UAE could become a blockchain superpower

A Bitcoin logo on the sculpture representing Satoshi Nakamoto, the pseudonymous creator of Bitcoin, in the grounds of Graphisoft Park in Budapest, Hungary, last Friday. Bloomberg

The perception of digital assets on the part of investors has changed significantly. Once viewed with scepticism, digital assets – and blockchain, the technology upon which they are based – have cemented their place in the financial mainstream, with a number of crypto companies such as Coinbase going public, and some of the world’s largest asset managers developing crypto services.

It is now 13 years since cryptocurrencies first entered public consciousness, in the form of the Bitcoin white paper. This period has seen plenty of innovation, including the creation of an entire industry of decentralised finance, the rapid rise of tokenised assets in the form of non-fungible tokens, or NFTs, and a virtual reality web experience powered by blockchain in the form of the metaverse.

Today, the digital assets sector stands at an inflection point. The barriers that once hampered engagement and adoption of digital assets and blockchain have been eroded. The availability of mature institutional-grade infrastructure and regulated counterparties in the industry offers a secure and trusted means for stakeholders to access the digital asset sector.

The UAE has expertly positioned itself as a leader in the next wave of technological transformation

Regulation was the final hurdle. Corporates, institutions and investors need clarity to operate in the space and countries with clear legislative frameworks on digital assets have already established themselves as leaders in attracting such activity. Switzerland continues to uphold its financial pedigree by establishing itself as the de facto European crypto capital, having enacted a law that allows for a wide range of crypto and blockchain-based enterprise activity. It has also cultivated an ecosystem of more than a thousand blockchain companies, including 14 unicorns.

Europe as a whole has also made progress, with the EU’s Market in Crypto-Assets framework at advanced stages in the legislative process. In Singapore, the Payments Services Act provides clear guidance for crypto companies to apply for a licence to establish operations in the country. Even the US, once a notable laggard on digital assets, has announced that it will provide clear regulation on how banks can use cryptocurrencies in the coming months.

The demand for digital asset services has accelerated the pace of progress among many regulators. However, it is those jurisdictions that move early on regulation and provide a supportive environment for blockchain companies to operate that are most likely to reap the benefits. Economic power is increasingly built on the development of technology and jurisdictions that can tap into the power of blockchain, as the next iteration of foundational technology may well supplant the existing global tech centres of gravity.

FILE PHOTO: Employees work on bitcoin mining computers at Bitminer Factory in Florence, Italy, April 6, 2018. Picture taken April 6, 2018. REUTERS / Alessandro Bianchi / File Photo

The UAE, a country that has developed a comprehensive regulatory framework for blockchain and digital assets, is one such example poised to capitalise on this opportunity. The UAE has a number of features that position it as an ideal global hub for the digital assets and blockchain industry. It is ideally positioned in terms of existing business networks to take advantage of connectivity between the Middle East, North Africa, India and the West. Its role as a regional financial hub can also enable the digital assets sector in the country to flourish.

The Middle East’s second-largest economy, the UAE has a clearly defined strategy on establishing itself as a global leader on blockchain, which prioritises both bringing crypto investment to the UAE, as well as encouraging indigenous engagement and innovation in blockchain.

The country has proved to be remarkably successful in implementing blockchain as a foundational technology throughout public services, with estimated annual savings of Dh11 billion in transaction and document processing by doing so. For example, the Dubai Police Department has issued thousands of missing passport certificates using a blockchain-based platform connected across public sector bodies. The Ministry of Health and Prevention, meanwhile, has launched one of the first national blockchain platforms for secure storage of medical data.

To complement this strategy, the country has developed a comprehensive regulatory framework for digital assets across its two most populous emirates, Abu Dhabi and Dubai, to cultivate investment in digital assets on its shores. In 2018, the Abu Dhabi Global Market’s Financial Services Regulatory Authority established a virtual asset framework for trading digital assets by businesses, including exchanges, custodians and brokers. Abu Dhabi is focused on providing the sector with a sandbox where they can test their products in a live environment to ensure they meet the UAE’s strict Anti-Money Laundering and Know Your Customer compliance standards.

Much like its fellow crypto hub in South-East Asia, licence applications have been in high demand, with only a select few companies meeting the rigorous regulatory standards necessary to operate in the country. The country has struck the right balance between encouraging crypto enterprises and investment, while at the same time, ensuring that only the most innovative, compliant and secure operators set up on its shores.

Three regulated digital assets exchanges have already set up shop in the state, with licence applications expected to be granted for a number of other operators early this year. The scale of Abu Dhabi’s vision for a blockchain-powered future goes well beyond regulation. Mubadala, one of the largest sovereign wealth funds in the world with over $243bn in assets under management, is actively investing in suitable companies in the blockchain industry. This holistic approach to the industry is likely to pay dividends for the emirate, as it cements its place as a blockchain hub.

It is clear that the UAE has expertly positioned itself as a leader in the next wave of technological transformation. Its strategy presents a useful blueprint for other countries to follow suit, and may indicate the dangers of being left behind for those who fail to regulate and innovate fast enough.