The Virtual Asset Regulatory Authority (VARA) recently provided the much-awaited guidelines for virtual asset service providers (VASPs) in Dubai, United Arab Emirates, which included a ban on privacy coins.
On Feb. 7, VARA released several rulebooks for VASPs including the "Virtual Assets and Related Activities Regulations 2023" in which VARA mentioned a prohibition on privacy coins. In the document, VARA wrote:
“The issuance of Anonymity-Enhanced Cryptocurrencies and all VA Activity[ies] related to them are prohibited in the Emirate.”
Cointelegraph reached out to several players within Dubai and a privacy protocol project to find out how market participants feel about the updated guidance on crypto in Dubai.
Dubai’s VARA,has issued its Virtual Assets and Related Activities Regulations 2023.The Regulations set out a comprehensive Virtual Asset (VA) Framework built on principles of economic sustainability & cross-border financial security. https://t.co/XXDPdktpuY pic.twitter.com/MdVPgSW5AT
— Dubai Media Office (@DXBMediaOffice) February 7, 2023
Effects of the ban on privacy coin issuance and activities
According to Khaled Moharem, the president of the blockchain-based payments 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 does require some degree of traceability. While there was an incorrect bias that digital currencies such as Bitcoin and Ethereum are untraceable this was not actually the case.”
He added that this is the reason why their crypto payments company implements know your customer (KYC) and anti money laundering (AML) measures which ensure that funds are not used for illicit 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 like Bitcoin (BTC) and Ether (ETH).
“Our company is very pro-regulation, and having a clear framework by which to operate in will only strengthen the industry...This news is potentially significant for growing digital currency payments, as the government is showing that they are protecting consumers, as well as vendors."
The executive also highlighted that while the privacy coins may be impacted, the effects will not be fatal. "I don't think these projects will entirely die off, as the ban isn't international," he said. However, Moharem recognized that availability and distribution will be limited within the local market.
Related: Dubai establishes virtual asset regulator and announces new crypto law
Saqr Ereiqat, the 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. 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 nearly been passed from one person to the next, making it impossible to track their owner. This presents a unique challenge as allowing them, may enable illicit trade.”
As for those who may be affected by the rules, Ereiqat suggested that the effect may be minimal. According to the executive, their latest available data show that within the over 1,000 projects supported by Crypto Oasis, they have not yet encountered any privacy projects being 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 privacy protocol Anoma, offered a different opinion than the others. He told Cointelegraph that:
"By banning ‘privacy coins’ instead of engaging to understand the technology, regulators are demonstrating that they aren't really working on behalf of the public, for whom privacy is a basic human right."
Apart from this, Goes argued that the term privacy coin is the wrong description 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 disclosed to everyone whether a user wants it to be or not, and technological systems like Zcash where users have control over who they disclose their transaction information to," he explained.
Dubai 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 position on the topic. Binance Dubai General Manager Alexander Chehahde said that the new development shows Dubai's ambition of setting the benchmark for becoming a "transparent and forward-thinking Web3 hub." He explained that:
“Binance welcomes this new set of regulatory guidelines that focus on safeguarding users and investors while supporting the development of blockchain-enabled solutions and encouraging innovation in the Web3 ecosystem.”
Ereiqat also mentioned some data that suggest that 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 into the UAE, which is why we are referring to this ecosystem as the Crypto Oasis,” he said. According to Ereiqat, the Crypto Oasis has more than 8,300 professionals currently working in this space.