Cryptocurrency, also known as digital or virtual currency, has quickly made a name for itself in the market. Relying solely on blockchain technology, cryptocurrency attracts its consumers due to its decentralised nature. This means that the transfer of funds from one person to another no longer requires a third party (such as the bank) to process these payments. This eliminates any form of data breach or fraud since money is held through an encryption key that only the consumer has knowledge of. As cryptocurrency evolves and appeals more to consumers, it would not be surprising if these acquired assets interlink with the regulated financial system in the future.
SMEs, in particular, are also drawn to the concept of cryptocurrency for a variety of reasons. The decentralised nature of cryptocurrency not only protects businesses from third parties with ulterior motives, but also reduces transaction fees drastically due to the elimination of a central intermediary. Moreover, businesses are always looking for more ways to attract customers and offering protection to the customer’s information through cryptocurrency transactions is one of the ways that this can be achieved.
The United Arab Emirates (UAE) is one of the top countries when it comes to regulating the cryptocurrency market effectively. Although the Central Bank of the UAE does not acknowledge cryptocurrencies, legal frameworks have been implemented in freezones such as Abu Dhabi and Dubai to regulate cryptocurrency and encourage businesses making use of this currency. On the 28th of February 2022, Dubai enacted Law No. 4 of 2022 on the Regulation of Virtual Assets (VAL), establishing the Dubai Virtual Assets Regulatory Authority (VARA) and affiliating it with the Dubai World Trade Centre (DWTC) Authority. This law was enacted in order to establish the UAE, especially Dubai, as a significant player in designing the future of virtual assets globally.
Apart from the rising cryptocurrency market in the UAE, the country also holds SMEs under special focus and support since these enterprises are the backbone of the country’s economy. According to the Ministry of Economy, SMEs represent more than 94% of the total number of companies operating in the country. Dubai alone makes up for 95% of this total. The SMEs in Dubai contribute to 40% of its GDP and employ 42% of the private sector’s workforce. Therefore, SMEs play a huge role in the economy of the UAE, especially in the Emirate of Dubai. This explains the efforts of Dubai in aiming for SME expansion.
One of the ways in which SMEs can potentially contribute more to the economy of the UAE is by setting up a cryptocurrency license under the DWTC. With VARA regulating the virtual asset platform, business setup in Dubai would not only be easier, but also more reliable for crypto businesses. VAL offers a wide range of virtual asset activities in Article 16 under which a cryptocurrency license can be obtained.
Obtaining a cryptocurrency license under the DWTC not only provides SMEs with an exceptional platform to conduct their business activities, but also eliminates corporate tax and expands the business through various networks easily while also being able to work globally since cryptocurrency is able to work across borders. Alongside enabling businesses to process decentralised and fee-free transactions, a cryptocurrency license can also provide inflation resistance. National inflation is a result of central banks deciding to print more currency. However, since cryptocurrency does not belong to the currency of a specific country, it does not face this problem. On the contrary, virtual currencies have caps on the total supply of each currency and most of them are deflationary. Therefore, a cryptocurrency license is more convenient and cost-effective for a SME.
However, there do exist a few drawbacks with dealing in cryptocurrency. Since most virtual currencies have a cap on the total supply of each currency, the cryptocurrency market is unpredictable. Not only does it heavily rely on demand, but geopolitical and economic events also have a significant effect on the market. Transactions are irreversible, thus making it impossible to recover them unless the receiver agrees to send them back. Therefore, if someone steals the cryptocurrency assets of the business or they are lost by error, there is almost little to no chance of recovering these assets. Ultimately, since cryptocurrency is not widely accepted as of yet, making most purchases may require a business to convert crypto back into physical currency.