The Virtual Asset Regulatory Authority (VARA) recently released its much-anticipated guidelines for virtual asset service providers (VASPs) in the United Arab Emirates, including a ban on privacy coins.
On Feb. 7, VARA issued several rulebooks for VASPs, one of which was the “Virtual Assets and Related Activities Regulations 2023”, which outlined the prohibition on privacy coins. VARA stated:
“The issuance of Anonymity-Enhanced Cryptocurrencies and all VA Activity[ies] related to them are prohibited in the Emirate.”
Cointelegraph questioned several market participants from Dubai and a privacy protocol project to get their feelings on the new guidance.
Impact of the ban on privacy coins
Khaled Moharem, president of the Middle East at blockchain-based payments ecosystem WadzPay, commented that this did not come as a surprise as other regions have already declared similar plans. Moharem told Cointelegraph that, while more time is needed to fully comprehend the implications of the new development, their initial assessment reveals that issuance will be banned. He noted:
“At the end of the day, money, whether physical or digital, does require some degree of traceability. While there was an incorrect bias that digital currencies, such as Bitcoin and Ethereum, are untraceable, this was not actually the case.”
He also mentioned that their crypto payments company implements Know Your Customer and Anti-Money Laundering measures to make sure funds are not used for illicit purposes.
Moharem highlighted that their firm welcomes the new regulations from VARA. He stated that, while this may eliminate a small segment of digital currencies, it confirms the legitimacy of other digital currencies like Bitcoin (BTC) and Ether (ETH).
“Our company is very pro-regulation, and having a clear framework by which to operate in will only strengthen the industry… This news is potentially significant for growing digital currency payments, as the government is showing that they are protecting consumers, as well as vendors.”
The executive also recognized that, while the privacy coins may be impacted, the effects will not be fatal. “I don’t think these projects will entirely die off, as the ban isn’t international,” he said. However, Moharem concluded that availability and distribution will be limited within the local market.
Related: Dubai establishes virtual asset regulator and announces new crypto law
Saqr Ereiqat, co-founder of Crypto Oasis — a venture-building company that assists 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 said:
“Think of privacy coins as you would think of U.S. dollar bills that have nearly been passed from one person to the next, making it impossible to track their owner. This presents a unique challenge, as allowing them may enable illicit trade.”
As for those who may be affected by the rules, Ereiqat proposed that the effect may be minimal. According to the executive, their latest available data show that within the over 1,000 projects supported by Crypto Oasis, they have not yet encountered any privacy projects being launched.
Views from a privacy-focused project
Cointelegraph also contacted a privacy project that could potentially be affected by the new laws if they ever wanted to set up a headquarters in Dubai. Christopher Goes, co-founder of privacy protocol Anoma, offered a different opinion than the others. He told Cointelegraph:
“By banning ‘privacy coins’ rather than engaging to understand the technology, regulators are demonstrating that they aren’t really 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 the wrong description for technological systems that offer privacy.
“There is no such thing as a ‘privacy coin.’ There are technological systems like Bitcoin where transaction information is disclosed to everyone whether a user wants it to be or not, and technological systems like Zcash where users have control over who they disclose their transaction information to,” he explained.
Dubai still on the path of becoming a global crypto hub
Binance, one of the first companies to obtain a license from VARA to operate in Dubai, also gave its position on the topic. Binance Dubai general manager Alexander Chehade said that the new development shows Dubai’s ambition of setting the benchmark for becoming a “transparent and forward-thinking Web3 hub.” He stated:
“Binance welcomes this new set of regulatory guidelines that focus on safeguarding users and investors while supporting the development of blockchain-enabled solutions and encouraging innovation in the Web3 ecosystem.”
Ereiqat also mentioned some data that suggest that Dubai is on its way to becoming a true global hub for crypto. “We are witnessing an unprecedented migration of talent and capital from around the world into the UAE, which is why we are referring to this ecosystem as the Crypto Oasis,” he said. According to Ereiqat, Crypto Oasis has more than 8,300 professionals currently working in this space.
