Cryptocurrency is making a lot of buzz owing to its unexpected returns and potential to accumulate wealth in a couple of seconds. Its crazy popularity can be seen among the middle class as well as the lower middle-class people, who are happy to invest their hard-earned money. However, the biggest concern that surrounds cryptocurrency is its legal validity. Recently, the UAE government cleared all the dust by making its intention clear that it wants crypto in the country. In this article, we will discuss how UAE can become a crypto hub by introducing this new licensing framework. Further, with the help of the best lawyers of UAE, we will try to understand the legal implications associated with that framework.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. In the words of our top lawyers of UAE, 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.
Introduction of new licensing framework
As per a government official, the government is planning to issue a federal license to cryptocurrency service providers. Our best lawyers of UAE have opined that this step will attract big multinational companies and make UAE a serious crypto hub. Though the government hasn’t released the official regulations, it is taking inputs from the country’s central bank and Securities and Commodities Authority (SCA) to frame the best practice aligning with the international standards.
It is expected that SCA and the central bank will come out with their respective regulations to govern crypto and the procedural licensing framework shall be left to each regional financial centre. The virtual asset service providers (VASPS) shall be provided with a license, which will ensure transparency and accountability while transacting in crypto.
In addition to the license, the government is planning to create a favourable framework for crypto mining as well. In the last year, Dubai World trade centre inked an agreement with global crypto exchange giant Binance to establish a global crypto hub. The government also launched the “UAE Blockchain Strategy 2021” in which approx. 50% of government transactions will be conducted using Blockchain technology.
Legislative framework for crypto
According to our best lawyers of Dubai, 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.
- 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. - 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.
Conclusion
According to the Chainalysis Report, UAE is the third largest crypto market in the Middle East which is growing at a very rapid pace. The government’s plan to issue licenses will inject stability and certainty in the market, and big players will be attracted toward the country. 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.
If you want to know further about cryptocurrency, contact our best lawyers in Dubai.