WHAT CAN BITCOIN MEAN FOR THE MIDDLE EAST REGION? QATAR TODAY SPEAKS TO YOUNG ENTREPRENEURS AND EARLY ADOPTERS WHO ARE AT THE FOREFRONT OF DRIVING BITCOIN PENETRATION IN THE ARAB WORLD.
Most of us would realise that dotted along the last two-decade timeline of our lives are monumental life-changing moments and epoch-making global events sharing space with that unassuming, first whiff of a new technology that would transform our lives in ways we'd never have imagined. Though the first murmur of Bitcoin reached me just a year ago (I distinctly remember an article about the Winklevoss twins and a subsequent conversation with a friend as he spoke about the elusive Satoshi Nakamoto on our way to a house party) I think I have already subconsciously filed away the moments as being significant. The concept of crypto-currency is not new and neither is Bitcoin, having been first invented in 2009, but 2013 will forever be remembered as a landmark year that our collective imaginations fired up at the possibilities of a safe and quick currency removed from political influences. “How could an open, decentralised, peer-to-peer network allow transferring of digital assets without people cheating and making copies of it? Until just recently, this simply wasn't possible,” says Tom Holub, co-founder of BitOasis, a Dubai-based platform for buying, selling and securing bitcoins for people in the MENA region.
In Dubai, Umbrellab founders Sergey Yusupov and Tarik Kaddoumi started actively trading and innovating in the Bitcoin sphere in early 2013 when they came together to launch the company. You might not have heard of Umbrellab but you couldn't have missed the story that sent the global Bitcoin community into frenzy a few weeks ago – Dubai was to soon have 400 bitcoin ATMS deployed around the city; news so incredulous that it was dismissed as rumour. Umbrellab is the company that will be bringing those ATMs, in addition to running Piiko. com, a service that allows you to top-up your mobile phone in over 100 countries using bitcoin. “It is certainly no rumour,” Kaddoumi contests, though admitting that the announcement was more of an impulse reaction than anything else. BitAccess, a Canadian company had tweeted a picture of a bitcoin ATM reportedly on its way to Dubai. It had jarred them into revealing a secret they had been sitting on for a while. “We wanted people to know that we were working from right here in Dubai, ready to go all out with 400 ATMs,” he says. But as fate would have it, regulation stopped both the companies in their tracks. So instead of hundreds of ATMs dotted around Dubai at the public's disposal there is now just one prototype machine at the Umbrellab office. Bitcoin enthusiasts are welcome to drop in to check out how it works. “We have tied up with the already up-and-running ManGo kiosks to add Bitcoin to their vast network and integrate it with our software backbone, BitRout,” says Yusupov. So technically, these 400 kiosks can be fully operational bitcoin ATMs in a matter of hours; the firmware can be remotely installed as soon as the necessary licence comes through. But with the government still not clear on the classification of bitcoin (and this is not
"The best-case-scenario would be if the government openly offers their support for the time being in order for everyone to explore and see how Bitcoin and other crypto-currencies will be used in the region."
SERGEY YUSUPOV (left) and TARIK KADDOUMI Founders Umbrellab
just the case in the UAE), and no one sure whether to work with it as a service, digital token, commodity or even a currency, there is no telling how long Umbrellab will have to wait. Also with no centralised authority for Bitcoin, there is uncertainty over who to deal with, how to enforce regulation if it is even possible and determine its status in the larger financial landscape.
An executive decision
It's understandable that globally governments are wary of, and sometimes downright hostile towards, Bitcoin and other crypto-currencies in general. For a society that has made peace with its centralised, heavily regulated monetary system for over a century now, this complex new innovation, that promises freedom and safety, is intoxicatingly scary. And the truth is that it's probably a good thing that Bitcoin is being handled with kid gloves. It has had more than its share of road bumps. While the wild fluctuation of value last year is enough to get investors to break into a cold sweat, bitcoins have been linked to illegal black market trade online (Silk Road) and businesses handling bitcoins have shown to be susceptible to hacking and fraud (Mt Gox).
