Bitcoin or Broke

Could bitcoin be the future currency? Image Courtesy Umbrellab

Is bitcoin a revolutionary technology or a passing fad for the Middle East?

BY Arfa Shahid

Despite speed, cost-efficiency and a simplified process, bitcoin, as a cryptocurrency, some argue, has failed to dominate the global financial system. Others, however,  continue to root for it as a future currency.

Bitcoin was developed in 2008 by Satoshi Nakamoto, someone who uses a pseudonym. To date, no one knows their identity. There are other digital currencies similar to bitcoin, but none has generated as much interest.

Unlike regular currencies, bitcoin can be used to move money around quickly, anonymously and without the need for an intermediary organization or transfer fees. Nakamoto intended for bitcoin to have a finite supply, meaning there can only be 21 million bitcoins, estimated to be available in 125 years. Currently, there are 15 million bitcoins in circulation. Bitcoin relies on Blockchain technology to record its transactions in a public ledger. A blockchain is a distributed database that is hardened to prevent revisions and tampering, even by its operators.

There is no doubt that cryptocurrency is becoming popular both in the Middle East and abroad. In September 2015, Digital Money Times quoted an e-coin representative as saying that 15 percent of the website traffic for bitcoin debit card providers comes from Morocco and that many were signing up for this service. There are several cafes in Jordan that are now accepting payments in bitcoin.

A report by Markaz, a Kuwait-based investment banking and asset management firm, noted that oil rich countries, particularly Gulf Cooperation Council (GCC) states could benefit if they traded in bitcoins.

The argument the company made in a 2014 report was that using bitcoins would save payment transaction costs for oil exporting countries. In addition to that, the process would be complete in a matter of seconds, as opposed to the clearance of oil payments through conventional banking systems, which normally take a few days.

More recently, the Kuwait-based Bitfils was launched allowing people to use their debit card to buy bitcoins.

Tunisia is another Arab country that has decided to be part of the e-currency revolution, becoming the first nation to offer its national currency for transmittance through cryptographic technology.

In 2015, Tunisia replaced its digital currency, the e-dinar, with blockchain-based Monetas currency. Further, Tunisia’s national postal service also teamed up with Monetas to provide a new payment infrastructure.

In the GCC region, the United Arab Emirates (UAE) seems to be the keenest in adapting to the cryptocurrency, with Dubai holding its first ever bitcoin conference in 2014.

Since then, Umbrellab, a bitcoin company, built the country’s first bitcoin ATM machine and placed it in Dubai Media City, where users can deposit cash into their “bitcoin wallet.”

In February 2016, the Dubai Museum of the Future Foundation announced the establishment of the Global Blockchain Council in line with the country’s goal to promote innovation and adapt to future technologies.

Although the Middle East is a growing market for bitcoin, there have been downfalls and growing uncertainty regarding the cryptocurrency.
Arguably, its decentralized nature is perhaps its most appealing factor and also one that prevents it from gaining the trust of users worldwide.

Governments are skeptical of this currency. In 2014, the Bank of Jordan issued a statement warning users not to deal in bitcoins arguing that virtual currencies are not “legal tender,” which means there “is no obligation on any central bank in the world or any government to exchange its value for real money.” No surprises there, considering bitcoin removes any central authority from the equation and is thus harder to trace. Moreover, there is the issue of hackers and illicit trading activities that are often carried out using digital currencies, given the anonymity they provide.

Managing Director and Head of National Bank of Abu Dhabi Securities, Mohammed Ali Yasin, is also skeptical of bitcoins. “There is no one central supplier of bitcoin technology in the world, and the safekeeping of the units traded in the world are not totally secured. Moreover, counterparty risk is not fully mitigated. So security and transparency is an issue,” Yasin told Newsweek Middle East.

Recent events have developed mistrust among cryptocurrency enthusiasts. In January 2016, Mike Hearn, one of bitcoin’s lead developers who had spent five years working on the digital currency, announced that he was ending his involvement with the tender. He added that he was selling all of his remaining holdings because bitcoin had “failed.”

Earlier this month, Apple customers were targeted by hackers in the first campaign against Macintosh computers using “ransomware” software, according to Reuters. The ransom was demanded in bitcoins, using the malicious software KeRanger, which is programmed to encrypt files on infected computers so they cannot be accessed. After encryption is completed, KeRanger would demand a ransom of 1 bitcoin, or about $400. Last month, the Hollywood Presbyterian Medical Center in California was forced to pay hackers a ransom of $17,000 in bitcoins to regain control of their computer systems after a cyber-attack.

Tarik Kaddoumi, a bitcoin expert who co-founded the UAE-based Umbrellab with Sergey Yusupov, believes crypto currencies are here to stay.

“Bitcoin can be a threat to some industries and sectors, but only if these sectors turn a blind eye to its existence,” he told Newsweek Middle East.

“It will be the same as when the Internet started and some companies saw it as a passing fad. People who don’t believe in technology will go, and the ones who embrace it will replace them,” he added.

If trust is a factor holding potential users back, there is good news. Bitcoin fraud may not be easily evaded. In February 2015, an American who created Silk Road—a bitcoin-facilitated market selling $1 billion in illegal drugs–was sentenced to life in prison.

Similarly, in March, the assets of a Czech national, who was suspected of laundering $40 million in stolen bitcoins, were seized.

Yasin believes central banks will be the most resistant to bitcoin technology. “[Central banks], if united, [are] the biggest economic powers and only second to the governments’ political powers. If [bitcoin] succeeds, over many years to come, it would replace currencies as we know them, which means it would replace even the central banks.”

Thus, Yasin says that “central banks will never allow such a currency system to prosper” and will insure that all financial institutions under them do not use it. “Without that, it cannot become popular with the masses.”

For now, it seems that only time will tell if cryptocurrency can become the region’s future currency.

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