The Evolution of Crypto and Web3 in the Arab World

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Despite the current FTX crisis, digital asset markets, crypto, Web3, DeFi, central bank digital currencies (CBDCs), and stablecoins are shaking up decades-old financial protocols. Unlike most other parts of the world, in the Middle East and North Africa (MENA) region, central banks are driving the evolution of these technologies. Here they direct, regulate and wield outsized power in setting government policy. Central bankers usually have long tenures and nothing happens without their approval.

Central banks also serve as the operational arms of government financial policy. They take the lead in accelerating, regulating, reducing or shaping any type of technological change that may affect the economy of the region.

There is another twist. Because these regions are predominantly Muslim, Islamic finance guides these organizations. The MENA region consists of 28 countries with an estimated population of over 357 million. The region is developing rapidly. As one of the most resource-rich regions in the world, it is home to the largest Islamic banks in the world, serving Muslims as well as other communities around the world and basing their decisions on the beliefs of Islamic finance.

Islamic finance is the only example of a financial system directly based on the ethical precepts of a major religion, providing not only investment guidelines but also a set of unique investment and financing products. Islamic finance is based on Sharia, which provides guidelines for multiple aspects of Muslim life. (Sharia is an Arabic term often translated into Islamic law.)

Sharia-compliant financing includes a set of practices that come with a legal guideline that respects Islamic laws and beliefs, such as prohibiting interest and promoting ethical investments that follow the Quran. Shariah-compliant finance has become an accepted and dynamic element in international transactions.

Indeed, Islamic finance calls for the adoption of impact-oriented economic activities and the allocation of resources to meet the material and social needs of all members of a community. According to Islamic law, money is a tool for measuring value and not an asset in itself. No one should be able to receive income from money alone, so income from interest or speculation is considered usurious and exploitative, and is therefore prohibited or haram.

For this reason, some central banks and government leaders initially viewed crypto with skepticism, and even today in the region the approach to these new technologies is uneven.

However, leaders in the region have recognized that web3/blockchain applications are a vital alternative method of financing, directing funds towards impact-oriented social and economic activities that satisfy the core foundations of Islamic finance.

Unlike the global crypto bear market, from July 2021 to July 2022, the Middle East was the fastest growing crypto market, indicating that individuals and organizations are embracing the technological capabilities of blockchain. and the incentives it supports. While crypto transactions grew by over 20% globally, the MENA region saw a gain of over 45%, led by Turkey.

This interest and adoption is fueled by quality Web3 research and educational resources, conferences and media attention. Central banks feel compelled to develop coherent policies that promote innovation. Ultimately, unlike some other countries, banning crypto is not feasible. If all assets go digital, such measures could ban all digital assets and, therefore, the next stage in the evolution of the digital economy.

Progress in different countries has been uneven, but it has made significant progress. Here is an overview of some key nations:

United Arab Emirates

The United Arab Emirates (UAE) leads the region and Dubai leads with around a third of all government applications running on blockchain. He has also supported interesting policy innovations such as the creation of a metaverse police to monitor illegal behavior in increasingly virtual worlds built on Web3.

The Central Bank of the United Arab Emirates has completed a CBDC pilot project for multi-currency cross-border payments with the Hong Kong Monetary Authority, Bank of Thailand and People’s Bank of China Digital Currency Institute.

The Dubai Financial Services Authority has also issued crypto token regulations for clients wishing to use this new asset class. The announcement was made to expand the range of virtual asset schemes available, building on the investment token regulations announced in October 2021.

The UAE central bank also announced the completion of the first CBDC pilot in September. Today, he is working on an e-KYC, innovation hub, and wholesale and retail CBDCs to stay at the forefront of blockchain adoption.

Saudi Arabia

The kingdom is embracing Web3 in many forms. For example, Saudi Arabia just celebrated its National Day in the metaverse for the first time. The Saudi Arabian Central Bank (SAMA) and the Central Bank of the United Arab Emirates have collaborated on a pilot CBDC. In September, SAMA hired a new crypto chief to lead its virtual assets and CBDC program.

The Saudis have also been working on tokenizing real estate as well as implementing blockchain in the healthcare sector and supply chain. More recently, the Saudi British Bank (SABB) used blockchain to improve the digitization of letters of credit.

Bahrain

The Central Bank of Bahrain (CBB) issued a final regulation in February in response to the growing demand for crypto assets, which included licensing a blockchain-based crypto exchange called Rain that allows users to buy , sell and store cryptocurrencies. It has over 180,000 users and there have been over $1.9 billion in transactions.

Binance and CoinMENA have also received crypto-asset service provider licenses. Bahrain has even created the region’s first onshore regulatory sandbox and is focusing on blockchain applications that strengthen its supply chains.

Oman

Oman is among the blockchain leaders in the MENA region. A few years ago, the government worked on a huge upgrading project by scheduling courses and seminars to raise awareness of the importance of technologies. The Central Bank of Oman has hired experts to study the pros and cons of allowing the use of cryptocurrencies in its economy.

More recently, a leading energy company, Al Shawamikh Oil Services, partnered with Frontech to develop a sustainable energy management system based on blockchain technology. It will track and manage sustainable energy production units on the blockchain.

Qatar

For years, the Qatar Central Bank (QBC) had banned the mining and investing of Bitcoin and other cryptocurrencies. Recently, interest in blockchain technology has increased in the country, and so the QBC is changing its approach. He has shown a keen interest in establishing a legal framework for the use of digital assets and blockchain applications and is exploring tokenized solutions for real estate. Under the auspices of the Qatar Financial Center, the country is setting up an expert council to be introduced next year.

Blockchain adoption is nascent in Qatar, leaving software development firms room for innovation. Qatar University spin-off Genesis Technologies has formed a local blockchain development team to begin evaluating relevant use cases. Equally exciting, FIFA World Cup organizers have selected blockchain startups Algorand for its green credentials and Crypto.com for its easy-to-use systems as sponsors of the tournament which just ended on Sunday.

Aline Daoud is a civil engineer and managing partner of the Blockchain Research Institute Middle East. BRI, headquartered in Toronto, has conducted 150 projects on Web3 use cases, opportunities and challenges. BRI Middle East runs educational and pilot programs in the United Arab Emirates, Saudi Arabia, Qatar, Turkey and Egypt. The opinions expressed in Fortune.com comments are solely the opinions of their authors and do not reflect the opinions or beliefs of Fortune.

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