh ‘Show me the money’: A discussion of the cryptocurrency market and its potential regulation in South Africa (LLM thesis, University of KwaZulu-Natal, 2019)). As a result, the effect associated with inflation when using normal currencies that are linked with government, theoretically have no effect on digital transactions of crypto assets nor the rules and regulations ‘imposed on cross-border trade and international transactions’ (Singh (op cit)). Crypto assets are defined as:

‘A digital representation of value that is not issued by a central bank, but is traded, transferred and stored electronically by natural and legal persons for the purpose of payment, investment and other forms of utility, and applies cryptography techniques in the underlying technology’ (Sars (op cit)).

‘A digital ledger or record of transactions [is] also known as distributed ledger technology’, which is ‘based on blockchain technology’, a more extensive digital network or record of transactions (Singh (op cit)). ‘The blockchain is a large network of computers known as nodes that record and validate all transactions in a public tamper-resistant ledger, which is secure from tampering without a trusted third party. The blockchain ledger system is an immutable decentralised database that allows anonymous parties across multiple geographies to engage in mutually beneficial transactions’ (Singh (op cit)). This suggests that ‘cryptocurrencies consist of three elements, namely, a set of rules, transaction storage ledger, and a decentralised network of users’ (Singh (op cit)).

Moreover, crypto assets ‘are not subject to exchange rate fluctuations, transaction fees and policies’ (Singh (op cit)). The proliferation of crypto assets on a global scale is emerging continuously; therefore, the growing popularity and usage of these digital transactions require an imminent need to regulate them to secure more transparent systems (Singh (op cit)).

The challenges of unregulated crypto assets

It is the nature of any innovation to invariably pose a threat on one hand while presenting endless opportunities for its users on the other (Singh (op cit)). Crypto assets are no different. They have enhanced the transaction speed and achieved unrestricted operational reach while all transactions are entirely opaque. However, the lack of regulatory control opens a door for illegal activities (Singh (op cit)). ‘By operating without authority, the use of cryptocurrencies can lead to various other issues, including the circumvention of exchange control regulations and potentially the diminishing of demand for local currencies’ (Singh (op cit)).

Jason de Mink’s article ‘Dangers inherent in Bitcoin and other cryptocurrencies’ (2018 (Jan/Feb) DR 33) refers to the inherent dangers of crypto assets, namely:

  • simplifying money laundering;
  • anonymity and difficulty in tracing the identity of users;
  • no third-party intermediary;
  • cross-border transfers without government interference;
  • impossible to reverse transactions; and lastly
  • jurisdictional issues as there are currently no internationally accepted regulatory framework.

Furthermore, a global challenge of financing terrorism becomes practically impossible to police and detect in such transactions. In order to avoid the challenges posed by crypto assets, the potential gains must be weighed ‘against these potential technological vulnerabilities’ (Singh (op cit)).

The question is whether crypto assets should be regulated as financial products because they are susceptible to exploitation and infiltration by criminals in furtherance of their illegal activities, thus there is an urgent need for lawmakers to regulate and enforce strict measures to safeguard against such abuses. Although there seems to be urgency in responding by regulating these assets, it must be emphasised that anything short of consistent and coordinated regulatory configuration will not achieve the desired results to combat crypto asset-related crimes (Singh (op cit)). ‘The virtual, decentralised nature of this technology and the absence of a specific legal monitoring entity makes the application of traditional legal frameworks untenable and the enforcement of any new legal framework tenuous’ (Singh (op cit)). Hence, a coordinated and consolidated legal framework is needed to adequately deal with international operations, tax obligations, combatting cybercrimes, and financing terrorist activities.

The South African regulatory framework

The South African government issued a warning through its National Treasury (NT) in 2014, ‘in a joint initiative with the South African Reserve Bank (SARB), the Financial Services Board (now the Financial Sector Conduct Authority (FSCA)), the South African Revenue Service (SARS) and the Financial Intelligence Centre (FIC)’ (Sars (op cit)) (hereinafter referred to as ‘regulatory authorities’), ‘about the risks associated with the use of crypto assets for the purpose of transacting or investing, and advised users to apply caution in this regard. The cautionary tone was directly linked to the fact that no specific legislation or regulation existed for the use of crypto assets. Therefore, no legal protection or recourse was being offered to users of, or investors in, crypto assets’ (Intergovernmental Fintech Working Group (IFWG) ‘Position Paper on Crypto Assets’, accessed 27-1-2024)).

