Blockchain can transform the way the UAE does business
Clues to these questions lie in how governments react to the rise of bitcoin and blockchain.
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 blockchain technology change how we transact with each other and usher in a new era in human organisation?
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. 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 decentralised network of computers ensures that all transactions are made under conditions agreed upon by every party. 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 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.
The regulators in the UAE, as of now, do not recognise, regulate or supervise cryptocurrencies and do not offer legal or regulatory protection to investors. This makes sense for a country under the microscope of global finance, but it poses a challenge for the adoption of blockchain as a whole.
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 his or her 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 revolutionise 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 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.
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 is editor-in-chief of emerge85, a lab that explores change in emerging markets and its global impact