What is Bitcoin and how it is relevant in the Digital Age?

Published On: November 6, 2017Views: 91

A Bitcoin is a globally decentralized cryptocurrency utilized for digital transactions. The transactions take place directly between the parties since they are verified and recorded in a public distributed ledger called blockchain technology. Bitcoins can be exchanged for other currencies, products, services and can also be held for investment. Since Bitcoins are still in their experimental stage, their widespread use is still under consideration in UAE. However, Increased interest from UAE investors in Bitcoin is driving the demand for secure and regulated Bitcoin exchanges in the UAE

Bitcoins are stored in a digital crypto wallet that can be accessed via the cloud or from a computer. This bitcoin wallet is similar to a virtual bank account that allows users to send or receive bitcoins, make transactions or save money .

Advantages Of Using Bitcoins:

  • Anonymous purchases.
  • Easy and cheap international payments.
  • No credit card fee.
  • No taxes.
  • Nobody can seize them.
  • No tracking.
  • Can’t be stolen.

Fintech or Financial Technology relates to advancements in how financial transactions occur. Financial technology has evolved massively and it now consolidates a broad variety of technological interventions into personal and commercial finance.

Advantages Of Fintech:

  • Reduced operating costs.
  • Fast decision-making and execution.
  • Focus on targeted marketing and develop business models.
  • Up-to-date systems.

UAE welcomes all sorts of innovations and technologies to make financial systems and the delivery of financial services convenient and adaptable. Considering and abiding by the appropriate onshore financial services etiquette may be difficult for Fintech companies while organizing themselves in UAE but through timely consultations with regulators they can legally launch and conduct business in this region.

Bitcoin – A Currency Or A Commodity?

Although there is no clear international consensus, the question persists regarding the legal status of Bitcoins: are they a commodity (like gold) or a currency (like USD)? Bitcoins are considered a commodity in the USA and a currency in Europe.

This distinction is vital because:

  1. Commodities fall under the regulatory remit of the UAE Securities and Commodity Authority , whereas currencies fall under the regulatory authority of the UAE Central Bank .
  2. Commodities are subject to taxes like VAT , whereas currencies are tax-free.
  3. Commodities are a form of property with rights to hold a specific title that can be asserted and transferred, whereas currencies are represented by their face value.

UAE authorities have not formally announced Bitcoins being treated as commodities or currencies so far, though it can be argued that the new regulations prohibit the use of bitcoins as a form of currency in UAE. This status is susceptible to change though – UAE’s Central Bank and Dubai Supreme Legislative Committee are considering the legal status of bitcoins and may issue regulations in which bitcoin is clearly treated as a form of currency. 

Businesses should proceed cautiously and remain up-to-date on regulations meanwhile. The UAE’s position as a global financial hub has attracted international Bitcoin ATM providers to establish a presence in the country, further driving the adoption and accessibility of cryptocurrencies.

Evolving Laws & Regulations In UAE

The Central Bank of UAE and authorities are working on licensing Bitcoins legally, similar to Forex and other financial activities. They stated that they do not outlaw virtual currencies such as Bitcoins. Additionally, E-cash or E-currency can be considered as a solid evidence that UAE is planning to commence implementing digital payment methods.

Mubarak Rashed Khamis Al Mansoori , Governor of the Central Bank, stated to Gulf News that virtual currencies are currently under review by the Central Bank and that new regulations will be issued in due time. He also added that since digital currencies do not go through official channels and cannot be monitored and controlled, there are alarming risks of money laundering and terrorist activities being funded. Hence, the Central Bank has not issued licenses for cryptocurrency trading in digital currency in the local market yet.

You can read the ‘ Roundup of UAE Central Bank’s regulations for 2017

Nadi Bargouti , MD and Head of Asset Management at Emirates Investment Bank , told Gulf News that there has been no authorization regarding Bitcoins yet.

Entrepreneurs like Amber Haque believe Bitcoins carry numerous advantages for their Dubai-based business since the transactions are cost-effective and instantaneous.

How to Start a Bitcoin/Fintech Business In UAE

There are six basic steps to follow:

  1. Decide the location after in-depth analysis.
  2. Bitcoin/Fintech companies should acquire elaborate legal and regulatory guidance.
  3. Ally with a financial institution to gain a legal license to commence operations. Companies must also comply with the set requirements like paid-up capital, own at least 60% shares, etc.
  4. Create transactional records and possibilities to liquify on the exchange.
  5. Achieve flawless security procedures for complete customer satisfaction.
  6. Extend customer support for a strong and long-term relationship.

Note: You can apply for a Crypto license in the following zones: DMCC, IFZA, ADGM, DWTC, and DAFZA.

