The Legality of Cryptocurrency in Egypt

Cryptocurrencies, such as Bitcoin and Ethereum, have revolutionized the global financial system, introducing decentralized technologies that bypass traditional intermediaries like banks. Yet in Egypt, the rise of cryptocurrencies has been accompanied by widespread misunderstanding. Many view these digital assets as a quick path to wealth or associate them with illegal activities, while others misunderstand the concept of decentralization—the foundation of blockchain technology.

Decentralization means that cryptocurrencies are not governed by any central authority, like a bank or government, but rather operate on distributed networks that rely on cryptographic security. While this innovation is celebrated globally for enabling financial autonomy, it raises significant concerns in Egypt, where the government views unregulated financial systems as threats to national stability and security.

The Central Bank of Egypt (CBE) has adopted a strict stance toward cryptocurrencies, prohibiting their use without prior approval. This reflects the country’s broader approach to controlling financial technologies to ensure compliance with national laws, prevent misuse in illicit activities, and protect the stability of the Egyptian pound.

The Legal Framework Governing Cryptocurrencies in Egypt

The cornerstone of Egypt’s regulatory approach to cryptocurrencies is the Central Bank and Banking System Law. Article 206 of this law explicitly prohibits the issuance, trade, or promotion of cryptocurrencies or cryptographic units without prior approval from the CBE. Violating this provision can result in severe penalties, including fines and imprisonment.

The CBE’s rationale lies in protecting the financial system from the risks associated with cryptocurrencies, such as:

• Volatility: Cryptocurrencies like Bitcoin are notoriously unstable, with prices fluctuating drastically in short periods.
• Fraud and Scams: The absence of regulation makes it easier for fraudulent schemes to exploit unsuspecting users.
• Illicit Activities: Cryptocurrencies can be used to finance illegal activities, including money laundering and terrorism.

By requiring explicit licensing for any cryptocurrency-related activity, the law ensures that the government retains control over financial technologies that could otherwise destabilize the economy.

In January 2021, the CBE reiterated its position on cryptocurrencies through a formal statement. The statement warned the public against trading or using digital currencies, highlighting the lack of legal protections for users. It emphasized that any financial losses incurred due to cryptocurrency trading would not be recoverable under Egyptian law.

This cautionary stance aligns with global concerns about cryptocurrencies, particularly their speculative nature and potential to bypass traditional financial systems.

Broad Implications for NFTs and DeFi

While the law focuses primarily on cryptocurrencies, it indirectly affects related technologies like Non-Fungible Tokens (NFTs) and Decentralized Finance (DeFi). NFTs, which represent ownership of digital assets, and DeFi platforms, which offer banking services without intermediaries, also rely on blockchain technology. Since these systems often involve the use of cryptocurrencies, their adoption in Egypt is inherently limited by the country’s strict regulations.

How Egypt’s Approach Differs from Global Trends

Globally, countries have adopted varying approaches to cryptocurrencies, reflecting diverse priorities and economic concerns. While nations like the United States and European Union work toward integrating cryptocurrencies into their financial systems through taxation and regulation, others, such as China, have imposed outright bans on cryptocurrency mining and trading.

Countries in the Gulf Cooperation Council (GCC) region, like the UAE and Saudi Arabia, are exploring regulated adoption, leveraging blockchain technology for national projects.

In contrast, Egypt has opted for a highly restrictive stance. By banning the trade, issuance, and promotion of cryptocurrencies without prior approval, the government has drawn clear boundaries. This reflects Egypt’s emphasis on:

• Monetary Sovereignty: Cryptocurrencies, with their decentralized nature, could undermine the stability of the Egyptian pound by introducing alternative forms of value.
• Combating Financial Crimes: The anonymous nature of cryptocurrency transactions makes them attractive for illicit activities, which Egypt is keen to prevent.
• Preserving Public Trust in the Financial System: By discouraging unregulated digital finance, the government seeks to protect citizens from volatile and speculative markets.

