Imagine waking up one day and realizing that money you had invested years ago and thought would never reap benefits has suddenly turned into a fortune overnight?

That’s what happened to a bunch of (lucky) people who had invested in cryptocurrencies such as Bitcoin, invented back in 2009 by a mysterious figure who used the alias Satoshi Nakamoto. 

Of course, for millennials such as Rashid, cryptocurrency has emerged as a fascinating new investment vehicle, free from regulation by any central bank, and is almost impossible to counterfeit.

Their predecessors who had already stocked up on these virtual coins years ago became overnight millionaires after a surge in cryptocurrency values over the past few years. Funnily, many of these millennials were left scrambling as they had forgotten the keys to their dormant crypto wallets. 

But everyone isn’t too excited about the digital asset since financial institutions like the IMF warn about risks linked to currencies, including Bitcoin and Ethereum. Regional economies such as Qatar, Iraq, and Egypt have imposed bans on crypto trading. 

Authorities in Kuwait have warned young crypto enthusiasts against the volatile nature of cryptocurrencies. At the same time, Qatar Wealth Fund has also decided to take a cautious stance by waiting for the asset to “mature” before investing in it, even when neighboring UAE’s fund Mubadala has agreed to pump cash into blockchain tech for facilitating cryptocurrencies.

Bahrain was the first to open up to the evolution of crypto after approving a crypto-asset platform called Rain Financial and has now inked a pact with ace exchange Binance, which is also collaborating with Dubai World Trade Centre.

In Dubai, investors will be protected by the DWTC’s specialized crypto zone. The virtual coin will be regulated to prevent fraud and avoid the chances of digital assets being used for funding terrorism in the region. Abu Dhabi is also catching up with its neighboring emirate, as home to two regulated exchanges already operational and a third one in the pipeline.

Overall, cryptocurrencies remain impossible to ignore as an investment vehicle that brings uncertainties and returns. While governments try to regulate the flow, central banks in the Middle East are preparing to mint their digital coins.

ALL THAT GLITTERS IS NOT GOLD. IT MAY JUST BE CRYPTO

Fluctuation in Dogecoin prices caused by a single tweet from Elon Musk makes it look volatile. But the allure of cryptocurrencies that followed a 130% increase in value refuses to fade away. Apart from the lucrative appeal, virtual currencies aren’t linked to any government that safeguards them from crashes or slowdown in a region.

You can seamlessly transfer funds in any part of the world, and thanks to encryption, Bitcoin and Ethereum have emerged as safe options for payments at a time when the Middle East has been exposed to online scams, part of a cyber-pandemic. 

Government entities in the UAE have started accepting Bitcoin as payment. An initiative such as the crypto zone that allows Dubai World Trade Centre to regulate activities related to cryptocurrencies keeps scam artists at bay.

BLOCKCHAIN’S SHINE BLEMISHED  

The absence of control by a central bank that makes cryptocurrencies attractive also brings in an element of uncertainty. While it has reasonably spooked some economies in the region, countries such as the UAE, Saudi Arabia, and Bahrain have been more welcoming towards virtual coins. 

A few months after Kuwait’s central bank warned about fluctuations in rates of crypto assets, the UAE was hit by a scam where many fell for a shady cryptocurrency called DubaiCoin. It was touted to be Dubai’s official virtual currency and grew in value by 1000% in mere 24 hours, without any approval.

Even though the region stands divided on cryptocurrencies, and others such as Kuwait and Qatar exercising caution instead of imposing outright bans, it is believed that virtual coins are here to stay, and there’s no way to block the movement of these online assets. 

The Middle East needs to acknowledge a rising demand for cryptocurrencies among young investors in the region and regulate the asset instead of pushing it into the grey area. 

Cryptocurrencies are evolving, and in an age of misinformation, dubious players will try to turn them into tools for scams, which is why the hostility or acceptance of policymakers towards this asset will make all the difference.

Even as Saudi Arabia hasn’t been critical towards Bitcoin or Ethereum, the kingdom’s state-owned oil producer Aramco had to issue a clarification following fake reports claiming that the firm plans to mine Bitcoins. These developments have called for tightened laws, including provisions for five years imprisonment and a fine of AED1 million in the UAE over cryptocurrency fraud.

RAYS OF HOPE

But, everything doesn’t seem gloomy in the aftermath of rapid developments that have highlighted both pros and cons of cryptocurrency in the Middle East. In Lebanon, people have found much-needed safety in digital cash when the country has been reeling from a financial crisis, with the local currency losing more than 90% of its value in a couple of years.

Due to sanctions and banking restrictions, people pay cash for virtual assets to local crypto traders in Beirut since they can’t use cards or bank accounts for online transactions. If they had more access to digital payment resources, they could officially buy cryptocurrencies directly from international exchanges. This is where the government needs to bring in reforms.

Although authorities such as the Central Bank in Iraq are concerned about cryptocurrencies fraud, bans pushing them into the shadows have led to a lack of regulations, making even more people vulnerable to Ponzi schemes.

BANKS RISING TO THE CHALLENGE

After realizing how channelizing the flow of crypto wealth can benefit the economy, Saudi Arabia, Dubai, Bahrain, and some other nations create regulatory frameworks. At the same time, central banks are working on minting their digital currencies, making things official, and introducing supposedly stable alternatives to popular cryptocurrencies, including Bitcoin, Ethereum, or Dogecoin.

This includes the much-talked-about Aber project, launched as a partnership between Saudi Arabia and the UAE, and the Emirati Govcoin, slated to launch in 2026. The UAE is also working on a digital currency for cross-border transactions with China and Thailand in its quest to go paperless in the coming decades.

EMBRACING THE FUTURE

The positivity about virtual assets isn’t new for the UAE. Dubai’s Crown Prince Sheikh Hamdan launched a blockchain strategy for the country back in 2016. Recently, Dubai Free Zone became the first government entity to accept Bitcoin as payment. Meanwhile, American firm Ripple will assist Saudi Arabia’s banks in using blockchain for faster digital transactions.

The enthusiasm is further reflected by Dubai’s ambition of increasing the number of cryptocurrency businesses in the city to 1000 in 2022.

DIGGING OUT OPPORTUNITIES WITH INNOVATION

In addition to crypto exchanges, the rise of cryptocurrencies has also opened up opportunities for firms minting profits from the curiosity around them, including iHunt4, which rewards netizens for participating in a crypto treasure hunt. Gamers can enter augmented reality through the platform and explore entertainment with benefits in the blockchain-backed realm.

On the other hand, an Emirati firm Phoenix Technology has placed one of the most significant orders for crypto mining rigs worth $650 million to facilitate the circulation of new crypto coins in the virtual economy from Dubai. These rigs use graphics processing units and integrated circuits to solve complicated math problems for mining crypto assets.

ABOUT THE AUTHOR

Aiyub Dawood is a Senior Correspondent at Fast Company Middle East, who looks for practical application of technology. He explores the use of AI, innovation and data to solve everyday problems. More

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