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Frequently Asked Questions (FAQs)

Q.How do we, as a potential client, schedule a meeting with you?
We conduct in-person meetings as well as zoom meetings with both our clients and partners whichever is the more convenient for them.

Q. Is bitcoin the same as blockchain? What is the difference?

Blockchain is the technology that underpins bitcoin and other cryptocurrencies. Bitcoin acts a decentralised digital currency used to make purchases or used as a store of value or acts as a peer-to-peer electronic payment system where users can anonymously transfer bitcoins without the interference of a third-party authority (like a bank or government). Bitcoin is, therefore, just one example of the many cryptocurrency networks also powered by blockchain technology. So although bitcoin uses blockchain technology to trade digital currency, blockchain is more than just bitcoin.  


Q. How does blockchain technology work?

The blockchain can be thought of as a distributed database i.e the data is stored across different physical locations over a network of multiple interconnected computers or nodes. Additions to this database are initiated by one of the members (i.e the network nodes), who creates a new 'block' of data, which can contain all sorts of information. This new block is then broadcast to every participant in the network in an encrypted form (utilising cryptography) so that the transaction details are not public. Those in the network (i.e the other network nodes) collectively determine the block's validity in accordance with a pre-defined algorithmic validation method, commonly referred to as a 'consensus mechanism'. Once validated, the new 'block' is added to the blockchain, which essentially results in an update of the transaction ledger that is distributed across the network. In principle, this mechanism can be used for any kind of value transaction (or event) and can be applied to any asset (or application) that can be represented in a digital form.

Q. What is the difference between blockchain technology and distributed-ledger technology (DLT) ?

A distributed ledger is a database that is consensually shared and synchronised across multiple sites, institutions and geographies and accessible to multiple people. The participant at each node of the network can access the records shared across that network and can own an identical copy of it. Any changes or additions made to the ledger are reflected and copied to all participants in a matter of seconds or minutes. A blockchain is itself a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain and is, therefore, a form of distributed ledger. Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger. However, while blockchain is a sequence of blocks, a distributed ledger does not, typically, require such a chain. Furthermore, a distributed ledger does not need proof of work (PoW) and, therefore, offers – theoretically – better scaling options. Thus, all blockchains are distributed ledgers, but not all distributed ledgers are blockchains. A blockchain represents a type of distributed ledger.  

Q. Does blockchain technology have any real-life practical applications?

While blockchain technology is often associated with digital or virtual currencies and digital payments, its scope is much wider. Blockchain can be applied in a large variety of sectors including other areas of finance, trade and commerce, supply chain & logistics, manufacturing, healthcare, governance, security, advertising, AI, gaming , IoT and other fields. Thus its application could include, say the pledging of collateral on the registration of shares, bonds and other assets, on the transfer of property titles, on the operation of land registers, on the running of elections, on the verification of identity and a host of other activities.

Q. What is the difference between private and public blockchain?

Public blockchain is a permissionless blockchain. Anyone can join the blockchain network, meaning that they can read, write, or participate within a public blockchain. Public blockchain  is decentralised, no one has control over the network and it is secure in that the data can’t be changed once validated on the blockchain. Participants in the public blockchain are typically anonymous and only identifiable as codes. Most, if not all, cryptocurrencies are built on public blockchain and can be said to be synonymous with it. On the other hand, a private blockchain is a permissioned blockchain. Permissioned networks place restrictions on who is allowed to participate in the network and in what transactions, but participants are identifiable. This type of protocol is best suited as the internal technology for an enterprise and helps

safeguard a company’s sensitive information while taking advantage of the benefits of blockchain technology (robust architecture, full privacy, high efficiency, transparency and traceability, scalability). Examples of private blockchain include Hyperledger fabric (in use by AmazonWalmart and Deutsche Bourse Group) and the JPM Coin (in use by JP Morgan).

Q. What are the general regulatory and governance issues that companies should consider when onboarding their operations onto blockchain or other distributed ledger technology?

The issues, for clients, arising from the onboarding of blockchain/distributed ledger technology will revolve around six major aspects- 1.) privacy and data protection; 2.) know-your-customer (KYC) and anti-money laundering (AML) requirements; 3.) classification of cryptoasset(s) as currency, security or utility (commodity); 4.) taxation; and 5.) differences in legislation across different jurisdictions and the impact on dispute resolution.

