Cryptocurrencies are gaining traction as the transaction mode of the future. As most of us remain in the dark about their emergence, Y’s Alvin Thomas reports on the growing phenomenon that’s reached the Sultanate and, for good or ill, may revolutionise our banking and shopping habits.
The currency of the future is here – or is it really?
Whether you hail the digitised marvel that is cryptocurrency as a benchmark for modern-day transactions or a vehicle for online criminals, there’s a mystique surrounding digital currency that is taking the world by storm.
You could now use it to buy things online, go shopping, buy cars, and even open your own cryptocurrency wallets to store your money as you would in a bank – all with no fee, and unregulated by financial bodies with no tax restrictions.
In short, what this currency offers in value – such as letting the user hold their currency unfettered by a bank – is also what makes this a dicey proposition in today’s market.
As per a study conducted by Cambridge University in 2017, cryptocurrencies have moved on from becoming a mere fad among tech enthusiasts and into a multi-billion dollar industry with more than 5.9 million unique users. However, due to their encrypted nature, the frequency of investments and the location of users cannot be determined.
What’s more surprising is that the Sultanate – despite its rather silent stance on this new digital currency – is currently in the spotlight among cryptocurrency users, collectors and miners from around the globe due to one recent incident from January 28 this year: a robbery that left an Omani man BTC3,000 bitcoins (a form of cryptocurrency) out of pocket. In layman’s terms, that translates to a whooping RO600,000 in physical currency – all gone in a robbery that took away the user’s virtual key and all his assets, in what is now being touted as the greatest bitcoin robbery ever to have taken place in the Middle East.
The absence of his key to his bitcoin wallet would have rendered him helpless thereby leaving him with no means to access it.
Details about this case remain under wraps. Our sources at the Royal Oman Police (ROP) refuse to acknowledge the event but after some digging, we found out that the Muscat man had been physically robbed last month by three men.
But there’s a very good reason for the ROP’s obliviousness on this case: they’re completely powerless, as the Central Bank of Oman fails to recognise cryptocurrencies as a mode of payment in Oman.
Our source, an official at the ROP says: “This era of bitcoin, other cryptocurrencies, and blockchain puts these online investors at risk as there are no laws governing them. So, even if the man was robbed physically, the forces can only go by evidence presented of other stolen items.
“If this same amount was had in Omani Riyals, adequate measures would have been put in place where the money would be tracked and the banks would be alerted to be on the lookout for the offenders should they receive a match on the serial numbers of the notes.
“In the case of bitcoin, however, the ROP cannot take a stand since we’re not involved and this country doesn’t identify them as official modes of transaction.”
This is further asserted by Oman’s banking regulatory authority and central bank, the Central Bank of Oman (CBO)’s, stance on the matter.
Earlier in 2018 in a nationwide warning, the bank had shed light on investments in cryptocurrencies, asking the public to refrain from partaking in these activities.
While the act isn’t illegal in Oman nor the digital currency banned, the CBO revealed that there are no “authorities, policies or guidelines to regulate such investments in the country”.
A vague warning indeed, but it has left one Omani man RO600,000 out of pocket. A part of this apparent indifference to the plight of the victim, however, stems from the fact that cryptocurrencies such as bitcoin are heavily encrypted and the names of its users are rarely revealed.
To understand more about the future of cryptocurrencies in the country, we get in touch with Ahmed al Barwani, the head of one among a few ‘blockchain’ forums in Oman.
The 32-year-old Omani investor says: “So, before we jump into what cryptocurrencies are, let’s talk a bit about blockchain itself. It’s the product of Satoshi Nakamoto, whom we believe is from Japan. However, this theory is disputed as it is believed to be a group of people who invented this ingenious form of currency.
“Either way, blockchain is simply described as digital information or blocks that are linked online using cryptography. This allows the information you’ve brought to be distributed but not copied illegally.
“It’s a relatively safe mode of investing your money as the encryption on some of the top digital currencies can be quite tight-knit.
“Some people call the first cryptocurrency, bitcoin, ‘digital gold’; and we agree. I won’t reveal my assets in bitcoin but I assure you that this is the first time I made the right investment. I jumped on the bandwagon in 2008 just a few weeks after the introduction of bitcoin and I’ve never looked back.”
Unlike the thousands (according to Ahmed) that invest in this technology from Oman today, Ahmed bought his bitcoins during his time at school in the Netherlands – a country that had begun transactions using the digital currency from as early as 2010.
“I had about BTC200 by the very first year and it was only worth about RO400 or RO450 when I bought it. However, today I deal with much more,” he says. And he has every right to, as a simple conversion of his assets to Omani Riyals reveals that he will be worth RO262,911 today (according to the exchange rate at the time of going to press).
Ahmed knows his net worth in bitcoins but soon reveals that it’s at least a decade away from any form of use in Oman.
He says: “A couple of things one must know before jumping into cryptocurrencies is that it’s too late to jump into it but it’s also at the infancy stage right now and there’s no better time to try it out. It’s funny how that works out.
“So, why it makes less sense for someone in Oman to try their hand at it is because not only does bitcoin cost so much but it also poses no use whatsoever to people trying to purchase something here.
“In the Netherlands, you can simply go to a café, have your favourite coffee and then pay in BTC – that’s just not possible in Oman… at least so far.