Religious Considerations in the Debate

In addition to legal and economic concerns, Egypt’s stance on cryptocurrencies is influenced by religious rulings. In 2018, Egypt’s Grand Mufti issued a fatwa declaring cryptocurrencies like Bitcoin as haram (forbidden under Islamic law). The ruling argued that the speculative nature of cryptocurrencies, along with their potential for fraud and misuse, conflicted with the principles of Islamic finance.

Although the fatwa does not carry the force of law, it has significantly shaped public perception, discouraging many Egyptians from engaging with digital currencies.

Challenges for Cryptocurrency Enthusiasts and Businesses in Egypt

Despite these restrictions, interest in cryptocurrencies remains strong among Egyptians, particularly among younger demographics who are tech-savvy and attracted to global trends. The following challenges highlight the difficulties faced by cryptocurrency enthusiasts and businesses in the country:

• Lack of Legal Protections: With no regulatory framework to safeguard investments, users are exposed to significant risks.
• Limited Access to Platforms: Popular global cryptocurrency exchanges often avoid markets like Egypt due to regulatory uncertainties.
• Fear of Legal Repercussions: The explicit ban under Article 206 discourages individuals and businesses from exploring blockchain-based technologies.

While Egypt enforces strict controls over cryptocurrencies, the potential of blockchain technology remains largely untapped. Blockchain, the foundation of cryptocurrencies, is a versatile tool capable of transforming many industries. Rather than solely associating blockchain with digital currencies, Egypt could harness this technology to address challenges in various sectors. Key opportunities include:

• Land Registration Systems: Blockchain can enable the creation of tamper-proof, transparent property records. This would reduce fraud in land transactions and improve the efficiency of Egypt’s property registration system.
• Supply Chain Management: By adopting blockchain, Egypt could enhance transparency and traceability in its trade logistics. This would be particularly beneficial for key industries such as agriculture, manufacturing, and exports.
• Digital Identity Solutions: Blockchain can provide secure digital identity systems, reducing fraud and ensuring the authenticity of citizen data. This could be applied in areas like e-governance, voting systems, and access to government services.

The Legal Status of Cryptocurrencies in Egypt

The question of whether cryptocurrency is legal in Egypt has a clear and definitive answer: cryptocurrencies, including Bitcoin, are illegal under Egyptian law. The Central Bank and Banking System Law (Law No. 194 of 2020) explicitly prohibits the issuance, trading, or promotion of cryptocurrencies without prior approval from the Central Bank of Egypt (CBE). Article 206 of the law outlines strict penalties, including fines and imprisonment, for those who engage in unauthorized activities related to cryptocurrencies.

The Central Bank of Egypt has repeatedly warned the public about the dangers of trading cryptocurrencies. In a formal statement issued in January 2021, the CBE emphasized that cryptocurrencies operate outside the scope of traditional financial regulation, leaving users unprotected from fraud, financial losses, and the high volatility that characterizes digital assets. It further clarified that Egyptian law provides no legal recourse for recovering funds lost in cryptocurrency transactions.

Implications for Bitcoin and Other Cryptocurrencies

Since Bitcoin and similar cryptocurrencies fall under the umbrella of “cryptographic units,” they are included in the restrictions outlined by Egyptian law. This means:

• Bitcoin Trading: Individuals are prohibited from buying, selling, or exchanging Bitcoin without explicit approval from the CBE.
• Mining Operations: Mining Bitcoin or other cryptocurrencies is also considered illegal, as it involves creating new cryptographic units without Central Bank authorization.
• Promoting or Facilitating Cryptocurrency Use: Any attempt to promote or enable the use of cryptocurrencies, whether through advertising or facilitating transactions, is also prohibited.

The Future of Cryptocurrencies in Egypt

Despite the current legal stance, the interest in cryptocurrencies continues to grow in Egypt. Factors such as global adoption trends, increased use of blockchain technology, and public demand may prompt policymakers to revisit these restrictions in the future. The gradual incorporation of blockchain for non-financial applications suggests that Egypt may eventually consider a more nuanced regulatory framework for digital assets.

For now, however, the legal environment remains unyielding. Cryptocurrencies like Bitcoin are illegal in Egypt, and individuals engaging in their use or trade face significant legal risks.

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