‘In 2016, the Intergovernmental Fintech Working Group (IFWG) was established, comprising members from NT, SARB, FSCA and FIC. The National Credit Regulator (NCR) and SARS joined the IFWG in 2019. The aim of the IFWG is to develop a common understanding among regulators and policymakers of financial technology (fintech) developments as well as the regulatory and policy implications for the financial sector and the economy. … The overall objective of the IFWG is to foster fintech innovation by supporting the creation of an enabling regulatory environment and reviewing both the risks and the benefits of emerging innovations, thus adopting a balanced and responsible approach to such innovation’ (IFWG (op cit)).

In 2021, the IFWG through the Crypto Assets Regulatory Working Group stated that ‘crypto assets will be brought into the South African regulatory purview in a phased and structured manner’ (IFGW ‘Press release: Crypto assets to be brought into South African regulatory purview’ (, accessed 21-2-2023). It must be said that the crypto assets ‘platform offers a solution to developing trade issues as cryptocurrencies transcend borders and are international by design. The anonymity of cryptocurrency systems has the ability to surpass current restrictions and allow for virtually instantaneous cross-border transactions, thereby making it more attractive than traditional monetary systems’ (Singh (op cit)).

Several countries ‘are well ahead in regulating cryptocurrencies and have legislative and institutional frameworks in place. However, a uniform approach to the regulation of these … virtual currencies … is needed as these differing approaches by governments in their attempts to nationalise regulation, is of great concern’ (Singh (op cit)). ‘The introduction and uptake of digital currency has led to wealth creation for millions of individuals … . However, the use and benefits of advanced technologies such as cryptocurrencies remain largely in the hands of the technically advanced as there is a deficiency in widespread education on these topics’ (Singh (op cit)). Although some progress has been achieved, the use of crypto assets in South Africa remains uncertain.

The regulation of crypto assets will implicate several areas, such as tax obligation, income, or gain tax. However, SARS has pronounced that ‘the current provisions are broad enough to account for the taxation of income received and the expenditure incurred’ (Singh (op cit)). Crypto assets need to be covered in the current legislative framework on financial instruments, credit lending and consumer protection (Singh (op cit)). Furthermore, the legislature ought to ensure that the CPA, NCA and other financial security legislation are extended to cater for crypto asset or digital transactions (Singh (op cit)).

Towards a pragmatic regulatory framework

When considering regulating digital transactions, we should identify the legal nature of crypto assets ‘in the international electronic commerce economy and treatment by national governments’ (Singh (op cit)). It is crucial ‘to discover whether international harmonisation of initiatives by the major international regulatory organisation can develop a universal guideline to harness the potential of this new technology’ (Singh (op cit)). Although crypto assets are proliferating, they pose severe challenges to regulations. How to classify crypto assets and whether crypto assets will replace legal tender? Or are crypto assets gains taxable? How tax policy deals with the potential tax evasion associated with using crypto assets. Many countries are adopting varied approaches to the recognition, classification, taxation, and tax enforcement of crypto asset transactions. There is no firm international tax policy guidance yet regarding the taxation of crypto assets, their adoption as sovereign currencies and the measures against the potential tax evasion.


‘In summary, current global efforts to address the challenges presented by blockchain technology … seem to be at a primordial stage’ (O Marian ‘Blockchain havens and the need for their internationally coordinated regulation’ (2019) 20 North Carolina Journal of Law & Technology 529). However, ‘a compressive plan for international regulation of blockchain-based applications is well beyond this article’ (Marian (op cit)). ‘The very birth of blockchain technology is in libertarian principles. One might argue it is sensible to let the market run its course’ (Marian (op cit)). ‘While sensible to a certain extent, such an approach fails to capture the danger in the irreversibility of blockchain transactions. Fraudulent gains are likely to never be returned. There is no single entity to recover from, nor is there an issuer that can be identified. The market has no ability “to correct” for one-off fraudulent events’ (Marian (op cit)). ‘Given the unique nature of blockchain technology, it seems prudent to take an ex-ante approach, namely, to regulate blockchain applications before they are released’ (Marian (op cit)). ‘The problem of the irreversibility of transactions is partly remedied by disclosure and identification rules, as it may enable victims of fraud to identify the wrongdoers. A better way to address such issues is to require blockchain ventures to underwrite the risk of their venture’ (Marian (op cit)). Despite comments by the government and proposed legislative amendments by the National Treasury, SARS and SARB, the use of crypto assets in South Africa still needs to be determined. The proposed bill to deal with cyber-related offences focuses squarely on consumer protection.

Kayaletu Tshiki LLB (UFH) LLM (University of Sussex, UK) Public Management Cert (University of Wisconsin, USA) is a legal practitioner at Tshiki and Associates in East London.

This article was first published in De Rebus in 2024 (March) DR 32.