Crypto projects react to coin ban in Dubai

The Virtual Asset Regulatory Authority (VARA) recently issued the long-awaited guidelines for virtual asset service providers (VASPs) in Dubai, United Arab Emirates, which included a ban on privacy coins.

On February 7, VARA released several rulebooks for VASPs, including the “Virtual Assets and Related Activities Regulations 2023” in which VARA mentioned a ban on privacy coins. In the document VARA wrote:

“Issuance of Anonymity-Enhanced Cryptocurrencies and All VA Activity[ies] related to them is prohibited in the Emirate.”

Cointelegraph reached out to several players in Dubai and a Privacy Protocol Project to find out how market participants feel about the updated guidance on crypto in Dubai.

Effects of the ban on coin issuance and activities for privacy

According to Khaled Moharem, the president of blockchain-based payment ecosystem WadzPay MENA, the news did not come as a surprise because other regions have made similar indications. Moharem told Cointelegraph that while more time is needed to fully assess the implications of the new development, their initial assessment shows that issuance will be banned. He explained that:

“At the end of the day, money, whether physical or digital, requires some level of traceability. While there was a false bias that digital currencies like Bitcoin and Ethereum are untraceable, this was actually not the case.”

He added that this is why their crypto payment company implements know-your-customer (KYC) and anti-money laundering (AML) measures that ensure funds are not used for illegal purposes.

Moharem also noted that their firm welcomes the guidelines from VARA. He pointed out that while this may eliminate a small segment of digital currencies, it confirms the legitimacy of other digital currencies such as Bitcoin (BTC) and Ether (ETH).

“Our firm is very pro-regulation, and having a clear framework to operate in will only strengthen the industry…This news is potentially important for growing digital currency payments, as the government shows they are protecting consumers, as well as providers. “

The manager also highlighted that although the privacy coins may be affected, the effects will not be fatal. “I don’t think these projects will die out completely, since the ban is not international,” he said. However, Moharem acknowledged that availability and distribution will be limited in the local market.

Related: Dubai establishes virtual asset regulator and announces new crypto law

Saqr Ereiqat, co-founder of Crypto Oasis, a venture-building company that assists the local crypto ecosystem through various services, echoed some of the sentiments expressed by Moharem. Ereqat told Cointelegraph that privacy coins are inherently different from BTC and ETH, where transactions can be traced by providing provenance. He explained that:

“Think of privacy coins as you would think of US dollar bills that have virtually been passed from one person to the next, making it impossible to trace their owner. This presents a unique challenge because allowing them could enable illicit trade.”

As for those who may be affected by the rules, Ereiqat suggested that the impact could be minimal. According to the director, their latest available data shows that within the over 1,000 projects supported by Crypto Oasis, they have yet to come across any privacy projects that have been launched. He said:

Perspective from a privacy-focused project

Cointelegraph also reached out to a privacy project that could potentially be affected by the new laws if they ever wanted to establish a headquarters in Dubai. Christopher Goes, co-founder of the privacy protocol Anoma, offered a different opinion than the others. He told Cointelegraph that:

“By banning ‘privacy coins’ rather than engaging to understand the technology, regulators are demonstrating that they are not really working on behalf of the public, for whom privacy is a fundamental human right.”

Apart from this, Goes argued that the term privacy coin is a misnomer for technological systems that offer privacy.

“There is no such thing as a “privacy coin.” There are technological systems like Bitcoin where transaction information is exposed to everyone whether a user wants it or not, and technological systems like Zcash where users have control over who they reveal their transaction information to to,” he explained.

Dubai is still on its way to becoming a global crypto hub

Binance, one of the first companies to secure a license from VARA to operate in Dubai, also gave its stance on the topic. Binance Dubai managing director Alexander Chehahde said the new development demonstrates Dubai’s ambition to set the standard to become a “transparent and forward-looking Web3 hub.” He explained that:

“Binance wants this new set of regulatory guidelines focused on protecting users and investors, while supporting the development of blockchain-enabled solutions and encouraging innovation in the Web3 ecosystem.”

Ereqat also mentioned some data that suggests Dubai is on its way to becoming a true global hub for crypto. “We are witnessing an unprecedented migration of talent and capital from around the world to the UAE, which is why we refer to this ecosystem as the Crypto Oasis,” he said. According to Ereiqat, Crypto Oasis has more than 8,300 professionals working in this area.