While none of the GCC countries have officially acknowledged Bitcoin, in Jordan, financial institutions have been categorically banned from dealing in bitcoins and the situation is similar in Lebanon, from where David El Achkar is co-creating Yellow, a company that is focused on getting more GCC businesses to accept bitcoin the same way as credit cards, CashU and PayPal. But he is not unduly worried. “The warnings are fair. It's a new technology that isn't completely understood yet, it's volatile and experimental, and banks shouldn't get into it at this stage,” he says. His concern is how this negative stance might affect a bank's relationship with businesses that deal with bitcoin.
Canada, where he had studied and worked for eight years, has more of a hands-off approach to dealing with bitcoin while the US is threshing out multiple policies to try and come up with regulation. And regulation is necessary – to prevent money laundering, channeling of funds towards illegal activities, taxation. But it's anti-productive when governments take an overly precautionary approach, which has been the case here in the Middle East. The best-case-scenario for Kaddoumi would be if the government would “openly offer their support for the time being in order for everyone to explore and see how Bitcoin and other crypto-cur- rencies will be used in the region”.
So while the debate rages on about how to move forward with this new asset class, one thing is clear and unanimously agreed upon - it woud be difficult to institute a complete ban. “Bitcoin could be seriously hampered if the government takes a harsh stance against it, sure, but banning it would only serve to push it underground, since Bitcoin has undeniable benefits that will be harnessed one way or another,” says El Achkar.
Jordanian Fouad Jeryes owns e-commerce startup, Cashbasha.com, which is facilitating Middle Easterners to shop from foreign websites like Amazon with ease. He is working on incorporating a payment processor for bitcoin which would alleviate many of the problems holding back the e-commerce sector in the region (more on that later). For him, Bitcoin has many parallels in the technology world, of the new displacing the old and forcing traditional institutions to innovate. “Take Napster, for instance. Through peer-to-peer sharing it revolutionised the music industry, taking the middle man out of the picture. The initial reaction was to ban it. But it couldn't be stopped because it's what people wanted. Music companies finally had to change their perspective, understand and overcome the situation and find a role for themselves in the bigger picture. VoIP and services like Whatsapp did something similar for telecom. With airtime usage going down, telecom companies had to find other ways to monetise. And it's time for a change in the financial industry, which hasn't seen an innovation in decades,” he says firmly, “They are still old school and protocol driven and they need a policy that is driven by creative thinking. And it's going to happen, whether they like it or not. They are going to be circumvented because people want this; they don't want to deal with the limitations and fees around cash.”
While Bitcoin itself might go either way and not necessarily be the crypto-currency of the future (“When it comes to Bitcoin, predicting anything beyond the scope of several months is difficult,” says Holub), it'll be an important step in the evolutionary ladder. Bitcoin might die but the one that replaces it will be more robust. Crypto-currency is here to stay, says Yusupov.
Can Bitcoin be MENA’s hero?
El Achkar dabbled in Silicon Valley Bitcoin startups before he headed back to the Middle East, drawn by the “real opportunities” in the region, where the Bitcoin ecosystem
was still new. This, coupled with Dubai's business friendly economic policies, was also the reason why Holub decided to start BitOasis in the city. “Also Dubai has emerged as a major financial hub for the Middle East and BitOasis is ultimately a financial company,” he says.
Theoretically Bitcoin can impact the region in more powerful ways than in the west, primarily because the countries here are so heavily reliant on cash. First and foremost, it could boost the struggling e-commerce scene, which is in desperate need of a new payment system that is both secure and cheap. “Right now retailers are shipping products against a pledge with the cash on delivery model and millions of dollars are lost due to failing orders,” says Jeryes. With bitcoins you'll be able to transact with zero to negligible fees. Also, the region is huge in terms of remittances, El Achkar points out. “It's is a big receiver and sender of cash to and from various countries around the world. A cheap and borderless money transfer system like Bitcoin could mean residents lose much less in process,” he says. And further down the line, it could empower the large unbanked population of the region by giving them access to financial services through just their smart phones. It is small wonder that Jeryes calls Bitcoin a “socio-economic experiment bigger than the Internet in the 90s” considering how it could potentially democratise payment around the world.
