What is Bitcoin and how it is relevant in the Digital Age?
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 a blockchain. 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.
Bitcoins are stored in a digital wallet that can be accessed via the cloud or from a computer. This 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:
- 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.
- Commodities are subject to taxes like VAT, whereas currencies are tax-free.
- 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.
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 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:
- Decide the location after in-depth analysis.
- Bitcoin/Fintech companies should acquire elaborate legal and regulatory guidance.
- 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.
- Create transactional records and possibilities to liquify on the exchange.
- Achieve flawless security procedures for complete customer satisfaction.
- Extend customer support for a strong and long-term relationship.