Q. What potential new blockchain applications/protocols are most actively being explored in Kenya?

In the private sector, blockchain applications that use blockchain as a registry in supply chain management are gaining popularity in the agribusiness, healthcare and consumer goods industries. In the public sector, the Ministry of Information Communication and Technology (ICT) has recommended that the use of blockchain be explored in the following industries: 

  • land titling and registration;

  • manufacturing;

  • healthcare;

  • food security;

  • government transacting; and

  • government-backed cryptocurrencies, borrowing from the Venezuelan example.

Q. Does blockchain technology have a future? Why should we as a company invest in it?

Blockchain technology is set to disrupt many industries in a way that will lower cost, drive efficiencies, reduce third-party reliance (disintermediation), enhance transparency and improve governance. A recent survey by the Big4 Accounting firm- Deloitte involving more than 1,400 companies across 14 regions, on integrating blockchain into their operations, found that 82% of respondents planned to hire staff with blockchain expertise in the next 12 months and 39% already had a blockchain system in the implementation phase. In addition, 36% of companies said they would invest $5 million or more in blockchain within a year.  

Q. What are cryptocurrencies?

There is no generally accepted definition of the term 'cryptocurrencies' available in the regulatory space. While routine definitions of cryptocurrencies tend to regard them merely as a medium of exchange, unit of account or store of value we, at BAC(K) Ltd., regard the term 'cryptocurrency' as somewhat of a misnomer and take a much broader view of cryptocurrencies. We, therefore, define them as such:

'Cryptocurrencies are a type of asset class whose value is determined by supply and demand and that makes use of blockchain technology to allow remote peer-to-peer transfers of value, ownership, access or rights in the absence of trust between parties and without the need for intermediaries or control from any central authority or specific individual.'

Thus, our definition of cryptocurrencies views them not just merely as a medium of exchange but rather as possessing additional features that give them other use-case applications; hence the preferred term 'cryptoassets'. Cryptocurrencies can also be regarded as public blockchain.

Q. Where can I buy cryptocurrency from? Which are the best cryptocurrency exchanges to buy from?

Buying or investing in Bitcoin or other cryptocurrencies can be intimidating especially due to frequent news about scams and people losing their money. While this is true it has never been so easy to invest in and safely trade in cryptocurrency as it is today. However, the most pressing concerns for investors remain those of the safety and security of their purchases and investment.  

Binance and Coinbase (Pro) are the top exchanges for buying and investing in cryptocurrency.  

Binance was founded in 2017 and offers mainly trading between different cryptocurrencies. It does offer some fiat-crypto pairs but most of its pairs are between cryptocurrencies. Currently, Binance dominates the global cryptocurrency exchange market making up a significant portion of daily trading volumes.  

Coinbase was founded in 2012 and is a fully regulated and licensed cryptocurrency exchange. It is the most widely known and used cryptocurrency exchange in the United States. It also boasts an extremely simple user interface thereby greatly lowering the barrier to entry for cryptocurrency investment. In most African countries, however, Coinbase only allows investors to covert between cryptocurrencies but does not allow them to buy or sell cryptocurrencies in their fiat or local currencies. 

Q. What is the difference between a digital currency, a virtual currency, a cryptocurrency and electronic money or e-money?

Digital currency is the blanket term for all money that is intangible and only available in digital or electronic form and includes both virtual currency and cryptocurrency. It can be either centralised or decentralised and either regulated (for example a Central Bank Digital Coin or CBDC) or unregulated (virtual currency). 

Virtual currency is a type of digital currency which is unregulated, issued and controlled by its developers, the founding organisation or the defined network protocol and used and accepted among the members of a specific virtual community. Virtual currency, typically, runs on a distributed ledger. Thus, all virtual currency is digital currency but not all digital currency is virtual currency since some digital currency can exist outside a specific virtual environment. Virtual currency does not have legal tender status. 

Cryptocurrency is a type of virtual currency that is both decentralised and unregulated and uses blockchain (a specific form of distributed ledger) and cryptography for its operation. Thus, all cryptocurrency is virtual currency but not all virtual currency is cryptocurrency since some virtual currency can exist outside of blockchain.  

Electronic money or e-money refers to the digital form of fiat currency held within the banking system and exchangeable into a physical, tangible form of equal value. Thus, electronic money is a form of digital money but while all electronic money is backed by fiat currency, not all digital currency is backed by the same as is the case with virtual currency and cryptocurrency. 