Holub explains another of Bitcoin's appeals – security. “Credit cards employ what is known as a “pull” payment mechanism. Anyone with access to credit card information can pull any amount they choose, be it the merchant or a hacker. On the other hand, bitcoin payments use a “push” mechanism. The sender decides how much to send, when to send it, and to whom, all without sharing any sensitive information. If communicated properly, this could lead to a widespread adoption of Bitcoin in the Middle East,” he says.
But to realise these benefits there needs to a massive cultural shift. “Of course it is not easy for people to accept that now there is a form of barter or value transfer that happens digitally, bypasses the middleman and costs nothing, especially when they're used to a system of cash, cards, fees, changes and remainders, and the common financial system,” says Kaddoumi.
Holub suggests that “until the adoption reaches a more stable point, Bitcoin can also become an alternative investment vehicle to complement stock, real-estate, or precious metal portfolios”. But serious players in the region also need to have a less capitalistic approach to Bitcoin, not just look for a quick return, according to others like Jeryes. “Ideally, we should have a lot more independent and innovative risk takers, with ideas and solutions that will be offered globally from the Middle East,” says Kaddoumi.
Also if the GCC, led by Dubai, could collectively talk, reach a consensus and proactively embrace Bitcoin, the lure of tax exemption could attract global Bitcoin companies to the region, effectively making it the crypto-currency hub of the world, Kaddoumi says. It's a brave dream.
Building a community around Bitcoin
But still a distant one.
"There is a lot of activity in San Francisco around Bitcoin. VCs are realising the need to develop products and services around it and are making large investments in Bitcoin companies."
DAVID EL ACHKAR Co-Founder Yellow
Right now, the community is still small and though the hype is big, usage is low. For example, Umbrellab's ATMs, when operational, will have a limit on the number of Bitcoins it can dispense – one per day and five per month for each person. Kaddoumi says it's sufficient. It is doubtful if many would need more than that because Bitcoin is failing to gain marketability because of its complexity. One cannot assume that one knows Bitcoin if one simply understands the current systems. There are a lot of questions, plenty of uncertainty and fear, from all quarters. Which is why these young entrepreneurs have taken on the dual role of advocacy and education. In fact, Holub says educating consumers about the technology is one of the goals of his company.
Yusupov started the Dubai Bitcoin Group in late 2013 in order to meet like-minded people in Dubai, and there has been growing response over the last few months as more people hear about Bitcoin, according to him. In fact, he met Kaddoumi at one of these meetups and, though they had initially intended to simply be part of the Bitcoin community and participate in its growth, they realised that the market being so young, there was a lot of scope to innovate for the early adopters and implement some of their ideas which were not available in the market, either locally or globally. “BitcoinMENA also started in the same way to communicate with others online. The enthusiasm for both has been growing ever since, and we are being contacted regularly by businesses, media, traders, miners, enthusiasts or even beginners who want to know more about it,” Yusupov says. The duo also regularly speaks with banks, officials and different government departments in order to keep a discussion about Bitcoin out in the open.
Jeryes, whose 10-minute talk about Bitcoin in Arabic has garnered close to 1,500 views on YouTube, also co-founded Jordan Bitcoin Meetup last year, to talk about Bitcoin and educate those who were interested. “We knew no one else who was into Bitcoin three years ago when we first became aware of it. The first meetup brought together almost 100 people, many of whom were actively looking to mine and deal in bitcoins. Jordan has a strong tech ecosystem and the enthusiasm had grown quickly, below the radar.”
While El Achkar's Yellow is testing out its product, which ought to be released in a few months, he is also actively spreading the word through conferences, blogs and the Lebanon Bitcoin Meetup, which also helped set up.
A few weeks ago Dubai hosted Cointalks, the largest Bitcoin conference of its kind in the region. Spread over two days the discussions addressed both high net worth individuals, investors and entrepreneurs, and the general public. The event was relatively well-attended and Kaddoumi is not surprised because there is a small but active community of Bitcoin enthusiasts in just Dubai and Abu Dhabi. “There are quite a few full-time traders here who buy and sell, as well as Bitcoin miners. There is some
activity in Qatar but not much. A few miners from Kuwait and Saudi also flew down for the conference.”
