United Arab Emirates: Crypto Currency - Legal Implications And Future

Last Updated: 22 August 2018
Article by STA Law Firm
Most Read Contributor in United Arab Emirates, September 2018

Cryptocurrency– A Magical Bubble or The Future of Currency?

The noise and media surrounding the notion of cryptocurrency have been increasing the curiosity rapidly. Before curiosity kills the cat, let's walk through the story of cryptocurrency.

Cryptocurrency is an innovative and a virtual currency that utilizes cryptography for security and this matter it is difficult to fake it. A characterizing highlight of a cryptocurrency is its organic nature; it is not issued by any government authority, rendering it hypothetically resistant to government obstruction or control. The mastermind behind cryptocurrency is the blockchain. A blockchain is digitized and decentralized of all cryptographic transactions. It is the process of converting readable data into a relatively uncrackable code, to track purchases and exchanges. Over the years, blockchain and cryptocurrencies have grown exponentially that uses as a financial service tool to improve transparency and efficiency.

Not many know that digital currencies rose as a side result of another innovation. Satoshi Nakamoto, the obscure innovator of Bitcoin, the first and still most critical cryptocurrency, never proposed to invent a currency in the first place. In his declaration of Bitcoin in late 2008, Satoshi said he built up "A Peer-to-Peer Electronic Cash System." The primary cryptographic currency was bitcoin, and since then there are currently more than 1,000 different types of cryptocurrency accessible on the web with over 200 Bitcoin ATM’s installed around the world.

The creation of Bitcoin is via a mining process where miners receive compensation for newly issues bitcoins. There is a limitation on the production of the number of bitcoins which is limited to 21 Million. Once the limit has surpassed, the miners will receive transaction fees instead of bitcoin. Individuals contend to "mine" bitcoins utilizing a computer to settle complicated math confounds. There is no curtailment on who can become a miner, all you need is a computer and accessible internet. Bitcoin transactions are not confidential as it is published to the public network to be verified by the system on miners. Therefore, it is possible to trace bitcoin between bitcoin wallets. The storage of Bitcoins is in a ‘digital wallet’ that exists either in the cloud or on the user’s computer that acts as a virtual bank account that allows users to exchange, trade or make transactions. FDIC does not insure bitcoin wallets like bank accounts. The operations are public, the owners of the portfolios can be anonymous. It is the most attractive feature of bitcoin as miners effectually vote on the legitimacy of each transaction as part of the mining process.

In this modern era of economics, where societies no longer have to rely on banks and other centralized institutions to keep track of their payments and guarantee the financial system. Blockchain technology frees people from this centralized trust. Cryptocurrency makes it less demanding to exchange finances between two parties in a transaction; these exchanges are encouraged using public and private keys for security purposes. These operations are done with minimal fees, enabling clients to maintain a strategic distance from the high expenses charged by most banks and financial organizations for wire transfers.  Cryptocurrency is digital and doesn't have a local repository since its digital it can be wiped out by a computer crash if a backup of the possessions does not exist. Since costs depend on free market activity, the trade rates of cryptocurrency can vary broadly.

The support of cryptocurrency is only by the trust of users rather than the authority of the state. Money is based on confidence and trust regardless of a nation's currency; whether it is dollars or dirhams, people accept it because it is recognizable as trade.

Paper vs. Electronic vs. Crypto?

Individuals have a variety of options when making a transaction from cash, debit, credit, crypto, etc. The massive multinational tech company, Microsoft recently added Bitcoin as a payment option on its online portal to purchase games, movies, and apps in the Windows and Xbox stores. Regardless of whether it is Pound, Dollar or Euros; All necessary cash monetary forms have lost enormously over the last year against the central five cryptocurrencies. Meanwhile, more than the US $ 90 billion has been put worldwide in crypto, and the pattern keeps on rising. The most striking contrast between cryptocurrency and paper money is that crypto is accessible virtually, while paper money exists in tangible form. Paper money accounts in the banking system via account numbers; digital currencies use addresses and cryptography that encrypt private data and mathematically verifies identities. European Central Bank defines virtual currency as an unregulated, digital fund which is issued and controlled by developer and utilized and acknowledged among the individuals from a particular virtual group. Through the use of cryptography, digital currencies are usually safer and more challenging to manipulate compared to the paper money. The transparency on the blockchain minimizes the risk of corruption. Therefore, some states are now considering the use of blockchain in the public sector.

