One of the most important properties of bitcoin is to provide financial freedom to those who do not have access to banking services. A great illustration of this is the story of Syrian blockchain developer Ghass Mo , which CoinDesk recently reported . Mo is a refugee, it is difficult to find qualified work and open a simple bank account in his country. But cryptocurrencies helped Ghass Mo find a way out - for two years now he has been working for Western customers, receiving a salary in bitcoins. How a programmer manages to survive at the expense of cryptocurrencies, how digital assets are regulated in the Middle East, and why some countries in the region prohibit bitcoin, while others can become leaders in the blockchain industry?
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Syrian blockchain developer Ghass Mo lives in Iraqi Kurdistan. For almost two years now, he has been paid to work on open source crypto projects in bitcoin, after which he exchanges the coin on a local exchange. He also uses blockchain to send money to his family in Syria.
Ghass Mo lives a quiet, almost reclusive life, spending most of his time at home working. He does not attend Bitcoin events, has never met most of the people he works with. He left Syria in the early 10s due to the civil war and became an unemployed migrant who was responsible for supporting his family. Having independently learned blockchain programming through courses and videos in English, he was able to find work with Western customers.
Ghass Mo exchanges the earned bitcoins on the local crypto exchange Kurdcoin. The site was founded in 2017 by local graduate student Abdurrahman Bapir . It employs 10 people, its turnover starts from $ 500,000 and sometimes reaches $ 10 million per month. The company is also trying to sell hardware wallets, but has sold only 10 so far. According to Bapir, the exchange has been actively growing lately, most of its customers find it through Facebook and word of mouth. In Iraq, cryptocurrencies are actually prohibited, so an entrepreneur spends a lot of energy trying to find a regulated way of doing business in Kurdistan.
Kurdcoin uses hawala , an informal financial settlement system between special brokers used in the Middle East, Africa and Asia. Money and material assets move between countries without accompanying documents and bypassing official financial systems. Hawala was formed back in the 8th century in India, and is now used mainly by immigrants who earn money in the West and send money to their families. Bitcoin has become just one of the options used by system brokers. Ghass Mo, other Kurdcoin users and their families from other countries can withdraw funds through almost any local hawala broker from Syria to Kurdish Iran.
Ghass Mo's story is not unique. There are many freelancers in the country working for Western companies. There are even more people in the country who use cryptocurrencies to protect their savings and transfers to their relatives. The banking system is poorly developed in Iraq. According to Bapir, only every 20th person has a bank account, most of the payments are made in cash. Therefore, it is not surprising that people try to use cryptocurrencies.
Crypto market and Sharia requirements
In the West, cryptocurrency regulation is just a matter of political will and the location of regulators. But Islamic legislation on digital assets, like any financial instruments, must comply with the requirements of Sharia, the code of ethical rules of a devout Muslim.
Islamic law prohibits the acceptance of interest or payment for a loan of money. For financial activity to comply with Sharia law, it must not be usury or be based on speculation. Therefore, even with the encouragement of the development of the crypto industry by the authorities, some of its representatives simply will not be able to work in the region. For example, the entire DeFi sector and crypto derivatives trading is clearly haraam, that is, violation of Sharia and a sin.
There is no single point of view on whether cryptocurrencies are Sharia compliant. Sharia is not an absolutely strict code. Muslim experts usually find an opportunity to reconcile modern technology, including financial, and ancient dogmas. So, there are even Islamic mortgages on the market. Before the advent of cryptocurrencies, a similar problem of compatibility with Sharia was, incidentally, with regard to trading in the stock market. As a result, these assets are now permitted.
All four Sunni schools of Islam recognize intangible items as valid property and therefore tradeable. Initially, most Islamic scholars believed that cryptocurrencies did not comply with Sharia regulations. But in 2018-2019, most of them still came to the conclusion that there is nothing sinful about them.
