Bitcoin is gaining traction in one of the least expected places—Kibera, Kenya’s largest slum. Known for its high crime rates and limited access to banking services, this densely populated area is embracing the leading cryptocurrency for everyday transactions. Residents and small business owners are increasingly using Bitcoin (BTC) to avoid fees and delays associated with traditional payment systems.

However, this wave of grassroots adoption may soon face serious challenges. A proposed tax on digital assets in Kenya threatens to slow down momentum, raise transaction costs, and potentially push users toward unregulated markets.

Bitcoin Finds Purpose in Informal Economies

In recent months, community members in Kibera have started to accept Bitcoin for goods and services. Grocery vendors, waste management workers, and even small shopkeepers are turning to BTC because it’s faster, cheaper, and considered safer than handling physical cash in an area plagued by crime.

One vendor explained the switch by saying, “I like it because it’s cheap, fast, and has no transaction costs.” Another added, “It’s safer to be paid in Bitcoin than to carry cash here.”

This shift isn’t just about convenience—it’s about inclusion. In places where access to banks and mobile money services like M-Pesa can be unreliable or expensive, Bitcoin offers an open financial system without barriers.

The Regulatory Threat: Kenya’s Crypto Tax Proposal

As Bitcoin adoption grows, the Kenyan government is taking notice—and considering tighter regulations. The proposed Virtual Asset Service Providers (VASP) Bill of 2025 aims to provide legal clarity for crypto platforms operating in the country. It also introduces a tax component: a 3% Digital Asset Tax (DAT) on every transaction, whether or not it results in a profit.

After public criticism, a revised version suggests reducing the tax to 1.5%, but that may still be too high for most retail users and traders.

Experts argue the flat tax could hurt the very communities that are starting to benefit from crypto adoption. “If you’re doing 10 to 20 trades a day and paying 3% each time, there’s no profit left,” warned Rufas Kamau, Lead Analyst at FXPesa, during a CNBC interview.

This approach could drive users away from regulated platforms toward less secure peer-to-peer or offshore services, reducing the government’s ability to monitor and benefit from the sector.

Global Lessons: India’s Cautionary Tale

Kenya’s situation mirrors that of India, where a 1% tax on crypto trades led to a near 90% drop in trading volume across centralized exchanges. In response, Indian crypto companies have asked regulators to lower the tax to just 0.1% in hopes of reviving the local market.

Kenya, with approximately 6 million crypto users—roughly 10% of its population—could suffer a similar fate. The country currently ranks 21st globally on Chainalysis’ crypto adoption index, ahead of many developed economies.

Cost Comparison: Bitcoin vs. M-Pesa

One of the key reasons Bitcoin has gained popularity in Kenya is the high cost of mobile money services. Platforms like M-Pesa typically charge 0.04% to 1% of the transaction amount. In comparison, Bitcoin offers nearly zero fees, especially when used through efficient layer-2 networks or custodial apps.

This cost difference is a game-changer for low-income earners who live paycheck to paycheck. A 1.5% to 3% tax would make using Bitcoin even more expensive than mobile payments—undermining one of its biggest advantages.

A Crossroads for Financial Inclusion

Bitcoin’s spread in Kenya is more than a trend—it’s part of a larger story about financial inclusion in underserved communities. In areas where traditional banking has failed, and even mobile payment networks fall short, cryptocurrency offers a way forward.

But for that potential to be fully realized, regulation needs to be thoughtful, not punitive. Encouraging innovation while protecting users should be the goal—not pushing them into the shadows.

The Kenyan government must now decide: will it support this movement toward digital finance, or will it stifle it with excessive taxation?

Conclusion

Bitcoin’s growing role in Kibera is a powerful example of how digital assets can provide real-world solutions in some of the toughest environments. As the country debates new regulations, the stakes are high—not just for crypto traders, but for millions who are finally finding access to a safer, cheaper, and more open financial system.

Whether Kenya becomes a leader in crypto innovation or a cautionary tale depends on how it handles the next steps. One thing is clear: the people in places like Kibera are ready for change. The question is, will the law support them?