Q. How are cryptocurrencies regulated in Kenya?

Kenyan law makes no specific mention of cryptocurrencies and how they are regulated appears to differ across regulatory bodies. The Central Bank of Kenya (CBK) is emphatic in its position that cryptocurrencies such as Bitcoin are not legal tender in Kenya. It also notes that trading in cryptocurrencies exposes investors to the risk of fraud and loss without recourse. However, the Capital Markets Authority (CMA) is much more accommodative and has developed a regulatory sandbox through which traders and exchanges that wish to set up in Kenya can test the market and the regulatory environment. As yet, however, cryptocurrencies remain unregulated in Kenya.

Q. What is a token?

A token represents a programmable asset or access right(s), managed by a smart contract and an underlying distributed ledger like the blockchain. A token is accessible only by the person who has the private key for that address and can only be signed using this private key.


Q. What is the difference between a coin and a token?

A coin is typically built on its own blockchain while a token will require an existing blockchain platform to operate on. Ethereum is the most common platform to create tokens, mostly due to its smart contract feature. Tokens created on the Ethereum blockchain are usually known as ERC-20 tokens. While coins have, typically, the function of a medium of exchange or payment, tokens on the other hand are created to be used within decentralized applications (DApps) and their networks. Tokens can be either security or investment tokens on the one hand or utility tokens on the other, although there still exist rare cases of payment tokens. (Note the difference between the term 'coins' which are cryptocurrencies that operate on their own native blockchain (BTC, ETH, XRP, BCH, LTC, BSV and others) and the term 'payment tokens' which are cryptocurrencies that operate on an already existing blockchain not native to them).



Q. What is the difference between security or investment tokens and utility tokens?

Security or investment tokens are those tokens that represent a claim on their issuer. They provide rights such as ownership, repayment of a specific sum of money or entitlement to a share in future profits to the buyer. Utility tokens, on the other hand, are tokens which can be redeemed for access to a specific product or service that is provided on an exiting blockchain platform. Examples include Chainlink (LINK), Huobi Token (HT), Ontology (ONT) and Basic Attention Token (BAT). Security tokens are regarded as securities and, therefore, regulated while utility tokens are not.

Q. What are the benefits of tokens?

Tokens can provide the following benefits: 1.) a more transparent marketplace than that represented by existing financial systems. This could significantly reduce fraud or corruption within most industries as well as within financial systems; 2.) reduced transaction costs of developing, managing, and trading of cryptographic assets within distributed ledgers compared to management of assets within existing legacy systems. This could also, among other things, help lower barriers to creating efficient marketplaces for products and services that are not currently tokenised, like art or real estate. The effects of this are; 3.) increased liquidity, lower costs of price discovery and less fragmented markets for newly tokenised products and services and existing ones; and 4.) completely new use-cases, business models and asset types that were previously not economically feasible. 

Q. What is tokenization in cryptocurrency and why is it useful? 

Tokenization is the process of converting rights to a physical asset or a service into digital tokens on a blockchain. Blockchain guarantees that the ownership information is both transparent and immutable. Taking the example of a $200,000 apartment, tokenization can transform this apartment into 200,000 tokens (the number is totally arbitrary) and each token bought would represent a 0.0005% share of the underlying asset- the apartment. 100,000 tokens bought would represent a 50% stake. The property is, thus, a tokenised asset with all rights and legal responsibilities embedded directly into the token. 

Blockchain makes tokenization extremely cost-efficient by eliminating intermediaries and allowing access from different physical locations over a network of multiple interconnected computers or nodes. This fractional ownership of real assets enables access for a larger base of investors, thereby boosting liquidity of assets, as well as giving investors more options to diversify their portfolios. As an example, an Amazon share costs around $3,200 (August 2020) and can only be bought in small quantities by most average investors. Tokenization, however, would make ownership of a fraction of this possible thereby giving access to a wider variety of investors and helping broaden the market for stocks. Anything from shares and real estate to artwork and pizza could be sold in fractions as digital assets. Tokenisation could, therefore, help unlock millions of dollars in currently illiquid assets and help boost the overall volume of global trades. Tokenization is also growing in importance with, for instance, the Big Four firm EY starting to tokenise wine, chickens and eggs on its blockchain platform. 

Q. What are private and public keys in blockchain technology?

When talking about cryptocurrencies, there is no physical equivalent such as fiat, gold, diamond or work of art. It’s fully digital. To ensure trust within the network, cryptocurrencies work based on private and public keys. While the private key belongs to the investor and unlocks their right to spend the associated cryptocurrencies, the public key is a public address where all users in the network can send cryptocurrencies. Conceptually speaking, the private key is akin to a bank account password, while the public key would be the bank account number such as an IBAN. Private and public keys together form the crypto system that in a sense virtually creates “tangibility” in the transactions, reporting in the code any transaction in an encrypted and immutable way. These keys prove that a spent transaction was indeed signed by the owner of the funds and was not forged.