Nowadays, Islamic scholars generally believe that cryptocurrencies meet most of the Sharia money requirements. Cryptocoins do not contradict Islam if they act as an asset and are used only for investment purposes, without speculation. In addition, the issuer of the coin must also be guided by Sharia law, not operate in sectors that contradict it, and ideally be under the supervision of the Shariah Council.
The endorsement and audit of respected Islamic scholars remains an integral part of any process involved in launching a digital asset in the Middle East. Gradually, the new asset class is becoming more and more accessible to the global Muslim community. For example, earlier this July, the Securities Commission of Malaysia's Sharia Advisory Council said trading in digital assets is legal within the country's borders. This ruling will not only help stimulate the growth of Malaysia's existing financial ecosystem, but will also set a precedent in the adoption of cryptocurrencies for other Islamic countries.
Not all countries in the Middle East welcome cryptocurrencies
The legal regulation of cryptocurrencies in the Middle East differs significantly from country to country.
For example, in Algeria, Iraq, Morocco and Qatar, cryptocurrencies are virtually prohibited. Individuals face fines for their use, and in Iraq there is even criminal punishment under the law on combating money laundering. Banks and other financial institutions are also prohibited from working with cryptocurrencies and serving blockchain companies. Regulators in these countries believe that trading in crypto assets carries a high level of risk and volatility and can be used for criminal purposes. It is noteworthy that, at the same time, mining has been legalized in Iraq since the summer of 2019 . In Egypt, cryptocurrencies were also banned , but last year the authorities adopted a law allowing the country's central bank to regulate these assets and introducing several costly licenses to conduct crypto business.
The authorities of Jordan, Oman, Kuwait and Lebanon have not yet decided on their position regarding cryptocurrencies - they are not prohibited, but they are not regulated in any way. The government only urges citizens to be careful when working with digital money, reminding that it is not responsible for transactions with it. For example, in Kuwait, the Central Bank prohibits the banking sector and its regulated financial companies from trading cryptocurrencies, however, there is no specific regulation of cryptocurrencies for individuals. Nevertheless, the uncertain legal status of digital assets does not prevent Islamic blockchain companies from existing in the market. Moreover, the Kuwaiti exchange DigiDinar, operating since February 2019, managed to receive brokerage license of the Ministry of Trade and Industry of the country (yes, it is not issued by the Central Bank of the country).
It is noteworthy that in these countries, cryptocurrencies are popular among ordinary citizens who do not have access to bank accounts and cannot protect their savings by buying dollars or foreign bonds. Thus, in the autumn and winter of last year, mass rallies were held in Lebanon against corruption of officials and tax increases. In April of this year, the situation was aggravated by the banking crisis, there were restrictions on transactions with dollars: now you can withdraw no more than $ 50– $ 100 per month and make international transfers in the amount of no more than $ 50,000 per year. The difference between the official exchange rate and the real one reaches 40%. Lebanese citizens do not trust the banking system and national currency, many prefer to use digital assets. Local exchanges noted an increase in demandfor bitcoin as a store of value, as well as altcoins and stablecoins for transactions. It is noteworthy that transfers in cryptocurrency are cheaper than transfers through hawala.
The path traveled by Iran is interesting - the country's authorities cannot decide in any way how they relate to cryptocurrencies. In the country, under the guise of combating money laundering, financial institutions and banks are prohibited from using cryptocurrencies. However, there is no official prohibition on their circulation by individuals. Moreover, the authorities hope that the use of cryptocurrencies can help the country bypass US sanctions - the Central Bank even discussed the creation of its own national cryptocurrency.
Iran has an active crypto community, regularly holding thematic events and meetings. There are even registered organizations, news outlets and crypto exchanges - for example, the Iranian Blockchain Association and the CoinIran website.
However, the country appears to have embarked on a tighter regulatory path. In May of this year, the Iranian government included the cryptocurrency in the scope of the laws on smuggling goods and illegal currency circulation. The law stipulates that crypto exchanges must obtain a license from the country's Central Bank and comply with currency control requirements.
