Dubai: In the UAE, a digital currency called DubaiCoin has been dominating cryptocurrency-related headlines this week. But what is this coin and what do we know about it so far?
According to UAE-based blockchain startup Arabian Chain Technology, the company in charge of handling the Gulf-based cryptocurrency, “plans for the next several years are firmly focused on DubaiCoin”, the firm revealed in a press note on Monday.
The move places the emirate alongside other major economies that have either already integrated or are currently considering their own digital currency such as the UK and the US.
But what is DubaiCoin?
DubaiCoin (DBIX) is a cryptocurrency created in 2016 to enable trade between Gulf countries. Users are able to generate DBIX through the process of mining. DubaiCoin has a current supply of 4.3 million.
Arabian Chain Technology – which is the first public, decentralised and consensus-driven blockchain in the Middle East – announced that DubaiCoin will soon be able to be used to pay for a range of goods and services both in-store and online, with the clear intention for the coin to be used in place of traditional bank-backed currencies.
In parallel, the coin’s circulation “will be controlled by both the city itself and authorised brokers”, Arabian Chain Technology further added. The digital currency was launched this week with an international starting price of $0.17 (62fils) per coin.
What we know so far about DubaiCoin
DubaiCoin, which claims to be the first minable digital currency in the region, can be programmed to represent shares in a company or even a vote in an election.
Since Arabian Chain Technology announced prospects of DubaiCoin, the value of the currency rose by about 600 per cent to $0.6 (Dh2.2) per coin.
There was earlier skepticism surrounding it as the coin was neither widely used nor widely known among analysts and cryptocurrency investors, but specialists now add that the existing perception has been changing.
UAE and its stance on cryptocurrency
In June 2018, the Abu Dhabi Global Market (ADGM), the international financial centre in Abu Dhabi, launched the Crypto Regulatory Framework and guidelines to regulate crypto asset activities, a clear sign analysts view widely as growing acceptance of cryptocurrency in the region.
Another was the UAE’s launch of the Blockchain Strategy 2021 in 2018, which aims to conduct 50 per cent of government transactions at the federal level using blockchain technology by 2021.
The next trigger was the launch in January 2019 of a joint pilot cryptocurrency by the UAE and Saudi Arabia for banks to use in cross-border payments between the countries. The Dubai Future Foundation estimated UAE could save more than $3 billion (Dh11.02 billion) via blockchain and cryptocurrency use.
Government-owned entity in Dubai, Kiklabb, had earlier this year started accepting certain cryptocurrencies as payment for its services. Kiklabb is a free trade zone that helps companies set up shop in Dubai and issues trade and other licenses as well as processes visas.
Tumultuous time for Bitcoin
However, it is worth mentioning that the past 10 days have been a rollercoaster ride for the cryptocurrency market far and wide, as the price of Bitcoin went into a freefall earlier last week losing about 38 per cent of its value since April 13 when it hit a high of more than $64,800 (Dh238,008).
The price of the famously volatile digital currency fell nearly 30 per cent at one point after China warned member banks of the risks associated with digital currencies. The decline narrowed to below 10 per cent, but Bitcoin had still lost about $70 billion (Dh257 billion) in market value in 24 hours.
And if that wasn’t enough, Tesla and SpaceX CEO Elon Musk announced that his electric automaking company will stop accepting Bitcoin as a form of payment due to the environmental toll the currency is having when mining it. But Musk backtracked on his statement a day later.
Evolution of using digital assets
Digital assets have evidently been generating great value to investors, traders and the stakeholders, and until a few years ago, trading of cryptocurrencies like Bitcoin in the GCC was a little more than hype.
Due to the global uncertainty associated with cryptocurrencies, few traders were interested in talking openly about them. But over the last couple of years the acceptance of cryptocurrency has increased in a few countries in the region, with the UAE, Saudi Arabia and Bahrain taking the lead.
However, except the UAE, Saudi Arabia and Bahrain, the Gulf and Middle East have largely taken a wait-and-see approach to cryptocurrencies and digital assets and have yet to launch enabling frameworks to facilitate development of crypto assets.
How blockchain tech is transforming GCC sales, trade
Suppliers have been changing their minds about the merits of digital sales tools, analysts evaluate, and buyers have been looking into newer ways to navigate third-party supply chain service providers.
More vendors are going digital, so the supplier diversification is working for them, as digital commerce opens up new ways for vendors to make sales.
Analysts at Citi have studied the coming importance of central bank digital currencies (CBDCs), saying the world is at a pivotal point with money and there are different ways in which payments could be modernised. The increased interest globally in bitcoin and other cryptocurrencies has only fueled CBDCs.
The analysts added in April that a surge in cryptocurrency had driven much of the adoption of digital money. A lot of interest has also come from institutional investors and corporates.
