Reputational damage aside, South Africa’s recent greylisting has some significant implications for the country’s financial systems, and for the economy as a whole. Against this backdrop, many South Africans are looking to a somewhat surprising alternative to assure their financial security: cryptocurrency.
South Africa’s greylisting comes in response to concerns around the country’s ability to enforce regulations around money laundering and funding terrorism-related activities. South Africa’s handling of financial crimes has also come under scrutiny with this recent development, which is a fallout of State Capture.
“This all raises question marks around the safety of money. Going forward, banks will undergo more frequent inspection, which leads to increased transactional costs, as well as higher administrative, funding and auditing costs,” notes Nils Andersen-Röed; Deputy Head of Financial Crime Compliance of Binance, the world’s largest bitcoin and altcoin crypto exchange by volume. He adds that it will also become more difficult to conduct cross-border transactions, while the price of debt is also likely to climb.
Given these new challenges, he maintains that this is a good time to look to cryptocurrency as a safer and more convenient alternative to fiat currency. He predicts that we will see an increase in the use of digital currencies.
“It may surprise some people to learn that the crypto ecosystem typically experiences less crime, on average, than the traditional cash system,” Anderson-Roed reports. This is made possible by a sizeable team of cyber investigators, representing major international law enforcement agencies, working to protect users from illicit actors seeking actors to crypto markets.
“With South Africa now under increased monitoring, role players in the financial services ecosystem have a greater responsibility to enhance controls protecting against money laundering and terrorist financing.” He informs that for cryptocurrency asset service providers, this means a heightened focus on anonymity, while also monitoring transactions more closely. “We have been paying close attention to security issues in recent years, and although we believe we have made some progress, we are always looking to see where we can improve further.”
Some of these improvements include the development of several in-house tools and capabilities aiming to curb fraud and money laundering, Anderson-Roed informs, adding that Binance has harnessed technology to identify and verify accounts and monitor transactions, with all suspicious transactions blocked and reported.
While this means that crypto, is an assuredly safe currency option at this time, many more factors are adding to its attractiveness at this point. First, there’s the specialized computer coding (called cryptography) used to encrypt and keep it secure, which makes for an effective safeguard against fraud. What’s more, all crypto transactions are recorded on a peer-to-peer network of computers, with thousands of ledgers cross-referenced against each other, ensuring total transparency.
These networks are so heavily encrypted that they are safe even from sophisticated hackers. This means that so long as users practice safety basics, they have complete peace of mind – there is very little chance of crypto being stolen.
Nor is crypto likely to be the vehicle of choice for money launderers, because of traceability and stringent KYC checks. In fact, it is easier to open a bank account at a small local or regional bank with a fake ID than on a crypto exchange. This is borne out by statistics from the UN Office of Drugs and Crime, which estimates that between $800 million and $2 trillion (equalling roughly 5% of global GDP) of fiat currency is laundered every year. In contrast, money laundering accounted for just 0.05% of total cryptocurrency transaction volume in 2021.
Crypto’s resistance to inflation is another plus. Unlike fiat currencies, where value inevitably declines over time, the value of crypto is likely only to increase. That’s because there’s a limit on the number of coins released.
The decentralised nature of crypto is yet another factor in its favour because it means that no single organisation can affect the flow of coins, which would impact their value. This makes crypto more stable than currencies that are controlled by governments and helps avoid the development of monopolies.
Added to this, crypto transactions are immediate and seamless because they require little time to process.
Andersen-Röed says that extra assurance comes in the form of the added attention crypto companies pay to issues like Know Your Customer (KYC), which is a built-in safeguard against fraud and identity theft. It also addresses the very issues raised by the greylisting, including the prevention of money laundering and terrorist financing. “KYC is mandatory for crypto in most jurisdictions,” Andersen- Röed explains.
Despite all these advantages, it is still a good idea to act with caution when purchasing or transacting with crypto. Basic measures to take include using a two-factor authentification for your account, making sure that the password used to protect your crypto is strong, and choosing a separate password for your crypto wallet. “It’s vital to transact on a website that has a strong track record and has been proven trustworthy,” says Andersen-Röed.
Binance is a case in point: the exchange is used by millions around the world to trade and invest in cryptocurrencies and is constantly finding ways to upgrade and improve its offering to make it more accessible, safer and easy to use. “In 2022, our investigations team responded to over 47 000 law enforcement requests, with an average response time of just three days,” Anderson-Roed says. “Protecting users is our top priority, which is why our anti-laundering policies are amongst the strictest in the fintech industry. We also maintain the highest level of compliance with applicable laws and regulations, and continue to increase our investment in this area, working to improve our proprietary KYC and anti-money laundering technology to further strengthen our compliance standards.”
For more information about how (and why) to use crypto, visit the Binance Academy: academy.binance.com.