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

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