By Saleha Riaz
KARACHI: Cryptocurrencies are gaining popularity the world over among both investors and governments. El Salvador made headlines for being the first country to accept Bitcoin as legal tender. While that may not be on the agenda for Dubai – or for some of the other countries just yet – the city is still racing ahead in the crypto and blockchain space.
Cryptocurrencies are not licensed by the UAE Central Bank. But even as regulators in countries like China come down hard on the likes of Bitcoin, Dubai’s watchdogs are leading a push toward acceptance of blockchain-based technologies – a blockchain stores information electronically in digital format and the tech plays a crucial role in cryptocurrency systems.
A number of cryptocurrency exchanges have been given permission to operate within the financial free zones in Dubai. The Dubai Multi Commodities Centre’s (DMCC) Crypto Centre was launched in May to promote blockchain technologies – it has on-boarded some 123 companies operating in the crypto space, with another 790 waiting to get licences.
The city expects more than 1,000 cryptocurrency businesses to be operational by the end of 2022.
“The UAE culture is one of open mindedness and willingness to diversify and that’s quite often resulted in it being at the forefront of supporting new technology,” James Bernard, regional representative for Europe at DMCC, told Business Recorder, adding that Dubai has been quick to understand the usage of blockchain.
“In the past few years, we’ve seen an increasing acceptance of crypto in the global space. During this period, Bitcoin has evolved from being seen as the original cryptocurrency to a revolutionary product that changes the nature of how we do transactions.”
“Globally this has been less understood by different sectors, different geographies and different authorities but was understood very early on by Dubai – that this has a greater significance with the underlying blockchain technology.”
He said Dubai has set up a blockchain council to see how the government could use the tech, and how it could attract companies from all over the world in this space.
That is how DMCC ended up getting involved with CV Labs – “we took their expertise to set up the beginning of a thriving ecosystem”.
The DMCC Crypto Centre houses a leading crypto advisory practice led by CV Labs, the entity behind the Switzerland government-backed Crypto Valley. “Dubai has a progressive environment – in 2018 it made its own blockchain strategy with the aim of saving costs, reducing paper and making systems more efficient,” said Oliver Von Wolff, who heads CV Labs in Dubai.
He told Business Recorder about the vast applications of blockchain technology – “it’s much more than cryptocurrency, in the area of industry and logistics and finance blockchain will completely change systems.”
Back in June, Dubai hit a major milestone: the Bitcoin Fund debuted on the Nasdaq Dubai, becoming the Middle East’s first listed cryptocurrency fund. And Dubai-headquartered digital asset exchange BitOasis raised $30m last month, with ambitions to build the largest and most trusted cryptocurrency platform in the region.
Meanwhile, investors are jumping at the opportunities Dubai is providing. According to a Nickel Digital Asset Management survey from earlier in the year, 10 institutional investors in the UAE had said they plan to dramatically increase their exposure to cryptocurrency assets between now and 2023.
“Cryptocurrencies are poised to capture investor attention in Dubai,” as the asset class “becomes more user-friendly in terms of transaction, settlement and accessibility,” Kunal Sawhney, CEO of equities research firm Kalkine Group told Business Recorder.
He said traders are now increasingly allocating funds in cryptocurrencies in order to hedge their portfolio against market uncertainty and to capitalise on the booming phase of the crypto-ecosystem.
Farah Mourad, senior market strategist at trading platform XTB, told Business Recorder that the pandemic has boosted crypto popularity and that “Dubai’s adoption for cryptocurrency and blockchain technology was inevitable.”
“As investors were looking for alternative market’s opportunities, they also needed efficient supervision and regulation of the crypto market, which the Securities and Commodities Authority (SCA) provided.”
Back in September, the SCA and the Dubai World Trade Centre Authority (DWTCA) entered into an agreement supporting the regulation, offering, issuance, listing and trading of crypto assets and related financial activities within DWTCA’s free zone.
Bernard said the DMCC has worked together with the SCA since the early 2000s. “When they started developing crypto regulation they took advice from us and the rest of the industry.”
He said it is being “being extra vigilant, working with the central bank to be in line with the best practice of defining what crypto assets are, what the world sees as cryptocurrency and what the world sees as non-regulated activity like blockchain development, and drawing boundaries around these so there is a clear vision.”
“We will be going forward with them to have licenses ready for regulated activity,” he added.
Pakistan has seen a boom in trading and mining cryptocurrency. Former celebrity TV host Waqar Zaka’s cryptocurrency mining farm that runs on hydroelectric power, and his push for the country to focus on this space, received much media attention.
Social media groups explaining how to trade and mine cryptocurrency have thousands of followers, while online cryptocurrency exchanges have hundreds of Pakistani traders listed. In April 2018, the State Bank of Pakistan (SBP) declared that cryptocurrencies are not legal and not recognised, issued or guaranteed by the government.
Even though in a recent development the government has set up a committee to study cryptocurrency regulation, the industry still has a long way to go. Wolff said that to increase opportunities for crypto businesses, the government must create a conducive environment by providing better physical infrastructure and capital for startups.
“From my perspective, we see a lot of young entrepreneurs coming to Dubai from Pakistan to realise their ideas. My suggestion is to build a positive environment to keep talent inside the country.”
It is hard to talk about blockchain without mentioning non-fungible tokens (NFTs) - a unique unit of data associated with easily-reproducible items such as photos and videos - and the play-to-earn model where gamers can earn up money playing crypto games like Axie Infinity.
Bernard thinks there is potential for Pakistan to encourage both of these: “the play to earn model means people could actually be earning money from their mobile phones,” he said, adding: “the whole NFT movement is not just pretty pictures but the smart contracts behind those.”
He said there are a multitude of things in the crypto and blockchain space that Pakistan could be embracing “but that is of course up to the government.”
Explainer: what is Bitcoin?
There’s no simple way to explain what bitcoin is. It is not by any means the shiny gold physical coin often seen in the media – it is actually completely virtual.
Bitcoin is a cryptocurrency – each coin is a computer file that can be used to buy goods and services. It is stored in a digital wallet app and secured by cryptography.
Participants in the Bitcoin market can buy or sell tokens by making transactions from their digital wallets, or through cryptocurrency exchanges.
Another way to get bitcoins is to mine them – many people have set up powerful computers to solve complicated puzzles. If the computer is able to solve the puzzle or sum, the owner may be awarded with Bitcoin. But this method takes time and requires a lot of electricity.
Each and every transaction that’s ever been made exists on a public ledger, making transactions hard to reverse and difficult to fake.
This is important because Bitcoins are not backed by the government or any institution, and there’s nothing to guarantee their value other than this proof.
That’s one reason cryptos are controversial and not many places accept Bitcoin.
Some countries have banned cryptos altogether mainly because there isn’t enough regulation. And consumers who deal in cryptos could lose all their investments, given there are no laws to protect them.
At the same time, cryptocurrencies are gaining mainstream acceptance. For instance, PayPal now allows customers to buy and sell Bitcoin. And many investors are adding it to their portfolios. Based on market capitalisation, Bitcoin is the number one cryptocurrency. Some analysts believe one Bitcoin could be worth $100,000 by the end of the year.
Its all-time high, which it hit recently, is roughly $67,000. However, it is currently hovering around the $58,000-mark.