Blockchain Regulations in the Middle East
Written by Adrian de Vernou and Jacob Rubin
Cryptocurrencies and blockchain technologies have gained a significant amount of popularity across the world, leading many countries to implement regulations on cryptos or digital assets.
As many nations compete to create the perfect environment for blockchain industries to flourish, one region that is often overlooked is the Middle East. The Middle East is expansive and includes 18 different countries, meaning that it is difficult to generalize crypto regulations across all 18 countries. However, the Middle East hosts both ends of the spectrum, with some countries investing heavily in digital assets and technologies and others placing hefty regulations on it. In this piece, we will analyze how different regulations, laws, or economic environments across various Middle Eastern countries allow blockchain technology to either flourish or fail.
United Arab Emirates
One of the countries at the forefront of blockchain innovation is the United Arab Emirates. The wealthiest of its seven emirates, Dubai, is a massive hub for blockchain and crypto companies. Recently, many companies flocked to Dubai due to new regulations and laws surrounding cryptocurrencies and digital assets. These companies include Bybit and Crypto.com, with Binance and FTX also recently being given virtual asset licenses.¹ In April of 2022, the Government of Dubai enacted Law No. 4 of 2022 on the Regulation of Virtual Assets (VAL) on top of establishing the Dubai Virtual Assets Regulatory Authority (VARA). This milestone law not only establishes a legal framework for businesses engaging in all kinds of digital assets, from cryptocurrencies and NFTs to tokenized commodities, but also strategically positions Dubai to become a leading city for blockchain technology and innovation.² On July 18, 2022, the Dubai Metaverse Strategy was announced by the crown prince of Dubai. With around 1,000 businesses participating in the Metaverse and contributing $500 million to the nation’s economy, Dubai intends on expanding the number of blockchain and metaverse businesses five-fold and be among the top ten cities in the industry worldwide.³
Kerem Turkmen, Managing Partner and Co-founder of TAKtical International Group as well as Advisory Board Member for TCC, lives and works in Dubai. As a serial entrepreneur and blockchain evangelist, Mr. Turkmen believes that Dubai will be the global leader for everything relating to blockchain. Mr. Turkmen said that, “Dubai is a unique place. It seems like there is no regulation and no rules, but it is exactly the opposite.” Mr. Turkmen explained how Dubai was created very differently than other cities. Rather than be built from the bottom up like Silicon Valley, or from the top down like Singapore, Dubai was built and is still developing “inside-out.” Mr. Turkmen says that, “Every project starts either locally owned or prince owned. As soon as the project starts taking off a little bit, they start selling it to the public.” Within the crypto and blockchain space, Mr. Turken says that Dubai ensures that everything is very well regulated, even if certain blockchain projects did not begin that way.
Bahrain can be seen as the emerging regional cryptocurrency hub of the Middle East. While Dubai has made a great effort to be crowned the cryptocurrency hub of this region, Bahrain has quietly moved ahead of the United Arab Emirates in some respects. Binance, the largest crypto exchange in the world in terms of daily trading volumes, received their license to operate in Bahrain before their license to operate in Dubai.⁴ The small state of Bahrain has banking regulation for crypto in place and accepts cryptocurrency as an official method of payment. Due to these already existing regulations, many crypto companies in the region are setting up in Bahrain.
The Central Bank of Bahrain (CBB) has pre-existing cryptocurrency regulation and this has attracted many exchanges and projects to operate in Bahrain.⁵ Due to the country accepting cryptocurrency as an official method of payment (legal tender), established banks work with exchanges regularly. This allows users of exchanges to withdraw and deposit their money easily and attracts more customers to using cryptocurrency. Following the lead of Bahrain, Dubai has been open to building a regulatory environment for cryptocurrencies to be widely accepted in their country.