But however excited you may be about its prospects, what use is a currency that you can't buy anything with. As of now the number of businesses in the region that accept bitcoins in exchange for products and services can be counted on just one hand.
“The majority of businesses are curious about Bitcoin, but so far we have not seen many adopters,” Yusupov admits. “The Pizza Guys in Business Bay, Dubai, were the first to accept bitcoin in the MENA region, and the feedback has been very positive. They have seen a large number of new customers directly due to their curiosity about the digital currency, and have received a lot of media attention following their announcement.” Companies like Umbrellab, whose major focus is on payment software solutions and services, and Yellow are working diligently to help businesses see the bright side of enabling payment through bitcoin and calming their fears about its security and instability. “They save on transaction fees and it's faster and cheaper,” El Achkar says. “While Pizza Guys have decided to hold on to their bitcoins, many businesses might not want to. It's not a very attractive option yet as you can't do much with it, like paying for suppliers and covering other costs. So we offer to instantly convert it to local currency.” This also eliminates the risk (or benefit) from bitcoin's price fluctuation.
An evolution in progress
Bitcoin has constantly been receiving blows from the media in various forms, but the majority seem to be opinions with little basis in fact or suffering from a lack of knowledge and understanding about the technology, Kaddoumi says. Most of it is myth and some just plain misinformation. True, its value hasn't been the most stable over the last few months but it's still a “new technology that is very receptive and sensitive to speculation, negative or positive comments and the media's diverse coverage”. As adoption increases we are seeing less price reactions and quicker recoveries, he says. After the massive Mt Gox fiasco, the price stabilised within 48 hours, he says. And like in any typical technological cycle, businesses will rise and fall, learn and evolve, until only the strong remain. Holub himself has incorporated a new multi-key multi-signature system for BitOasis accounts which will make it more robust and secure.
“In the early days of Bitcoin, customers had no choice but to trust that companies like Mt Gox would keep their Bitcoin private keys safe. The problem was that they solely held the Bitcoin private keys of their customers' funds, giving them ultimate control over the bitcoins and attracting hackers who wanted to steal them. Now the industry is moving towards a trustless systems like at BitOasis where keys for each account are split into multiple parts. BitOasis will only hold one of those parts, which is not sufficient to manipulate any of our customer's bitcoin funds. The remaining keys will be split between a third-party fraud prevention company and an independent legal firm, both held under our customers' names,” he explains. The customers will receive a phone call or text asking them to confirm any risky or large transactions before they are posted or approved, Holub says.
Bitcoin also might not be the easiest system to use but that's only because “designers who can simplify the user experience are not part of the ecosystem yet,” Koddoumi says. A lot of products and services need to be built around it to realise its potential and these are being created as we speak. “There is a lot of activity in San Francisco around Bitcoin. VCs are realising the need to develop services around it and are making large investments in Bitcoin companies,” says El Achkar. “For example, this year alone Bitpay received $30 million, Coinbase $25 million and Circle $17 million in funding.” These investments will go towards making Bitcoin more secure and incredible, says Jeryes. “They might just be able to bring Bitcoin to life and open a lot of doors.”
It's also not anonymous and untraceable like many believe. “Bitcoin is in fact far easier to trace than cash. It's both safe and ethical,” Yusupov chips in. We also can't necessarily discount bitcoin because of its prevalent use in the illegal drugs, arms and smut trade because some of our most revolutionary technologies have been nurtured in the shadier parts of the internet. “Video streaming and online payment processing were both extensively used by the pornography industry in their early days,” Jeryes reminds us. If Bitcoin makes it, it could be the first truly international currency that could serve as a benchmark for other local currencies.
But for now the common advice for the population is congruent. Don't invest more than you are willing to lose. And it can still go either way. The coin has been tossed, it's already in the air and we are, all of us, just waiting to see which side it lands on
“When it comes to Bitcoin, predicting anything beyond the scope of several months is difficult.”
TOM HOLUB Co-Founder BitOasis
Tarik Kaddoumi demonstrates the use Umbrellab's Bitcoin ATM in Dubai
Protestors outside the Mt Gox exchange in Tokyo