The Iranian authorities' approach to mining is also inconsistent. In 2018, mining pools were recognized as one of the industries and were given the opportunity to legally work with the payment of taxes. Back then, the country seemed like a great place to mine cryptocurrency due to government-subsidized electricity prices. These electricity prices have lowered high operating costs so much that companies from China, Poland, Russia and other countries set up factories in Iran, connecting them directly to power plants.
However, in 2019, the government closed all of them, tightened requirements, tripled electricity prices, began harassing miners, and banned the mining of cryptocurrency using industrial electricity. As a result, the authorities changed course again: they introduced licenses for industrial mining and by the beginning of 2020 issued about 1000 permits. In May, Turkish mining company Iminer received a license to operate 6,000 drilling rigs in Semnan in northern Iran. In July , 14 more companies received licenses , and tariffs were reduced by 47%. It is difficult to say how long this “warming” will last.
Advanced blockchain countries in the Middle East
And yet, several countries in the Middle East are taking a very progressive and loyal stance towards the blockchain industry. So, the oil-rich UAE, Saudi Arabia and Bahrain went further in regulating and adopting cryptocurrencies. The authorities of these countries were also wary of cryptocurrencies at first, but over time they changed their approach and became industry leaders in the region. The fundamental point is that the adoption of cryptocurrencies in them is largely top-down. The main initiators of blockchain implementation here are government agencies and banks. Traditional assets, real estate and stocks are much more attractive to wealthy Arabs than obscure cryptocurrencies.
In the island kingdom of Bahrain, blockchain technology was approved back in 2017. Local regulators have quickly enacted rules for the circulation of crypto assets and are working closely with the financial services industry and government to attract blockchain talent from around the world. The country has also launched a regulatory sandbox to attract blockchain and fintech startups. Moreover, the University of Bahrain even issues digital degrees on blockchain. Rain, the country's largest cryptocurrency exchange, operated in the country's central bank regulatory sandbox for two years, and was granted permission to operate throughout Bahrain last summer . This made it the first licensed crypto exchange in the Middle East.
The Saudi Arabian authorities have not decided on the status of cryptocurrencies, but this does not prevent them from being loyal to the industry. For example, over the past year, a regulatory sandbox from the Monetary Authority (SAMA), an analogue of the central bank, has appeared in the country, as well as educational programs on blockchain. SAMA announced in July this year that it is using blockchain technology to deposit some of the liquidity that will be injected into the banking sector. SAMA is a prime example of an innovative regulator ready to experiment with new technologies. The country also allows mining.
The UAE is a leader in promoting blockchain technologies in the region. Back in 2018, the Dubai authorities launched the Blockchain 2021 strategy , designed to bring the UAE into the world leader in blockchain use and reduce the cost of remittances. The UAE Ministry of Community Development has launched its blockchain-based payment gateway. The country has also seen a rise in blockchain startups, with companies like TNC IT Solutions, Tratok and Liquidy aiming to bring blockchain to the tourism and real estate sector. And the largest exchange in the country is Arabian Chain.
The UAE has attracted hundreds of millions of dollars in blockchain investment. Dubai and the capital Abu Dhabi have become attractive jurisdictions for crypto companies. In both cities, licenses can be obtained: in Abu Dhabi only for storing coins, and in Dubai for trading them. Large companies such as Kraken, Huobi and Ripple are planning to open offices in the country. As in the rest of the world, UAE banks are reluctant to open bank accounts for blockchain companies, although their situation has improved recently.
The Middle East is not a single space, the adoption and regulation of cryptocurrencies in it differs greatly from country to country. However, the region has every chance of becoming an important market for the entire crypto industry. 500 million people live here, and many of them do not have access to bank accounts. And the richest countries are already actively adopting blockchain and working on launching their own digital currencies.
It is also important that Islamic countries do not want to work with the dollar, which spurs the development of alternatives to the US currency. Not be surprised if, over time, the Middle East becomes one of the key regions for the crypto sector - it already has everything it needs for this.