In recent times, cryptocurrency has gained significant popularity across the globe. When the Bitcoin Phenomenon was introduced by Satoshi Nakamoto, the whole country was alien to it, but now a substantial population of the country, ranging from middle class to higher class, are interested in it. In this article, we will explore the functioning of cryptocurrency along with the regulatory framework surrounding it.
What is Cryptocurrency?
Before moving ahead, it is essential to understand the real meaning of cryptocurrency and how it operates in the market. The cryptocurrency works through the blockchain technology, which serves as a public transaction database. It is a virtual currency or a digital asset which works as a medium of exchange. The transaction details are recorded in a digital ledger. The technology behind the cryptocurrency is cryptography. Cryptography is a method in which the simple data is converted into complicated codes, which are very difficult to crack, and only the parties involved in the transaction can access the same.
Regulatory Framework regarding Cryptocurrency in UAE
The UAE government has adopted a very favorable approach regarding cryptocurrency. In order to boost the exchange of cryptocurrency in the country, the government launched the “UAE Blockchain Strategy 2021” in which approx. 50% of government transactions will be conducted using Blockchain technology.
With regards to the regulatory framework, there are no specific laws governing cryptocurrencies in the country. However, all the Emirates have framed their own regulatory framework for dealing in virtual currency.
- Abu Dhabi
The financial regulator of the Abu Dhabi Global Markets (ADGM), is the first regulator in the country which issued comprehensive guidelines for regulating all the activities relating to cryptocurrencies. The regulator also issued guidelines on the initial coin offerings (ICO), whereby cryptocurrencies are offered for sale to the general public.
The ADGM has been equally concerned with the increasing peril of money-laundering and financial terrorism. Thus, all the regulations emphasize on maintaining transparency and technological governance in the country.
- Dubai
The Dubai Multi Commodities Centre (DMCC) has launched a regulated activity known as “proprietary trading in crypto-commodities. The main highlight is that the Cryptocurrencies are categorised as commodities. Prior to this, the UAE Central Bank issued a regulatory framework wherein all the Cryptocurrencies were prohibited. This caused a lot of mayhem across the country, which was settled when the governor himself clarified that the said regulations do not apply to cryptocurrencies, crypto exchanges, or underlying technology such as blockchain technology.
In Short
Even in the absence of a special legislation, the Government has taken steps in the right direction with calculated risks to promote the use of cryptocurrencies in the country. The Blockchain strategy is going to be a major impetus in the government agenda. Financial institutions such as banks are also using Blockchain technology for various purposes, such as improving efficiency of their Know Your Customer (KYC) processes, complying with anti-money laundering requirements, etc.