The Virtual Assets Regulatory Authority (VARA) recently provided in Dubai, United Arab Emirates, the long-awaited guidelines for Virtual Asset Service Providers (VASPs), which included a ban on of privacy coins.
On February 7, the VARA published several regulations for virtual asset service providers, including the “Reglamento de Activos Virtuales y Actividades Relacionadas 2023”, in which the VARA mentioned the prohibition of privacy coins. In the document, the VARA wrote:
“The issuance of anonymity-enhanced cryptocurrencies and all VA activities related to them are prohibited in the emirate.”
Cointelegraph reached out to various players within Dubai and a draft privacy protocol to find out how market participants feel about the updated guidance on cryptocurrencies 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
The Dubai VARA has issued its 2023 Virtual Assets and Related Activities Regulations. The Regulations establish a comprehensive virtual asset (VA) framework based on principles of economic sustainability and cross-border financial security.
Effects of the ban on the issuance and activities of privacy coins
According to Khaled Moharem, president of blockchain-based payments ecosystem WadzPay MENA, the news came as no surprise as other regions have made similar indications. Moharem told Cointelegraph that while more time is needed to fully assess the implications of the new development, his initial assessment shows that issuance will be banned. He explained that:
“At the end of the day, money, whether physical or digital, requires some degree of traceability. While there was an incorrect bias that digital currencies like Bitcoin and Ethereum are untraceable, this was actually not the case.”
He added that this is why his crypto payments company applies know-your-customer (KYC) and anti-money-laundering (AML) measures that ensure funds are not used for illicit purposes.
Moharem also noted that his company welcomes the VARA guidelines. He noted that while this may remove 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-regulatory, and having a clear framework in which to operate will only strengthen the industry… This news is potentially significant for the growth of digital currency payments, as the government is showing that it is protecting consumers as well as sellers.
The executive also highlighted that while privacy coins may be affected, the effects will not be fatal.. “I don’t think these projects will die entirely, as the ban is not international,” she said. However, Moharem acknowledged that availability and distribution will be limited in the local market.
Saqr Ereiqat, co-founder of Crypto Oasis, a start-up company 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 like you would think of US dollar bills that have almost been passed from one person to another, making it impossible to trace their owner. This presents a unique challenge, as allowing them may allow 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 shows that, among the more than 1,000 projects supported by Crypto Oasis, they have not yet found any privacy projects in the launch phase..
Perspective of a project focused on privacy
Cointelegraph has also contacted a privacy project that could be affected by the new laws if it wanted to establish its headquarters in Dubai. Christopher Goes, co-founder of the Anoma privacy protocol, offered a different take than others. He told Cointelegraph that:
“By banning ‘privacy coins’ instead of committing to understanding the technology, regulators are showing that they are not actually 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 a misdescription for technological systems that offer privacy.
“There is no such thing as a ‘privacy currency.’ Users have control over who they disclose their transaction information to”he explained.
Dubai remains on track to become a global cryptocurrency hub
Binance, one of the first companies to obtain a license from the VARA to operate in Dubai, also gave its position on the matter. Binance Dubai CEO Alexander Chehahde said the new development shows Dubai’s ambition to set the benchmark to become a “transparent and forward-thinking 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 fostering innovation in the Web3 ecosystem.”
Ereiqat also mentioned some data suggesting that 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, the Crypto Oasis currently has more than 8,300 professionals working in this space.
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