Even if you try, you cannot escape bitcoin hysteria these days. People across the world are debating the ability of bitcoin and blockchain technology to transform the way society functions, as if we are on the verge of a new epoch. Will bitcoin replace fiat money and erode trust in government currency? Will blockchain technology change how we transact with each other and usher in a new era in human organization?
Clues to these questions lie in how governments react to the rise of bitcoin and blockchain. The large-scale adoption of any new technology poses a challenge for regulators who want to guarantee the rule of law but not stifle innovation. In this regard, the UAE, as a small state invested in cutting-edge technology, presents an interesting test case.
But first, a brief description of how these innovations function. Blockchain is the technology that enables cryptocurrencies such as bitcoins. While it might sound complicated, blockchain is little more than an open-source digital ledger. Transactions take place in a ledger controlled by a global network of computers. Instead of a bank or government maintaining the ledger, this decentralized network of computers ensures that all transactions are made under conditions agreed upon by every party. All transactions are open source, and you can even watch bitcoin transactions as they happen live on the internet.
The computers verifying bitcoin transactions and thus maintaining the ledger are occasionally rewarded with new bitcoins in a practice called “mining.” This practice has given rise to miners all over the world eagerly trying to earn a bitcoin (which, at the time of writing, equals $8,155). Given the global computing power maintaining the ledger, one would require computing power that doesn’t currently exist to manipulate bitcoin transactions.
The result is a strong, trust-based system in which all transactions can be read and the ledger is virtually tamper-proof. Blockchain technology can be used for any trust-based transaction, from money exchange to land registration. The transactions are paperless, secure and instant.
So what does this have to do with the UAE? Given the UAE’s increasingly significant profile in global finance, authorities are focused on preventing any illicit financial activity. The country has worked closely with international financial institutions and other countries to ensure that any form of money laundering or tax evasion is stamped out. It is no wonder then that the government has taken a forceful line on cryptocurrencies such as bitcoins.
As a decentralized currency that enables users to trade anonymously, bitcoin poses a host of problems for government regulators. It is difficult to trade cryptocurrencies from the UAE, and the government bars its own citizens from buying or selling the assets. Such regulation makes sense for a country under the microscope of global finance, but it poses a challenge for the adoption of blockchain as a whole.
While financial authorities have effectively blocked cryptocurrencies, other parts of the UAE government have explored ways for blockchain to be incorporated into governance. The Dubai government has elaborate plans to use blockchain in everything from parking tickets to land deeds. Given the country’s commitment to technology on a state level, the incorporation of blockchain in government makes sense. Estonia, for example, has made waves for its innovative use of blockchain to store health records. Every citizen can access their health records online at any time. The data is secure and can be sent to doctors instantly, thanks to blockchain. A similar system in the UAE would be revolutionary.
Blockchain also has the power to revolutionize financial remittances, which is a critical facet of the UAE’s economy. The UAE-based telecommunications company Etisalat is already investing in blockchain-powered startups focused on remittance payments, such as Tokyo-based Telcoin. The startup uses cryptocurrencies to facilitate low-cost remittances that cut out traditional operators like Western Union. Customers are able to send funds from their mobile wallet to another mobile wallet for a fraction of what a traditional remittance operator would charge.
What you have is the promise and peril of a radical new technology. Blockchain is disrupting how transactions are processed and governments operate. The UAE has an opportunity to be at the forefront of these changes by embracing the positive aspects of these technologies – namely, government efficiency, digital governance and security – while ensuring security concerns are met. The ever-present danger is that regulators will stifle innovation through heavy handed actions that attempt to stamp out blockchain-enabled businesses and practices. The continued debate in the UAE around voice-over-internet protocol (VoIP) calling, which has resulted in the blockage of popular platforms such as Skype, is a cautionary tale in this regard.
Blockchain might not change the world in the manner its creators had hoped, but it is certainly introducing a host of innovations that are changing how we live. Governments have an opportunity to embrace these changes by adapting to new systems and laws. Attempts to stifle innovation through the outright blocking of technology will only result in a long-term loss.
Joseph Dana, based between South Africa and the Middle East, is editor-in-chief of emerge85, a lab that explores change in emerging markets and its global impact.
AFP PHOTO/STEPHANE DE SAKUTIN