Wes Schwalje, COO of Tahseen Consulting, speaks with with Alicia Buller at Computer Weekly
- Authorities in Dubai have begun to cautiously embrace cryptocurrencies by labeling Bitcoin as a commodity and launching a cold storage facility
- Workable regulation established in dialogue with the private sector is the key to solving cryptocurrencies' "identity crisis"
Wes Schwalje, Chief Operating Officer of Tahseen Consulting, recently sat down with Alicia Buller at Computer Weekly to discuss the UAE and GCC’s emerging interest in cryptocurrencies.
Computer Weekly: What do you think of Dubai’s decision to label Bitcoin a commodity and allow for cryptocurrency trading?
Schwalje: The Dubai Blockchain Strategy and ongoing government pilots is a very tangible commitment of Dubai’s embrace of blockchain technology, but there is growing consensus that some of its use cases have risks.
There is a real fear by governments globally that the hype surrounding blockchain is leading to speculation that might slow innovation.
Right now, the use case of cryptocurrency as a payment mechanism is not compelling so Dubai’s decision to label cryptocurrency as a commodity is a decision rooted in necessity given the current maturity of cryptocurrency markets. It is also following the lead of the United States Commodity Futures Trading Commission’s 2015 ruling, which was reaffirmed by a federal judge in early March, that digital currencies are commodities.
Whether to regulate cryptocurrency as an alternative to currency or as securities will remain an ongoing question for regulators, exchanges, and investors.
Dubai is also facing increasing pressure from Saudi Arabia and neighboring Abu Dhabi as potential rival financial centers for cryptocurrency trading which may have forced its hand a bit. The Dubai Multi Commodities Center is the first free zone authority to offer a license to trade in digital currencies, but there is still a lack of clarity on the licensing of online digital currency exchanges. Cryptocurrency exchanges are currently being extended a “sandbox” treatment, but they will likely face pressure to become regulated by financial regulatory authorities.
Computer Weekly: Dubai has also recently seen a number of flats sold via Bitcoin. Is this a positive development and a trend that you see growing?
Schwalje: This is more of a publicity stunt than a sensible business decision. Though the initial batch of 50 apartments sold out, the fluctuating price of Bitcoin has forced the investors behind the promotion to pause a second release of Bitcoin-priced apartments. The sale, which received a significant amount of earned media attention was billed as the world’s first ever scheme for purchasing real estate using cryptocurrency. But buyers who took advantage of this scheme when it was announced in September 2017 are likely experiencing a significant case of buyer’s remorse today.
This promotion is an interesting real world case where a cryptocurrency is being used to buy a physical asset which a first step in building trust in digital currencies as a payment mechanism.
Computer Weekly: Dubai has also launched the world’s first cold storage facility. Is this a necessary service in your opinion? What other add-on services do you see spinning off cryptocurrency licenses, such as ‘mining’ which you mentioned?
Schwalje: The rationale for a cold storage facility for cryptocurrencies is remarkably similar to the rationale a bank manager might give for having an old school vault in a bank. Cold storage, similar to bank vaults, are intended to protect valuables from theft, natural disasters, and other threats. In addition to cold storage, there is an ecosystem of ecosystem of service providers which is starting to emerge in Dubai and the region including mining, e-wallet solutions, trading platforms, financial and legal advisors.
Cryptocurrency’s identity crisis is fueled by a common perception that disruptive technology companies do not want to be regulated – which is false.
Computer Weekly: The world is divided on cryptocurrency. Some say it is too volatile and others say it assists fraudsters. When/if do you see cryptocurrency taking off as an accepted and regulated currency?
Schwalje: Cryptocurrencies have an identity crisis – on one hand there is a significant fear of missing out and on the other cryptocurrency has a reputation as a tool for private, anonymous transactions between nefarious characters. Sensible, workable regulations are key to resolving this. Cryptocurrency’s identity crisis is fueled by a common perception that disruptive technology companies do not want to be regulated – which is false. Safety and security is frequently used as a pretext by regulators to avoid change. A key risk in our region is that regulators default to compliance and enforcement and shoehorning innovation into existing laws and executive regulations rather than developing sensible, workable regulations.
Disruptive technologies like ridesharing and now cryptocurrencies have underscored the need for a world-class regulatory framework for the digital economy in Dubai to solidify its role as a global technology hub and leader of the Fourth Industrial Revolution.
There is increasingly a need for more private sector participation on digital economy regulations such as spectrum policy, over-the-top services, ridesharing, cryptocurrencies, and the licensing of e-commerce businesses. Dubai would benefit significantly from a digital economy industry consultation group which would provide feedback to the government on digital regulations that affect technology companies. A duct tape approach may address some challenges in the short-term, but Dubai’s vision is to build a technology hub that can stand the test of time and intense global competition.