Introduction

The rapid rise of cryptocurrencies has transformed the landscape of financial transactions worldwide. Their decentralised nature presents opportunities and challenges alike, prompting governments to navigate the implications of virtual currencies. In Tanzania, the regulatory stance on cryptocurrencies is still evolving. However, the need for clarity on the legality or otherwise of cryptocurrencies has become even more critical following the decision of the High Court of Tanzania (the Court) in the case of Yellow Card Tanzania Limited v. Nyamwero Michael Nyamwero, Commercial Case No. 12171 of 2024 HCTZ at Dar es Salaam (Yellow Card Case) where the Court's decision affirms that transactions conducted using cryptocurrencies are not illegal and, consequently, validating contracts between private parties in the matter. This case serves as a critical marker in understanding the trajectory of cryptocurrency regulations in the country.

Cryptocurrencies, such as Bitcoin, Ethereum and numerous altcoins, provide an alternative to traditional fiat currencies. They are based on blockchain technology, offering secure and anonymous transactions. However, they also pose risks such as volatility, potential fraud and illicit use. As with many authorities around the world, Tanzanian government authorities are grappling with how to embrace the benefits of cryptocurrency while mitigating the associated risks.

The Tanzanian regulatory framework on cryptocurrencies and the impact of the decision in the Yellow Card Case

Tanzania recognises the growing interest in cryptocurrencies and their role in global economies. In a public notice issued by the Bank of Tanzania in November 2019 (BOT Notice), the Bank of Tanzania recognises the growing trend by the public of engaging in activities related to the use of cryptocurrencies and goes on to warn against trading, marketing and using cryptocurrencies as these are not legal tender in Tanzania.

The decision of the Court in the Yellow Card Case, however, raises pertinent questions on the position of the law in respect of the legality of engaging cryptocurrency activities in Tanzania. The Court noted that the lack of a legal framework on cryptocurrencies does not render them illegal in Tanzania. The Court pointed out that the regulatory framework on cryptocurrencies is still evolving in Tanzania and that the government and the Bank of Tanzania have issued guidance on the matter. The Court pronounced that engaging in electronic transactions using cryptocurrencies is not illegal in Tanzania. This recognition by the Court legitimises the use of cryptocurrency in various commercial activities and highlights a shift towards acceptance. The judgment of the Court affirms that contractual obligations fulfilled using cryptocurrencies are legally binding, provided they meet the general principles of contract law. Relying on this position, businesses operating in the crypto space can, therefore, enter into legally enforceable agreements without the fear of automatic invalidation due to the nature of their payment method. The argument of the Court is premised on the fact that the parties involved in cryptocurrencies transactions are duty bound to pay tax under tax laws, hence from this perspective such transactions are regulated despite the lack of regulations or laws to exclusively regulate cryptocurrencies and digital currencies in Tanzania. This suggests an implicit recognition of cryptocurrency transactions within Tanzania's economic framework, further emphasising the need for formal regulatory structures.

Given the growing rise in the use of cryptocurrencies around the world and the position of the Court in the Yellow Card Case stating that the lack of a regulatory framework to regulate cryptocurrency does not make the use of cryptocurrency illegal, there is an urgent need for the Bank of Tanzania to prescribe a framework for the use of cryptocurrencies in order to avert the contradiction emanating from the BOT Notice. Traditionally, the legality of a contract is determined by the legality of the object of the contract and the capacity of parties to enter into agreements. The decision of the Court in the Yellow Card Case raises concerns that, purely by imposing taxes on the digital transactions, the Tanzania Revenue Authority recognises that such contracts are valid, provided they meet other legal contractual requirements.

With the increasing interest in investment in digital currencies and blockchain technology, it is imperative that the government provides a clear regulatory framework on cryptocurrencies in Tanzania, in order to provide certainty and ensure that the appropriate protection mechanisms are in place for those engaging in cryptocurrency business. The absence of regulation not only poses major challenges regarding the lack of clear guidelines on the use of cryptocurrency in Tanzania, but the decision of the Court in the Yellow Card Case brings in a sudden shift from the general position of the BOT Notice. This lack of certainty creates challenges for businesses, investors and individuals engaging in cryptocurrency-related activities. Without a clear and comprehensive legal framework, market participants face uncertainty regarding the legality of cryptocurrency-related activities. The decision in the Yellow Card Case, while providing some level of judicial guidance, underscores the urgency of regulatory intervention to harmonise the evolving landscape of cryptocurrency in Tanzania.

Conclusion

The increasing use of cryptocurrencies necessitates a structured regulatory response to ensure that the benefits of digital currencies are harnessed while mitigating associated risks. Regulatory clarity is essential to ensure consumer protection and legal compliance, enhance oversight and compliance with anti-money laundering and counter-terrorism financing laws, while also ensuring a stable and predictable legal environment that not only fosters confidence among investors and businesses, but also aligns with global trends.

Notably, the decision in the Yellow Card Case has significant implications for contract law in Tanzania, particularly regarding enforceability of contracts involving cryptocurrencies. The decision affirms that contracts involving cryptocurrency transactions cannot be deemed to be illegal solely due to the absence of explicit cryptocurrency regulations. This means that parties entering into agreements using digital currencies have legal recourse in Tanzanian courts, provided their contracts satisfy standard contractual elements, such as offer, acceptance, consideration and legality. The decision affirms that contractual obligations fulfilled using cryptocurrencies are legally binding, provided they meet the general principles of contract law. While the position of the Court presents some legal clarity, challenges remain regarding dispute resolution in cryptocurrency contracts, including their enforceability, particularly where cross-border transactions are involved. Given the decentralised and often anonymous nature of cryptocurrencies, jurisdictional issues could arise when disputes involve international parties. Future regulatory measures should address mechanisms for resolving such disputes effectively. This is a wake-up call for the responsible authorities to address the existing gap in in regulatory frameworks and legal enforcement mechanism for cryptocurrency-related disputes and enact laws to exclusively regulate cryptocurrency transactions.