Q. What are stablecoins and are they useful?

Stablecoins are a type of cryptocurrency or cryptoasset which by design seek to maintain a stable market value by pegging their value to an underlying asset such as gold or USD. Examples include Tether (USDT), USD Coin (USDC) and Binance USD (BUSD). Stablecoins are useful in several ways: 1) Stability- prices of traditional ccryptocurrencies are extremely volatile thereby impacting negatively on investor confidence and mass adoption. Stablecoins are able to step in and provide long-term price stability due to their link to an underlying (real) asset like the USD or gold; 2.) Trading- processing fees for traders moving from fiat currency to cryptocurrency and vice versa incur high processing fees compared to those trading between stablecoins and fiat currency. This has seen stablecoin-trading volumes go up especially in times of high market volatilty or during bear markets; 3.) Payments- stablecoins offer the same benefits of custodianship and blockchain as traditional cryptocurrencies, but without the volatility, making them a good use-case for payments. As an example, leading cryptocurrency exchange platform- Coinbase is encouraging shoppers to use its stablecoin- USD Coin for transactions; and 4.) Financial Services- stablecoins can be used for remittances, settlement and escrow. They could play a major role in cross-border payments and remittances because they do not require 'middlemen', hefty service fees or long timelines while avoiding volatility in value.

Q. What is an Initial Coin Offering or ICO?

An Initial Coin Offering or ICO is a fundraising mechanism in which new projects or business sell underlying crypto tokens or coins, normally in exchange for fiat currency or established cryptocurrency such as Bitcoin. 

Q. What is a smart contract?

A smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements contained therein exist across a distributed and decentralised blockchain network. The code controls the execution, and transactions are both trackable and irreversible. Smart contracts permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism. The most used smart contracts are those contained within the Ethereum blockchain protocol, namely ERC-20 tokens.

Q. Does a smart contract satisfy the legal requirements of a legal contract?

Two legal regimes should be taken into consideration in this regard- contract law and consumer protection law. Under contract law, the creation of a contract should include, as a minimum, offer, acceptance, consideration and the intention to create a legally binding relationship. Self-executing code, as contained in smart contracts, may not incorporate all these aspects in all transactions, particularly if artificial intelligence is embedded in it. Under consumer protection law, this mainly envisages only those agreements developed by text-based applications and those reduced to writing. This will also include both 'internet agreements' and 'remote agreements'. However, there is nothing in consumer protection law that appears to expressly exclude the use of smart contracts.

Q. What is the tax treatment of cryptocurrency investments?

The characterisation, for tax purposes, of the income or capital gains derived from the fund’s cryptoasset investments will depend on whether the investments are treated as securities, commodities, or other property as well as on the specific jurisdiction. See more detail here.

Q. Which is the best cryptocurrency to invest in for the long-term?

The crypocurrency space is still in its formative stages and worldwide adoption and use of cryptocurrency is still in its infancy. While it is difficult to predict which cryptocurrencies will dominate in years and decades to come, a number do appear to possess characteristics that enhance their chances for long-term use and sustainability. One such cryptocurrency is Ethereum which allows developers and programmers all over the world, through smart contracts, to create decentralized applications, also known as DApps, in any life sphere. In particular, 2017 saw the explosion of ICOs (off of Ethereum) onto the scene and an astounding 10,000% rise in the price of Ether (Ethereum’s native currency). Furthermore, upwards of 40 of the top 100 cryptocurrencies by market capitalisation are built on Ethereum. Major developments in the field of Decentralised Finance or De-Fi have also involved the deployment of Ethereum. Nearly all tokens offering De-Fi services are built on Ethereum. However, Ethereum is not without its competition which comes from other platforms that host DApps and these include EOS, Cardano, NEO and NEM

Q. Is it possible to engage in leveraged investing or margin trading with cryptocurrency?

Margin trading is a method of trading assets using funds provided by a third party. When compared to regular trading accounts, margin accounts allow traders to access greater sums of capital, allowing them to leverage their positions. Essentially, margin trading amplifies trading results so that traders are able to realize larger profits on successful trades. In cryptocurrency trading, however, funds are often provided by other traders, who earn interest based on market demand for margin funds. Although less common, some cryptocurrency exchanges also provide margin funds to their users. These include Coinbase, Binance, Huobi, Poloniex and Kraken.

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