United Arab Emirates: How Do Legal Consultants In Dubai See Cryptocurrency?

Last Updated: 2 September 2019
Article by Hassan Elhais

Financial consultants, bankers and investors usually fail to understand the true concept behind investment in cryptocurrency, and yet we cannot blame them for unsolicited information available through varied platforms. Thus, Corporate Lawyers of Dubai will walk you through the whole path of cryptocurrency from its emergence until now.

The term Bitcoin, Cryptocurrency and blockchain were peculiar for the world until Satoshi Nakamoto an unrecognized inventor of Bitcoin announced in late 2008 about Electronic Cash System. The concept flooded in world's market like rapid fire and investors around the globe built a crypt currency market for buying and selling. UAE was also unknown and unfamiliar to this concept until the tides of elevated profit hit the market as compared to the current picture where world's first cryptocurrency deep "cold storage" entities are established and functioning in UAE.

The Definition

It is an innovation and a virtual currency that uses cryptography, a procedure to convert legitimate information into an unbreakable code in order to track buyers and sellers. The need for such secure communication arose and evolved in the digital era with the aid of a secure online platform. This currency is operated by way of blockchain technology in contrast with fiat currency where one authority such as central bank regulates the currency. Cryptocurrency seeks their validation from a decentralized system wherein an investor participating in the process can seek verification. Particularly, Nakamoto benefitted the process of blockchain technology and created the infamous Bitcoin.

Laws of UAE regulating Cryptocurrency

FSRA-ADGM (Financial Services Regulatory Authority of Abu Dhabi Global Market) was the first in line to issues guidelines and regulations in relation to activities of buying and selling Cryptocurrency. The guidelines were regarding the regulation of Initial Coin Offerings (ICO) and virtual currencies wherein, the public at large can purchase and sell Cryptocurrency. FSRA-ADGM will determine the specific commodity on the case to case basis. The objective of ADGM regulations if to increase transparency and to restrict money-laundering activities and to combat financial terrorism.

Inspired by ADGM regulations, DMCC (Dubai Multi Commodity Authority) has provided an opportunity for investors to incorporate a business of trading in Cryptocurrency. However, companies would only be allowed to trade on their own behalf. Accordingly, such companies can establish the world's first Cryptocurrency deep "cold storage" cellar.

In an offer to become a pioneer in blockchain innovation, the UAE has propelled the UAE Blockchain Strategy 2021, as per which half of the government exchanges will be directed utilizing blockchain innovation by 2021. To consolidate its vision, rules and regulations on the utilization of crypto resources, including cryptographic forms of money, have recently been issued.

Prior to the issuance of ADGM regulations, the Central Bank of UAE in 2017 promulgates a regulatory framework regarding the Electronic Payment System entailing all virtual currencies and transactions being restricted, setting a high alarm in UAE market. However, post receiving an unsatisfactory review, the governor of Central Bank clarified that the regulations would not be applicable to Cryptocurrency. In spite of this confirmation, UAE still awaits for legalized regulations which one may resort to in order to understand the validation of cryptocurrency or to seek a claim against frauds in virtual currency.

Crypto Fraud and Future

The dubious behaviour and presence of Cryptocurrency in the market make it treacherous for investors as it can turn out to be Ponzi scheme to steal money. The basic ideology behind Cryptographic money makes it arduous to prevent theft as any crypto asset is stolen cannot be traced and returned to the original investor. From past a decade, we have come across numerous hacks and scams in a crypto world wherein; Coin Check was the world's biggest crypto theft. Cryptocurrency is a bubble or a market; we are yet to confirm that stand. Nonetheless, it has offered the opportunity to billions of users' entrance to the financial market who otherwise did not even had a bank account as they fail to meet the relevant criteria to open a bank account. The current position of Cryptocurrency in UAE is grey, and the future as of now is colourless. Numerous nations have initiated to issue guidelines to control the buying and selling of Cryptocurrency and to prevent the unauthorized usage and avoid financial frauds.

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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