Bitcoin future uncertain due to lack of regulation

DUBAI // Efforts to promote the use of Bitcoin in the UAE have stalled amid uncertainty over how it is regulated here and in the wider region.

“We reached a point where we are still uncertain about complying with regulations, which is where we have actually stalled,” said Tarik Kaddoumi, who started Umbrellab, a Bitcoin services company, with co-founder Sergey Yusupov.

In April, Umbrellab activated the UAE's first Bitcoin ATM in Dubai Media City, but it has since scaled back its efforts until regulatory questions are resolved.

The key questions, said Mr Kaddoumi, were which entity would regulate the use of Bitcoin and how would the authorities define it – as a currency, commodity, digital token or something else.

“The fact that there is no regulation about Bitcoin would make it a very grey area,” he said. “We just need to make sure we’re complying 100 per cent with Government regulations, because at the end of the day we’re dealing with money.”

Bitcoin is an online payment system based on open-source software. Despite the lack of clarity on regulations, Mr Kaddoumi said he had seen an increasing number of people attending Bitcoin gatherings in Dubai.

Despite widely publicised incidents such as the now-defunct Mt. Gox exchange’s loss of 850,000 Bitcoins, which had been valued at millions of US dollars, there had been more newcomers to Bitcoin at the meetings than what Mr Kaddoumi called “Bitcoin evangelists”.

Umbrellab has also created a new service, piiko.com, that allows people to top up their mobile-phone credit with Bitcoin instead of cash.

Amine Ouazad, a visiting assistant professor of economics at New York University Abu Dhabi, said: “The lack of regulation of the Bitcoin is, in many dimensions, a problem,” said Prof Ouazad.

Although the lack of government control may be a reason for interest in Bitcoin, this also has drawbacks. “People who use Bitcoin think that they are free of government intervention, but what happens is they are not protected by regulations that are meant to protect them,” he said.

Other pertinent concerns include tracking illegal activities such as money laundering and taxation for services.

Indeed, Bitcoin presented a particular challenge for regulators, said Daniel Diemers, partner with Strategy&, a global management consultancy.

“With Bitcoin, it’s actually pretty hard to do any consumer protection because the money is everywhere – it’s in the internet, it’s a virtual currency,” he said. “It’s very hard for regulators to step in and make rules about it.”

Nevertheless, regional interest in Bitcoin had been growing in the past year or two, said Mr Diemers, and regulators should make decisions about Bitcoin in months rather than years.

To be sure, Bitcoin for illegal activities was a problem, and its use for Islamic banking was a concern, he said.

“Is Islamic banking completely happening outside of the Bitcoin or alternative currency world, or can they become part of it?” said Mr Diemers.

“With Bitcoin, I wouldn’t expect a revolution over the coming years in terms of suddenly everyone in the UAE running around with Bitcoin wallets,” Mr Diemers said. “But it can play a very positive role.”

lcarroll@thenational.ae