Crypto projects respond to privacy coin ban in Dubai

The Virtual Assets Regulatory Authority (VARA) recently released a long-awaited recommendation for Virtual Asset Service Providers (VASPs) in Dubai, United Arab Emirates, which includes a ban on privacy coins.

Wed Feb. 7, BE released several sets of rules for VASPs, including the “Virtual Assets and Related Activities Regulations 2023” in which VARA mentioned a ban on privacy coins. In the document, WARA wrote:

“Issuing cryptocurrencies with improved anonymity and all VA activity[ies] associated with them are prohibited in the Emirate.”

Cryptooshala reached out to several players in Dubai and the privacy protocol project to see how market participants feel about the updated Dubai cryptocurrency guidance.

Implications of the ban on the issuance of privacy coins and activities

According to Khaled Moharem, president of blockchain-based payment ecosystem WadzPay MENA, the news came as no surprise as other regions made similar announcements. Moharem told Cryptooshala that while more time is needed to fully assess the implications of the new development, their initial assessment indicates that the release will be banned. He explained that:

“After all, money, whether physical or digital, requires a certain degree of traceability. While there was a misconception that digital currencies such as Bitcoin and Ethereum were untraceable, this was actually not the case.”

He added that it is for this reason that their cryptocurrency 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 VARA’s recommendations. He noted 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 actively supporting regulation and having a clear framework to work on will only strengthen the industry… This news is potentially important for the growth of digital currency payments as the government shows they are protecting consumers as well as merchants.”

The chief executive also emphasized that while privacy coins may be affected, the consequences would not be fatal. “I don’t think these projects will completely die out because the ban is not international,” he said. However, Moharem acknowledged that local market availability and distribution would be limited.

Dubai Creates Virtual Asset Regulator and Announces New Cryptocurrency Law

Saqr Ereykat, co-founder of Crypto Oasis, a venture capital company that helps the local crypto ecosystem through various services, echoed some of the sentiments expressed by Moharem. Erekat told Cryptooshala that privacy coins are inherently different from BTC and ETH, where transactions can be traced back to origin. He explained that:

“Think of privacy coins in the same way as US dollar banknotes that were almost passed from one person to another, making it impossible to trace their owner. This poses a unique challenge as allowing them could lead to illegal trade.”

As for those who might be affected by the rules, Ereykat suggested that the effect might be minimal. According to the executive, their latest available data shows that out of the more than 1,000 projects backed by Crypto Oasis, they have yet to come across any privacy projects launched. He said:

Project Perspective Focused on Privacy

Cryptooshala has also reached out to the privacy project, which could potentially be affected by the new laws if they ever want to open a headquarters in Dubai. Christopher Gose, co-founder of the Anoma privacy protocol, had a different opinion. He told Cryptooshala that:

“By banning privacy coins instead of understanding technology, regulators demonstrate that they are not really working on behalf of a society for which privacy is a basic human right.”

In addition, Goes argued that the term “privacy coin” is an incorrect description of technological systems that provide privacy.

“There is no such thing as a ‘privacy coin’. There are technological systems such as Bitcoin, where transaction information is disclosed to everyone whether the user wants it or not, and technological systems such as Zcash, where users can control who they disclose information about their transactions to, ”he explained.

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

Binance, one of the first companies licensed to operate in Dubai from VARA, also expressed its position on this issue. Binance Dubai General Manager Alexander Sheahde said the new development demonstrates Dubai’s commitment to setting the benchmark for becoming a “transparent and visionary hub for Web3.” He explained that:

“Binance welcomes this new set of regulatory guidance to protect users and investors, support the development of blockchain-enabled solutions, and encourage innovation in the Web3 ecosystem.”

Ereykat also mentioned some data indicating that Dubai is on its way to becoming a true global center for cryptocurrencies. “We are seeing an unprecedented migration of talent and capital from around the world to the UAE, which is why we call this ecosystem Crypto Oasis,” he said. More than 8,300 professionals currently work at Crypto Oasis, Ereikat said.

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