Best Practices for Cryptocurrency Business (Bitcoin) Operations in the UAE

The United Arab Emirates (UAE) has positioned itself as a progressive nation embracing technological advancements. This includes a growing openness towards cryptocurrency, making it an attractive environment for businesses seeking to integrate Bitcoin into their operations. However, navigating this new frontier requires a blockchain strategy approach to ensure efficient management and mitigate potential risks. Here, we explore best practices for running a successful Bitcoin business in the UAE.

  1. Staying Informed on Regulations:

The regulatory landscape surrounding Bitcoin in the UAE is still evolving. The Securities and Commodities Authority (SCA) plays a key role in overseeing cryptocurrency activities. Businesses must stay updated on any regulatory changes issued by the SCA to ensure compliance. Consulting with legal professionals specializing in cryptocurrency regulations is highly recommended.

  1. Selecting a Trusted Crypto Exchange:

Choosing a reputable and secure Cryptocurrency exchange is crucial. Look for exchanges registered with the SCA or other relevant financial authorities in the UAE. Evaluate factors like transaction fees, supported currencies, and security measures employed by the exchange. Consider two-factor authentication and cold storage options for added security.

  1. Implementing Robust Security Protocols:

Due to the decentralized nature of Bitcoin, robust security measures are vital to protect your business from cyberattacks.

  • Secure Storage: Utilize secure wallets for storing Bitcoin. Explore options like a hardware wallet that offers offline storage, minimizing vulnerability to online hacks.
  • Employee Training: Educate employees on best practices for handling Bitcoin transactions. This includes password hygiene, phishing email awareness, and internal controls to prevent unauthorized access.
  • Regular Backups: Maintain regular backups of your wallet data to ensure recovery in case of unforeseen circumstances.
  1. Integrating Bitcoin into Your Existing Systems:

Integrating Bitcoin transactions seamlessly into your existing accounting and financial systems is essential for efficient business operations. Consider solutions that allow for real-time conversion of Bitcoin to fiat currency for accounting purposes.

  1. Maintaining Transparency and Recordkeeping:

Meticulous recordkeeping is paramount. Maintain clear and detailed records of all Bitcoin transactions, including dates, amounts, wallet addresses, and counterparty information. This transparency is crucial for ensuring compliance with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations.

  1. Managing Bitcoin Price Volatility:

Bitcoin is known for its inherent price volatility. Develop strategies to mitigate the impact of these fluctuations on your business. Consider hedging techniques or setting risk tolerance limits for Bitcoin holdings.

Challenges and Risks Dealing with Bitcoin in the UAE

While the United Arab Emirates (UAE) has taken significant steps to embrace and regulate the cryptocurrency industry, businesses operating in the Bitcoin space still face a range of challenges and risks that must be carefully navigated. Understanding these obstacles is crucial for companies seeking to establish or expand their Bitcoin-related operations in the UAE.

  • Regulatory Uncertainty

The regulatory landscape for cryptocurrencies in the UAE is evolving, and businesses may face ambiguity or inconsistencies in the application of rules and guidelines. Navigating the complex web of regulations, obtaining the necessary licenses, and ensuring ongoing compliance can be a significant burden for many companies.

  • Anti-Money Laundering (AML) and Know-Your-Customer (KYC) Compliance

The UAE’s robust AML and KYC requirements for Bitcoin businesses place a heavy emphasis on customer due diligence, transaction monitoring, and detailed record-keeping. Failure to comply with these regulations can result in heavy fines, legal consequences, and reputational damage.

  • Volatility and Price Fluctuations

The highly volatile nature of Bitcoin and other cryptocurrencies can present significant challenges for businesses, especially those accepting Bitcoin as a payment method or holding digital or a crypto asset on their balance sheets. Sudden price swings can introduce financial risks and complexities in accounting and taxation.

  • Cybersecurity Threats

The cryptocurrency industry is a prime target for cyber criminals, and Bitcoin businesses must invest heavily in robust cybersecurity measures to protect their systems, wallets, and customer data from a wide range of threats, including hacking, ransomware, and social engineering attacks.

  • Liquidity and Cash Flow Management

Integrating Bitcoin into a business’s operations can create challenges in managing liquidity and cash flow, particularly when converting Bitcoin payments into the local fiat currency (the UAE dirham). Businesses must carefully plan and execute these cryptocurrency transactions to ensure financial stability and operational efficiency.

  • Limited Mainstream Adoption

While the UAE has seen increasing adoption of Bitcoin and cryptocurrencies in the cryptocurrency market, the general level of awareness and acceptance among the general population and traditional businesses remains relatively low. This can make it difficult for Bitcoin-focused companies to attract and retain customers. However, Bitcoin mining can be a way to generate new Bitcoins, UAE businesses need to weigh the environmental impact and potential regulations before diving in

Share this article

Leave A Comment

Follow us

Calculate Your Business Setup Cost

Get Free Consultation
Please enable JavaScript in your browser to complete this form.
Latest Articles