Credit card transactions are the dominant payment method used across the web. If you have ever bought anything with your credit card from an online seller, you know the drill. Online seller takes the credit card details, and then sends it to a financial system with processors, banks, credit card companies, and other mediators. If you use PayPal or Venmo to carry out your online transactions, a third party takes your bank account details and approves the purchase and notifies the seller. Approaching the third-party system, you can keep the privacy and make a payment through a secure network, but you lose the simplicity of directly dealing with the online seller.  However, cash minimizes the possibility of buyer defaulting his debt. Money has some advantages as it has better anonymity whereas purchasing with credit card requires you to disclose your account details and it is easily traceable. Consequently, cash is not identifiable.

On the other hand, bitcoin doesn’t protect the status of anonymity as much as cash. Bitcoin doesn’t require you to reveal your real identity, but there is a connection with a public ledger of transactions and where the invasion can happen in the worst case scenario. It doesn’t require a central server but relies on peer to peer network. The disadvantage is that if the Internet fails or the user does not have access to the internet, one cannot execute the transactions. Another drawback is that if the crypto owner loses his key or accidentally wipes his wallet than that’s a threat to security. Cryptography is more suitable for tech-savvy users, the acceptance in the traditional trade is still low.

Crypto Theft

The murkiness around the subject of cryptocurrency often makes it seem dodgy or a scheme to sucker fools out of their money. Crypto users can be inclined to theft, fraud, and cons, which some contend is made less demanding on account of Bitcoin's structure and absence of control. The very idea of Bitcoin makes prevention of theft difficult, one of the most significant components being there is no real way to recover Bitcoin that has been stolen or conned, and no real way to return the transaction. Cryptocurrencies are not insusceptible to hacking. In Bitcoin’s history, we have acknowledged so far at least 40 thefts that exceed US Dollars one (1) million.  The recent breaking news in the crypto world is featuring One of Asia's most significant advanced money trades – Coin check that is known as the ‘world’s biggest ever cryptocurrency hack.’  Hackers have stolen £380m worth of cryptographic money from one of Japan's biggest advanced trades. Coin check, situated in Tokyo, said that there was a wrongful transfer of around 523 million of the trade's NEM coins to another record. The trade has suspended stores and withdrawals for all digital forms of money except for Bitcoin. In 2014, known to be the single greatest hack ever. At the time of the hack, Mt. Gox (Magic the Gathering Online Exchange) was the biggest Bitcoin trade in the world and took care of 70% of the world's Bitcoin trades. The trade was under a cyber-attack, and the programmer exchanged a large number of Bitcoin from the business to his record prompting the theft of $473 million in Bitcoin.

Cryptocurrency for Illicit Activities

Bitcoin is anonymous and flexible, which means its popular among criminals. The record of Bitcoin exchange is in an open log, names of purchasers and sellers that are out in public – just their wallet IDs. There is no bank or central authority, like a government or a state to control this information. It keeps bitcoin users’ transaction private and additionally gives them a chance to purchase or offer anything without effortlessly being traceable. That is the reason it’s a favorite choice for individuals to purchase drugs or other unlawful exercises on the web. It enables law requirement to track exchanges and have the capacity to make it less demanding to follow Bitcoin back to its proprietor, as was done in 2013 to capture one of the most prominent medication advertises that utilized Bitcoin. Bitcoin also became a conventional method for making payments when a computer system is taken over by ransomware. It has helped ransomware assaults. However, the degree of reprimanding Bitcoin is far from being naturally correct. Web security is considerably fragile, while programmers have been getting substantially more modern, so it would bode well that assaults would rise.

Despite the fact that Bitcoin can make it simpler for criminals and scammers to play out their devious deeds, regardless it is impeccably respectable and great speculation to invest. Any money has unlawful users; Bitcoin is the same in such a manner. By far most of the clients do utilize it legitimately, similarly as most utilize US dollars or any other currency lawfully. That doesn't mean one shouldn't be observant when using Bitcoin, likewise as you ought to be cautious on the web or to make any other transaction.

Cryptos Future

Cryptocurrency gives billions of people access to financial services that otherwise have no bank account. In developing countries, in particular, almost 60% of adults are excluded from the banking system because they do not meet the minimum requirements to open a bank account.  In countries where the currency is not stable like Zimbabwe or Venezuela etc. it serves as means of exchange and conservation. 

On the other hand, Crypto-related issues are also on the upsurge in companies and banks. At IBM, an estimate that by the end of 2017, around 15% of banks will use blockchain techniques, as these financial transactions are more efficient and less expensive.

However, no one knows what the future holds for Bitcoin. It is unregulated. A few nations like Japan, China, and Australia have started measuring controls. Governments are worried about tax collection and their absence of control over the money. Be that as it may, you cannot pay the rent utilizing Bitcoin or purchase insurance. There is yet to see what the future holds for cryptocurrencies.  

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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