“Cryptocurrencies such as bitcoin have become too mainstream and its value has shot up 2,000 fold. So, even a few RO1,000s would earn you less than a bitcoin or two. Therefore, I do not stand for trading these currencies but am holding onto them for use.
“The days of investing are over unless you’re well-off. But if you were, why would you need to invest in this fluctuating piece of currency?
“And today, I see no use for it in the Sultanate unless you begin buying products from outside. Even then, you’re questioning the legitimacy of the purchase and whether you’re actually receiving products from a genuine store as market leaders such as Amazon and eBay still deal with real currencies.”
This is a topic that’s further explained to us by Zaran*, an information and technology entrepreneur who is planning on the first bitcoin-led company in the Sultanate.
“As Ahmed said, legitimacy is the greatest factor you must take care with cryptocurrencies, and it’s not just about buying products from online stores; this can mean you need to bear the risks of buying the currency itself.
“There are plenty of fake wallets (digital banks where you can store digital coins) out there that can take your money and offer you nothing and little to no assistance once you’ve been ripped off.
“But even greater are the security threats posed by cryptocurrencies such as bitcoin, litecoin, and ethereum. These are slowly but steadily being made use of by criminals for transactions.
“So, if you were to head into the web or the dark web to see what this is being used for, you’ll see how it is used in buying and smuggling arms, drugs, slaves, and conducting some other immoral activities.
“It’s a dark, dark place and cryptocurrencies, mostly bitcoin, is what’s used to fuel all of this. One example I can give you is of Silk Road, an online black market – almost like a dark eBay – that was run by Ross William Ulbricht from 2011 onwards until his arrest in 2015.
“This was a marketplace for everything from drugs to guns, and even identity cards stolen from deceased people in the US. It was a bad place to be in and no one knew who was paying for these services.”
Zaran believes that this must have been perfect for criminal activities before revealing how he plans to start a similar platform but for selling or auctioning household goods.
A quick research confirms Zaran’s words, as we learn that cryptocurrencies have become the paperless and untraceable currency that harbours within a deep sense of evil that can rarely, if ever, be tracked should the time arise.
As shocking as that sounds, several individuals have still been arrested based on years of tracking by several international law enforcement agencies.
Nonetheless, Zaran still believes in his new venture.
“There’s little to no support from the CBO with regards to cryptocurrencies so I’m relying on my own money (Omani Riyals) to set up the framework and then slowly rely on funds to come in from bitcoin.
“It’s a broken model and I’m currently spending several thousands of Riyals here to set up something new that only a small group of people will understand. But, I still think that cryptocurrencies are the future of transactions in Oman.
“After setting up the framework, I’ll be attending blockchain conferences to promote my business. There are already a few cafes and shops that discreetly opt for bitcoin payments on their services but this would be a first of its kind in the Sultanate.”
As optimistic as that sounds, several finance experts are still wary of its uses in the GCC, and claim it is a potential disrupter of the growing economy in countries such as Oman and Bahrain.
Fares Ghandour, partner and portfolio manager at Wamda Capital – a leading investment company in the Middle East region – is one among those who believes in the potential doom cryptocurrencies could spell on the economy of Oman.
When asked about how it will disrupt the GCC, he answers: “I believe that the technology behind cryptocurrencies is still not mature enough to handle scalability (growth of the currency) or if it is there it’s at the expense of security, or scalability at the expense of speed.
“That’s the kind of triangle that exists between these three elements. Technology hasn’t been developed to a point where it can be used for consumer usage cases and at this point it’s just at the protocol layer level.
“And before it comes into place with a proper framework, it’s difficult to predict how it could affect real world scenarios.
“But that said, in terms of the promises that blockchain offers, naturally it will affect the lower lying fruit such as intermediating banks, financial industry, astro-accounts, and any middleman that sits in a transaction will be disrupted.
“Thankfully, even today, I can say that the global adoption hasn’t started yet so there wouldn’t be much to worry about at this stage. However, having seen how it affects the market in different ways, with respect to safety and reliability of these currencies, I think we need to raise our concerns judiciously.”
All is not lost for cryptocurrencies, though, as Fares believes that it can still be made an official mode of payment if certain cautionary steps are undertaken.
“Over the next couple of years, you are going to see two things work in parallel: developers are going to have to work on the scalability of their protocols and the speed of their transactions and security before you get to a scale that is meaningful and equitable with some of the world’s largest and fastest protocols.
“Another factor I believe is that regulators are going to start to significantly sway one way or the other, and I think it’s going to be them moving towards a point where cryptocurrencies are a little more regulated.
“How that would work is primarily tackling the on-ramp off-ramp, which would be buying into or selling into cryptocurrencies vis-a-vis fiat currencies. What that means is that it’s very difficult for people to buy cryptocurrencies using their fiat currencies.
“So, for that you have to go to an exchange and get it KYC approved. Then there’s the problem of not knowing how secure the wallet is or the exchange is, and people worry about protecting their private keys, so I think the regulator needs to make those processes easier.
“It must allow exchanges to operate and confront a reality where currency is digital, encrypted, and decentralised – and that’s the only way these cryptocurrencies can in any way be made useful to today’s economy without causing any disruptions.
“But the signs are all there: we are indeed moving towards a world where cryptocurrencies will evolve into primary modes of payment, and it’s only a matter of time. And Oman, as the rest of the GCC, will also be a part of that.”
* Name changed to protect identity