February, 2022
Thanks to fintech innovation and evolving technologies, a new form of currency is set to transform the world of finance as we know it.
Cryptocurrency, the new digital kid on the block, is forcing traditional, deep-rooted financial systems across the globe to sit up and take notice.
Unbeholden to any one government, cryptocurrency offers businesses, traders, investors and individuals the freedom to explore new opportunities for corporate and personal financial growth.
While many nations are still contemplating the viability of cryptocurrency, forward-thinking countries like the UAE, are already embracing this disruptive alternative to traditional currencies, setting the benchmark for others to follow.
So, how did cryptocurrency start, how’s it going, and what role does the UAE play in its future success?
Cryptocurrency: how it started
Cryptocurrency may be considered a modern phenomenon, yet blockchain technologies can be traced back to the 1980s when the idea of digital cash was first conceived.
It wasn’t until 2008 when Bitcoin was introduced in a white paper by the pseudonym Satoshi Nakamoto, that interest in cryptocurrencies really began to spark. Officially launched in 2009 as open-source software, Bitcoin grew in popularity, facilitating cross-border transactions without the interference of third-party intermediaries, namely banks and governments.
The next few years were a rollercoaster for Bitcoin – skyrocketing in value, only to crash back down again. But while many were put off by its volatility, others began to tap into its potential. Over the years, encryption techniques and blockchain technology have grown even more sophisticated, resulting in a transparent, secure and accessible financial system.
The boom in Bitcoin popularity is a testament to the benefits of decentralised finance (DeFi). Operating outside the constraints of government control, DeFi systems mean that Bitcoin’s value can’t be manipulated, or networks destabilised by any one single authority.
The success of Bitcoin has led to a flood of cryptocurrencies over the last decade. To date there are more than 6,000 in circulation. The most popular include:
Ethereum
Dogecoin
Litecoin
Cardano
Stellar
The demand for crypto exchanges across the globe has soared. These third-party platforms, enabling those with limited technical knowledge to easily trade cryptocurrencies, has raised the popularity of DeFi even more.
Cryptocurrency: how it’s going
There’s no doubt that cryptocurrency is causing major disruption to the financial world – the likes of which we haven’t seen since the launch of the Euro back in 1999.
Towards the end of 2021, cryptocurrencies held a worth of USD $2tn - proof indeed that DeFi is a force to be reckoned with. Gone are the days when crypto and Blockchain were considered ‘niche markets’ for tech enthusiasts.
Thanks to the rise of peer-to-peer lending platforms and decentralised exchanges, DeFi can be easily accessed by all. From investors and traders to SMEs and individuals, users can benefit from a transparent and ‘trust-less’ banking system, unhindered by the geographical constraints of traditional banks and governments.
In theory, all that’s needed to invest, loan or borrow against your crypto is a decent internet connection and a smartphone.
The impact of cryptocurrencies can’t be ignored, and the way it’s going, traditional financial institutions could be faced with two options: jump onboard or lose out. Major players are now taking steps to modernise, with 55 of the top 100 banks already investing in cryptocurrency and blockchain companies.
For businesses willing to tap into its potential, crypto can offer a number of benefits, such as:
Faster, easier payments – rather than relying on a third-party intermediary, a decentralised system gives you total control of your funds and transactions. It also means you deal directly with customers, so transaction costs will be much lower.
Hassle-free cross-border transactions – while international transactions can be costly and take days to process, with crypto it can take seconds. Without global restrictions it’s also easier to accept payments in any currency. As cryptocurrencies have the same value everywhere, it’s easier to competitively price your products, making your business far more attractive to both local and international customers.
Enhanced customer privacy – cryptocurrency allows users to make transactions anonymously, so they’re not forced to reveal traceable details that could leave them vulnerable to identity fraud.
It’s easy to get excited by the hype, but there are still major concerns about cryptocurrency that need to be addressed; most notably, a lack of regulation and identity issues. No surprise then, that cryptocurrency is often linked with illegal activities such as fraud, scams, money laundering and terrorist funding.
For many jurisdictions, regulation of the crypto industry is still a work-in-progress. But while many nations are struggling to keep up with the rapid growth of cryptocurrency, others are already way ahead.
Earning a reputation as one of the world’s most blockchain-friendly nations, the UAE is setting an example for others to follow: proper regulation of the crypto market without hindering innovation.
How the UAE is paving the way for crypto success
With a passion for all things fintech, the forward-thinking UAE has taken a proactive approach to decentralised finance, quickly establishing itself as one of leading markets in cryptocurrency and blockchain technology.
Dubai and Abu Dhabi, already have a regulatory framework in place, encouraging the setup of exchanges and other crypto-related businesses, while ensuring client and consumer protection.
Thanks to Blockchain technology with its fraud prevention and transparency capabilities, the UAE crypto market is gaining the confidence of local and international investors. It’s predicted that Dubai will have more than 1,000 cryptocurrency businesses up and running by the end of 2022.
Free zones such as the Dubai World Trade Centre (DWTC) and the Dubai Multi Commodities Centre (DMCC) offer a wealth of benefits to those looking to set up a crypto business in the Emirates. These include:
A regulatory framework in agreement with the UAE Securities and Commodities Authority
Bespoke, SCA-approved crypto licenses
Easy crypto business set up with zero corporate taxes
Access to a growing pool of crypto and blockchain talent
The UAE’s commitment to creating a flourishing, well-regulated crypto ecosystem, is not only attracting talent, investors and tech entrepreneurs from across the globe, but is also an example of how developing countries can benefit from expanding technology.
Cryptocurrency: what the future holds
So, will cryptocurrency become the new norm in the years ahead, and will conventional money, as we know it, become obsolete? At the moment, it’s anyone’s guess. Although investment in crypto has skyrocketed over the last year, the industry is still in its infancy and constantly evolving.
Major challenges still lie ahead. Developed nations need to address their own regulatory frameworks and build a protective ecosystem as the UAE is doing. While, developing countries need an improved internet infrastructure and access to educational tools in order to benefit from decentralised finance.
Whether DeFi will complement traditional financial ecosystems or compete with them, remains to be seen. One thing’s for certain – the digital economy is here to stay. Those who embrace the crypto concept and are ready to tap into its potential, will be well-equipped to explore new possibilities as they emerge. While those who disregard it, may very well find themselves left behind.