How does the latest news help?
The latest news surrounding DubaiCoin is already seen shifting the existing perception surrounding the acceptance of cryptocurrency in the country – both among existing cryptocurrency investors and potential new investors.
New studies have been indicating how consumers see cryptocurrency as more than just a store of value, with majority respondents who currently have money invested in cryptocurrencies revealing that they plan to use it to make payments for everything from financial services to groceries.
This is based on global studies that surveyed cryptocurrency users and non-users to examine the ways in which they plan to use crypto to make purchases, what crypto they plan to use – and how merchant acceptance can influence merchant choice and consumer spend.
Shifting skepticism among critics
“I have personally not invested in any cryptocurrencies, not because I do not believe in the technology but it was lack of regulation and governance which made me skeptical,” said Sanjay Tolani, CEO of Goodwill World, a Dubai-based family office (private wealth management advisory firm).
“With the launch of Dubai Coin, it brings together everything amazing about the blockchain technology (speed, transparency, digital, low cost, portability) with the backing of governance and acceptance.
“Global regulators, policy makers and financial markets will be looking at Dubai Coin to set the tone for crypto-currency acceptance for everyday use by the populous.”
Why is the crypto perception changing in the GCC?
This is driven primarily by two factors: first, a strong regulatory framework backing crypto assets, and second, a push to blockchain technology (explained below), which lies at the heart of cryptocurrency.
This is also facilitating the emergence of newer types of digital assets like securitised tokens, stable coins, and initial exchange offerings (IEOs), collectively advancing the digitalising of financial markets across the whole ecosystem.
So the big question is, why are the UAE and the Arabian Gulf region at large pushing ahead with cryptocurrency and digital assets despite the wild price swings this asset class has gone through in recent years?
Matter experts are of the opinion that the answer lies in a growing recognition that digital assets can generate value to investors, traders and the stakeholders.
How do analysts weigh-in on this regional shift?
The region has a long history of facilitating alternative investments, such as property or commodities, and many see Bitcoin as digital gold. Secondly, there is a more accommodating regulatory regimen which has been in place for a couple of years, analysts view.
Analysts also attributed the growing popularity of crypto assets to the shifting trends among investors in the region. Many are willing to accept the large volatility and risks involved for a combination of diversification and potentially outsized returns.
A related factor is the high concentration of high net worth individuals (HNI) investors. The higher risk tolerance of HNI investors in the Middle East, who are already actively trading in other volatile assets such as equities and currencies, has resulted in increasing acceptance of cryptocurrencies as an efficient and effective asset class for diversification of portfolio risk.
Pushing for extensive use of blockchain technology
Putting aside price volatility and other risks, one of the positives of crypto and digital assets is that their value can be transferred efficiently from one party to another through the shared real-time ledger called blockchain technology, thus effectively eliminating human error and duplications in transactional data.
A blockchain is a digitised, decentralised public ledger of all cryptocurrency transactions. By spreading transactions across a network of computers instead of one central hub, blockchain allows crypto trading to operate on a decentralised platform.
It goes without saying that UAE’s Blockchain Strategy 2021 is going to give a massive push to blockchain technology and virtual currency in the country and the region.
Fuels debate of whether it will replace money
Experts believe that cryptocurrency and the broader digital assets have the potential to be an important tool in the economic diversification the region is going through.
A well-regulated digital assets platform could also make it possible for genuine startups to raise capital through securitised tokens offerings (STOs), for which ADGM has put in place sophisticated regulatory frameworks.
What are security token offerings?
A security token offering (STO) / tokenised IPO is a type of public offering in which tokenised digital securities, known as security tokens, are sold in cryptocurrency exchanges, or security token exchanges.
Digital assets could be the harbinger of a digital-money revolution in the region, but challenges abound.
For one, trading of crypto and digital assets in the GCC is still in its infancy and is therefore facing a number of issues related to regulations, cyber security, protection of investor interest and stringent legal frameworks set up to safeguard cryptocurrency transactions from financial malpractices.
Key challenge: High costs of blockchain networks
Another key challenge is the high cost of blockchain networks.
One of the basic ingredients for the success of crypto trading is a robust platform of crypto miners who can crack the complex mathematical codes in each block of transactions, verify it and add it to the blockchain digital ledger, a process called mining.
Cryptocurrency mining requires a great deal of computing power and consequently more energy, which makes it a costly affair.
As of now, only specialised brokers and authorities will control circulation of DubaiCoin, and is not in the hands of the public just yet. But the founding company claims DubaiCoin will soon be able to buy and sell goods in place of fiat currency (government-issued currency that is not backed by a commodity such as gold).
The company revealed that the currency has high hopes to become the pinnacle of Dubai’s technological success. It also has the potential to become the local go-to digital asset.
This news is republished from another source. You can check the original article here