The Virtual Asset Regulatory Authority (VARA) recently provided 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”, where VARA mentioned the ban on privacy coins. In the document, VARA wrote:
“The cryptocurrency issuance of enhanced anonymity and all VA activity[ies] related to them are 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 cryptocurrency guidance in Dubai.
VARA, Dubai, issued the Virtual Assets and Related Activities Regulations 2023. The regulations set out a comprehensive virtual assets (VA) framework based on the principles of economic viability and cross-border financial security. https://t.co/XXDPdktpuY pic.twitter.com/MdVPgSW5AT
— Dubai Media Office (@DXBMediaOffice) February 7, 2023
Implications of the ban on coin issuance and privacy activities
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 impact of the new development, their initial assessment indicates that the issue will be banned. He explained that:
“At the end of the day, money whether physical or digital requires some degree of traceability. Although there was a false preconception that digital currencies such as Bitcoin and Ethereum are untraceable, this was not the case in reality.”
He added that this is why the crypto payment company has know-your-customer (KYC) and anti-money laundering (AML) measures in place that ensure funds are not used for illegal purposes.
Moharem also noted that their company welcomes the VARA guidelines. 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 company is very pro-regulation and having a clear framework to operate under will only strengthen the industry…This news is potentially important for the growth of digital currency payments as the government shows that it is protecting consumers as well as sellers’.
The executive also stressed that while privacy coins may be affected, the results will not be fatal. “I don’t think these projects will die completely, as 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, the co-founder of Crypto Oasis, a venture capital firm that helps the local crypto ecosystem through various services, echoed some of the sentiments expressed by Moharem. Ereiqat 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 passed virtually from one person to another, making it impossible to track their owner. This presents a unique challenge, as by allowing them, it can enable illegal trade.”
As for those who might be affected by the rules, Ereiqat suggested the effect might be minimal. According to the executive, the latest data available to them shows that of the more than 1,000 projects supported by Crypto Oasis, they have yet to encounter any privacy projects that have been launched. He said:
Perspective from a privacy-focused project
Cointelegraph also approached 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 others. He told Cointelegraph that:
“By banning ‘privacy coins’ instead of engaging in understanding the technology, regulators are demonstrating that they are not truly working on behalf of the public, for whom privacy is a basic human right.”
In addition to this, Goes argued that the term privacy coin is a misnomer for technological systems that offer privacy protection.
“There is no such thing as a ‘privacy currency.’ There are technology systems like Bitcoin where transaction information is exposed to everyone whether a user wants it or not, and technology systems like Zcash where users have control over who they disclose their transaction information 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 this position on the matter. Binance Dubai General Manager Alexander Chehahde said the new development shows Dubai’s ambition to set the benchmark to become a “transparent and forward-looking Web3 hub”. He explained that:
“Binance welcomes this new set of regulatory guidelines that focus on protecting users and investors while supporting the development of blockchain-enabled solutions and encouraging innovation in the Web3 ecosystem.”
Ereiqat also cited some evidence that suggests Dubai is on its way to becoming a true global hub for cryptocurrencies. “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 currently working in this space.