Egypt and Bahrain are on opposite sides of the cryptocurrency regulation spectrum. While Bahrain can be viewed as one of the countries on the friendly side, Egypt is the opposite. Egypt has clearly expressed its stance against cryptocurrencies. The Central Bank of Egypt highlighted that Egypt does not deal with cryptocurrencies due to their volatile nature and anonymity.⁶
In 2018, the primary Islamic legislator in Egypt issued a religious decree classifying commercial transactions in bitcoin as haram (Haram is anything that is prohibited under Islamic law.)⁷ Since this declaration, Egypt has been moving towards a more friendlier approach but still can be seen as harsh on the usage of cryptocurrency.
In 2020, the Egyptian Parliament enacted the Central Bank and Banking Sector Law No.194. This introduced several technological and digital means to aid with the digital transformation of the banking and financial sector of Egypt. This is considered a step in the right direction regarding cryptocurrency regulation.
Despite being criminalized, crypto trading continues to exist in Egypt. A study conducted in 2021 by Triple A⁸, a crypto consultancy firm, estimated that 1.7 million Egyptians own some form of cryptocurrency.⁹ While this number may seem small, this statistic indicates that there is an increasing demand for digital currencies.
Iran’s relationship with cryptocurrencies has certainly not been the smoothest. Beginning in 2018 over fears that crypto was financing terrorism and money laundering, the government of Iran made trading or possessing any cryptocurrencies illegal. This rule applied beyond just individuals. From banks, currency exchanges, and credit institutions, every Iranian financial institution was banned from trading, using, or possessing crypto in any form. This meant that overall crypto was totally outlawed in Iran.
The following year, Iran’s position shifted. As sanctions were pummeling much of their economy, Iran felt it necessary to pull the ban off. They also hoped that it could potentially relieve them from dependence on the U.S. dollar. At this point, the Central Bank of Iran declared that mining and owning cryptocurrencies is legal, however, they cannot be used as a form of payment. On top of this, Iranians cannot hold “large amounts of cryptocurrencies.”¹⁰ Bans on different forms of currency is not unusual in Iran. Iranians are not allowed to own more than 10,000 euros.
Since reversing some of the bans on cryptocurrencies in 2019, the Iranian government has considered and implemented some new restrictions after the price of digital assets soard in 2020. The only real restriction implemented was on crypto miners given that the mining process consumes high levels of energy, something that the government hopes to decrease. Periodically, the government totally shuts down authorized crypto mining facilities in order to avoid blackouts. Unauthorized mining is also a huge priority for the government given that it can consume up to 600 megawatts of electricity.¹¹
¹ Fortune.com https://fortune.com/2022/03/29/dubai-crypto-capital-russian-oligarchs-sanctions/
² Hunton Andrews Kerth https://www.huntonak.com/en/insights/dubai-issues-its-first-crypto-law-regulating-virtual-assets.html#:~:text=The%20Government%20of%20Dubai%20recently,Assets%20Regulatory%20Authority%20(VARA).
³ Blockchain Council
⁴ Coin Telegraph https://cointelegraph.com/news/it-s-official-binance-secures-a-license-to-operate-in-dubai
⁵ CNN https://www.cnn.com/2022/02/22/investing/mideast-summary-02-22-2022-intl/index.html
⁶ Egyption Streets https://egyptianstreets.com/2022/06/03/how-is-egypt-facing-the-global-crypto-wave/#:~:text=In%20a%20warning%20statement%2C%20The,a%20security%20threat%20to%20Egypt.
⁷ Freeman Law https://freemanlaw.com/cryptocurrency/egypt/
⁸ Company Triple A https://triple-a.io/
⁹ Egyptian Streets https://egyptianstreets.com/2022/06/03/how-is-egypt-facing-the-global-crypto-wave/#:~:text=In%20a%20warning%20statement%2C%20The,a%20security%20threat%20to%20Egypt.
¹⁰ Freeman Law https://freemanlaw.com/cryptocurrency/iran/
¹¹ Bloomberg https://www.bloomberg.com/news/articles/2021-12-28/iran-orders-crypto-mining-ban-to-save-power-amid-winter-crunch#:~:text=Iran%20for%20the%20second%20time,spokesman%20for%20Iran's%20power%20industry.