The Future of Economic Exchange - Cryptocurrency in the Arab World
By: Caroline Umphlet / Arab America Contributing Writer
The Arab World is breaking records regarding cryptocurrency. Some countries are opening their economic sphere to further develop the digital means of exchange, while others are not so ready to switch over. Currently, creating a space for cryptocurrency to be successful is not highly prioritized by Arab countries, but is there room for it to thrive?
What is cryptocurrency and how does it work?
Many have heard of cryptocurrency, but do not understand the intricacies of how it works. Cryptocurrency is an alternative medium of exchange of assets or currency purely in the digital form. It is created through a process called mining, using computer power and software to solve algorithms that record the data of transactions to make coins. Anyone is allowed to purchase cryptocurrency. What a person owns when they own crypto or coins is the ability or “key” to transfer digital assets to another party. It uses data encryption to verify transactions. Encryption is a method of converting data into an encoded version using various techniques and algorithms. The main purpose is to secure the data or make it more difficult to steal and read. This data could include personal information like addresses and bank numbers or information about specific payments.
Blockchain was created in 2008, which is a forum where crypto is traded and exchanged. Cryptocurrency is attractive to users because it is not owned by any particular central authority like a government or bank. Also, it is fairly easy to become a self-taught investor. Supply and demand is what gives value to the currency. Consequently, investors have to accept the risk of possible massive losses, but also massive gains. Cryptocurrency is not accepted as a form of payment in most places but some companies are starting to allow it. There are thousands of cryptocurrencies, and more are constantly being created. Although it is certainly still a developing sector, there are billions of dollars invested in cryptocurrency, a considerable amount of which are based in the Arab world.
Crypto in the Arab World
With the creation of the credit card, it has become incredibly common to not even carry cash on your person in the West; some people even rely mostly on their cell phone for Apple pay. The Arab World is a little behind with this trend as paying with cash is the norm and, sometimes, the only form accepted. Cryptocurrency has opened the door for people to transfer all of their money to a digital form while simultaneously having the chance to invest and gain a profit. Digital currency is easier, faster, cheaper, and ideally, corruption-free. Interest in cryptocurrency has been growing recently and tends to be more accepted and popular with younger adults. However, a large concern holding people back is the possibility for hackers. The fact that it is unregulated is a little jarring, understandably. Despite the market size, there are already many scams online.
The Levant
Cryptocurrency has not yet taken flight in the Levant region as it has in the North African and Gulf States.
In Lebanon, digital transactions are particularly appealing because of banks’ shortage of cash and the Lira losing its value as a result of the current political climate. There are no restrictions or ridiculous fees for people outside of the country to send money in the form of crypto to relatives or friends living in Lebanon. The theory is that cryptocurrency can easily provide another way for Lebanese people to exchange money, pay for items/services, etc. with a more valuable and stable currency. Most importantly, they do not have to follow the restrictions of the Central Bank.
In Syria, due to the inflation rate consistently being over 50% since the start of the civil war, some people have turned to digital currency because of its safety from inflation. Demand for cryptocurrency is going up with the same supply, which means the purchasing power is more stable than their country’s currency, and even increasing in value.
The Central Bank of Jordan prohibits banks, currency exchanges, financial companies, and payment service companies from transactions in cryptocurrency. The Jordanian government also warned against the use of digital payments because of the lack of recognition as a legal means of payment.
Egypt
Egypt banned the use and exchange of crypto without a proper license in 2020 because the belief that it is against the Islamic law. Regardless, this hasn’t stopped crypto trading to become more popular, as Egypt has the highest number of crypto owners in the Arab Region, followed by Morocco.
The Gulf States
Bahrain is becoming a potential hub for cryptocurrency because it has set up a banking regulation system for digital exchange. The Central Bank of Bahrain (CBB) accepts it as an official method of payment. Many businesses and startups are setting up in Bahrain, as a result.
The KSA has not approved any legal restrictions or regulations regarding cryptocurrency, but the government does seem to be accepting of the idea. In 2019, the Saudi Arabian Monetary Authority released a cryptocurrency partnered with the United Arab Emirates Central Bank called Aber. Their report in 2020 claimed that central bank digital currency impose “significant improvement over centralized payment systems in terms of architectural resilience.” Around half of investors do spot trading because it is the only type that some consider halal or acceptable.
UAE/Dubai
The true hub for cryptocurrency in the Arab World is arguably Dubai, given the city’s openness to fostering a successful environment for its use. There is space for Dubai to place itself front and center of the cryptocurrency world because, frankly, no other city has the resources or interest. Although crypto is not an officially accepted form of payment like in Bahrain, Dubai did release a regulatory framework for digital assets in early 2022. Per usual in Dubai, the main goal is to increase foreign direct investment (FDI) but, in general, the government approval is essential to growing the field. Approximately one fourth of Middle Eastern millionaires invest in crypto. Additionally, a study from 2021 found that two-thirds of adults in the UAE are interested in investing in cryptocurrency in the coming years. Some companies have started taking cryptocurrency as a form of payment such as Dubai’s real estate developer Damac and even Emirates Airline. Some luxury car dealers and other retailers like Rolex also accept crypto.
The Future of Cryptocurrency
Some economists predict that cryptocurrency might replace current traditional financial systems and common forms of payment in the future. By 2026, the central bank of the UAE announced that they want to launch their own digital currency. They hope to become one of the world’s top 10 central banks. Leveraging a top position in a growing and technologically advanced financial sector might prove to be very helpful for the entire Arab region. Bringing money to younger investors could potentially lead to great success for the region’s economics, political stability, and also develop stronger international relationships.
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