Blockchain Laws and Regulation in UAE
How Government Authorities in the UAE regulate Blockchain?
is cryptocurrency legal in the UAE?
The United Arab Emirates has adopted a different approach to regulate Blockchain technology. Instead of banning it like China or South Korea, the country’s leaders have decided to embrace this new technology. The attitude of government authorities towards Blockchain technology is pretty positive. They think that technology can improve the quality of life for all people living in the UAE.
Ever since Blockchain technology’s launch in 2016, the UAE government maximized its use as a platform in enhancing productivity and payment efficiency. From the previous discussion, we have learned that Blockchain is applying a shared ledger database that records and shares transactions as it occurs among its network of users. It is a secured, transparent storage unit that operates with or without a central control body.
The use of Blockchain gave rise to the digital money known today as “cryptocurrency”. As cryptocurrencies have penetrated the market and created an impact on the UAE government, several blockchain policies and cryptocurrency regulations passed were used to safeguard the application’s people. Blockchain has been considered as a breakaway technology as a multifold application that includes the digital currency Bitcoin.
What is Bitcoin?
According to its website, Bitcoin is software that offers decentralized digital currency. It could be easily be transferred, negotiated, and sent over the internet. It is commonly known as “virtual money” by market capitalization and protected through cryptography.
Bitcoin relates to Blockchain because the latter is utilized to record transactions employing its distributed ledger. It is an innovative concept that combines the financial and technological aspects, integrating money, accounting, networks, and remittances into one process.
Advantages and Disadvantages of using Bitcoin:
Bitcoin is a virtual currency that UAE merchants have used since 2014.
Advantages of Bitcoin:
1. People have payment Freedom: With the advent of technology, bitcoin users are assured that cryptocurrencies could be sent freely without borders anywhere in the world at any time. This is impossible for regular bank and money transfers as there would be restrictions from financial policies per country.
Because of blockchain technology, there is financial freedom in using bitcoin as there is no central authority limiting its use.
2. Security and Control: With bitcoin, users control their transactions and are safe from charges from traders without prior notification. Transactions using crypto money could be made discretely as no personal information is linked. This in turn, would protect the users from identity theft and potential losses due to fraud.
3. Information is transparent: Although the personal information of the bitcoin user is unstated, all completed transactions are made available to the public through the use of blockchain technology.
4. Low Fees or No Commission: Since Bitcoin is a new currency, transactions are charged with meager fees or no commissions. Users include transaction fees to make their transactions a priority or the process faster.
This is because Blockchain technology seeks to remove or replace business process models that charge a small fee fro transactions.
Disadvantages Of Bitcoin:
1. Lack of knowledge and understanding: Blockchain technology is an innovation that is still being studied and monitored by countries around the world. Thus, a lot of people still do not know the existence of digital coins and bitcoins. This, in turn, made it impossible for Blockchain to penetrate the third-world countries.
2. Risky and Volatile: Economic investment with Bitcoin is young. While the demand is increasing daily, there are only a limited amount of coins available in the market. Hence, Bitcoin prices spike day by day.
Moreover, transactions with bitcoin could not be reversed and could only be surrendered by the person who received the money. This risky situation where a bitcoin user should only transact with trustworthy organizations who have built their reputation.
3. Incomplete but emerging functions: Although Bitcoin can be attractive to many, cryptocurrencies are still treated as commodities than a necessity. This is because mainstream businesses do not commonly accept Bitcoin. Consequently, people are advised not to invest all their money into bitcoin fully.
Authorities that regulate Blockchain in the UAE
At present, the UAE government has not enacted specific legislation to address blockchain technology. However, there is an inherent obligation to integrate Blockchain into various sectors and industries in the UAE. Check all the crypto assets and regulatory framework in the UAE.
In 2020, the UAE government committed to utilizing Blockchain in normal life. Hence, the Dubai Future Foundation created the Global Blockchain Council and the Dubai Blockchain Strategy 2020. Global Blockchain Council’s function is to assess and analyze blockchain applications and transactions. This, in turn, allowed the government to assist transactions from financial and non-financial sectors.
With the growing popularity of the virtual currency industry, the government has set parameters on its regulatory framework to reduce operational and systemic risks. Moreover, the regulations protect consumers from financial harm like fraud and cybercrime.
Recently, Dubai’s financial regulators have signified their intent to develop a regulatory framework for the crypto sector that would come into the effect next year 2022. The government also created UAE Blockchain Strategy 2021 to transform 50% of government transactions into a blockchain platform by 2021.
The following are some of the government agencies who assumed the responsibilities in keeping blockchain technology in check:
DIFC: Dubai International Financial Centre, the leading free zone financial center in the Middle East, Africa, and South Asia.
The DIFC is an independent regulator connected trade and investment markets with Asia, Europe, and America. It has a proven judicial system that is run by an English standard law network.
DFSA: Dubai Financial Services Authority, the financial regulator in the DIFC. According to its website, the DFSA is a purpose-built financial-free zone in Dubai, UAE. It is an independent regulator of financial services conducted in or from the DIFC.
FSRA: Financial Services Regulatory Authority, the financial free zone regulator in the Abu Dhabi Global Market.
Both the DIFC and the ADGM have developed incubator regimes that indirectly encouraged Blockchain Technology’s inclusion in startup business.
ICO: Initial Coin Offering, a means of raising funds online by distributing tokens or coins and using the funds as the source of capital for a venture.
Smart Contract: A self-executing contract where the terms have been written into an algorithm permitting the verification and enforcement of a set of agreed-upon terms.
Alternative Business Application of Blockchain
Blockchain is primarily used in the financial sector, where stock exchanges and insurances are involved. Nevertheless, Blockchain could be used alternatively for other purposes.
1. Supply Chain Editing
People in the corporate world could make use of Blockchain’s Distributed Ledger Technology (DLT). Blockchain Technology records the history of financial transactions, contracts, physical assets, supply chain information, etc., on a shared, immutable real-time ledger. This technology helps consumers verify claims made by a company concerning the production process of a consumer good.
2. File Storage
Blockchain has a fixed system on its file storage that protects consumers from hackers. Also, with its interplanetary file system (IPFS), the need for a centralized client-server relationship is abrogated.
These characteristics of Blockchain would enable users to transfer files efficiently and safely without being overloaded.
3. Smart Contracts
Consumers who use Blockchain could utilize it as a smart contract. A smart contract is a self-executing contract that could be coded into a computer program thru a blockchain network that stores and executes it.
Challenges in Blockchain Deployment
As Blockchain’s utilization has predominantly increased over the years, liability has been put on the pedestal. Moreover, Blockchains development and global expansion are linked to effective government regulation protecting its users from fraud and cybercrime. The issue of liability regarding smart contracts will also lead to further questions if an overt offer and acceptance lead to a binding agreement.
Furthermore, the data’s jurisdiction and location in the blockchain system is a challenge since there is still no regulation regarding the transfer of cryptocurrencies from one user to another.
These are some of the challenges for the UAE government. As the government body adjusts, the judicial system also re-calibrates its knowledge.