The UAE and Saudi Arabia have pledged to launch a joint cryptocurrency and pioneer regulations for digital currencies, but concerns behind feasability remain
Bitcoin went from being worthless in 2008 to $1,000 in the span of three years, before dropping to a low of $250 in just a few months, then rising meteorically to nearly $20,000 in 2017, and plunging to historic depths yet again just a few months later.
Some would say that the world hasn’t seen price fluctuations as drastic since the Dutch Tulip Mania in the 17th century, when skyrocketing prices of novelty tulip bulbs gave way to a spectacular collapse, the first recorded instance of a speculative bubble in such a short span of time.
And yet, while the majority of the world seems to have given up on the phenomenon, or of becoming billionaires overnight, some continue to say the technology carries promise.
Among the first people to recognise its potential was Ola Doudin, an ex-Ernst and Young employee who had an idea to start a digital asset wallet and exchange. When Bitcoin began it’s last resurgence in 2015, Doudin was waiting patiently in the wings, and did just that, founding MENA’s first cryptocurrency exchange, BitOasis.
As a cryptocurrency exchange, we take security and the responsibility of safeguarding our platform and our clients’ assets very seriously
“Think of that as a new way of sending money or transferring the ownership of assets,” she says at Arabian Business’ studios in Dubai, attempting to simplify the concept to those unfamiliar with the technology.
If you get past all the noise – and there is a lot of noise – cryptocurrencies essentially rely on an unlimited entry system (ledger) distributed across the internet (via a blockchain-based network) to transfer units understood to have transactional or asset value.
Since 2008, on the back of Bitcoin’s resilience and sporadic successes, a number of ‘tokens’ have emerged, each with a perceived economic value based on its own unique take on the metaphor that has become ‘decentralised distributed ledger based system for digital payments and transfers’.
“A lot of it is driven by demand and supply. Some of those tokens have limited supply features, like Bitcoin and Ethereum. This helps the token to have a deflationary feature in terms of price appreciation. In recent years, we have seen a lot of exchanges with a lot of volume in market pumps and dumps that helped, in some way, appreciate the value to a much higher price than what’s expected in the market,” says Doudin.
The UAE market, when it comes to cryptocurrencies, is relatively underdeveloped for a number of reasons, including a lack of awareness, limited technological and technical know-how and fear of the unknown.
However, Doudin emphasises that contrary to the beliefs of a number of analysts, cryptocurrencies aren’t here to challenge local currencies or replace them – at least not yet. They simply allow for innovations and access to financial services in a less restricted manner. Doudin calls them a disruption to financial services rather than a replacement for the US dollar or other currencies.
There is a niche market using cryptocurrencies as an actual currency or a medium of exchange but I don’t see that usage becoming mainstream in the next 12 months
Globally, cryptocurrencies carry appeal because they decentralise, and in many ways, democratise the way exchanges take place. There is no element of permission to transact needed from a central body or gatekeeper. It’s all done primarly through a software-based exchange system that you can download for free to start receiving and sending coins through almost instantly. However, it is the very fact that cryptocurrencies are not regulated like the fiat currencies we use today that acts as a main challenge, according to Doudin. “This market cannot grow and hit mainstream adoption without having the right collaboration with the regulators,” she says.
“In my view, the first way for regulated entities to start understanding cryptocurrencies and blockchain implementations is actually by building those private blockchain applications. That’s how they get comfortable with the technology and then gradually start experimenting with pubic blockchain as you see more regulations coming into play,” she adds.
Currently, the UAE lacks the technical talent required to push for cryptocurrencies’ mainstream adoption, according to Doudin, with more changes required to improve and encourage technological development. But the recent news of the UAE and Saudi Arabia’s plan to launch a joint cryptocurrency comes as a positive development with regards to further regulations of the digital currency.
The Aber project, which is a combined initiative between the Saudi Arabian Monetary Authority and the Central Bank of the UAE (CBUAE), will be used in financial settlements between Saudi Arabia and the UAE through blockchain and distributed ledgers technologies, the central banks said in a joint statement.
We continuously monitor and assess our platform to ensure the safety of our clients’ funds and data
Geopolitical situations have also played a major role in determining the future of cryptocurrencies. In retrospect, the UAE dirham and US dollar are stable currencies compared to the fiat currencies that are being circulated in unstable economies such as Zimbabwe, Venezuela or even Argentin where populations have turned to cryptocurrencies to alleviate price pressures from their own rapidly depreciating currencies. In Argentina, in fact, the prevailing economic crisis has led experts predicting the rise of crypto ATMs to buy and sell bitcoin in 2019. US-based financial services firm, Odyssey Group has said that of the 150 ATMs it aims to install by the end of the 2019 in Argentina, 80 percent will carry bitcoin-functionality.
However, concerns remain. The first is a question of utility. What can be physically bought and sold using cryptocurrencies? The simple answer is, “not much”.
“We are still in the investment phase, where cryptocurrencies are a speculative tool for trading storage or short and long-term investment. There is a niche using cryptocurrencies as actual currency, but I don’t see that usage becoming mainstream in the next 12 months at least,” Doudin explains.
More important are security concerns. Blockchain is a decentralised system providing each individual participant permission to execute transactions. This leads many to wonder how safe and secure transactions can be. That’s where regulations and crypto exchanges like BitOasis comesinto play, according to Doudin.
We continuously monitor our exchange to make sure it’s always safe and protected
“As a cryptocurrency exchange, we take security and the responsibility of safeguarding our platform and our clients’ assets very seriously. We use multi-signature technology in our wallets to make sure our client funds are securely stored,” she says.
“Moreover, we store our clients’ funds on the exchange in ‘offline cold storage’ (physical storage systems that are not accessible online). We continuously monitor and assess our platform to ensure the safety of our clients’ funds and data.”
Illegal financial transactions including money laundering have been a serious concern in many parts of the world, and authorities in the region are taking action. How is BitOasis reacting on the issue?
“On AML/KYC (anti-money laundering/know your customer), we have a comprehensive policy that ensures all our customers are appropriately verified in line with the CBUAE, Abu Dhabi Global Market and Dubai International Financial Centre AML requirements that are themselves based on the Financial Action Task Force AML guidance. We also continuously monitor our exchange to make sure it’s always safe and protected against any vulnerabilities or breaches,” she says.
It remains to be seen how dominant a role cryptocurrencies will play in the global economy. But, in Doudin’s words, distributed decentralised networks where cryptocurrencies rebuild the internet based on what consumers want, “imply a very strong advantage.”
Although we refer to cryptocurrencies as a fairly new medium of exchange, digital currency systems have existed for over a decade now.
2008 – Enter Nakamoto
A mysterious domain name called bitcoin.org was registered and Bitcoin was introduced to the market as a peer-to-peer electronic cash system. This went on to be the world’s first decentralised form of digital cash.
2009 – Trade begins
Ten Bitcoins were sent in the beginning of 2009 after the Bitcoin software was made available to the public.
2010 – What’s my value?
A major milestone came about this year when a monetary value was attached to the cryptocurrency for the first time. 10,000 Bitcoins were used to buy two pizzas.
2011 – Competition alert
Namecoin and Litecoin made its debut in the market, giving investors more options and Bitcoin some serious competition.
2014 – Drama unflods
The world’s largest Bitcoin exchange, Mt.Gox, went offline declaring bankruptcy. Theft and scam concerns emerged.
2017 – Ruling the market
A huge milestone was reached when one Bitcoin became more valuable than one ounce of gold.
2018 – Rollercoaster
The market cap of all cryptocoins rose to $824bn in January and plunged to $186bn in September.