Adapt to Blockchain: Future-Proof Your Business
Crypto and Blockchain Reshaping UAE Banking: Insights for Businesses
UAE's financial scene will change in 2025 and 2026 with crypto-currencies, digital payments, and banking services ( BaaS). The advanced policies and encouragement towards blockchain technology make the UAE a hub for crypto trading. A study found that introducing blockchain technology helped reveal an estimated 3.75 million fraudulent transactions in the UAE annually. In April 2018, the UAE adopted blockchain technology as “UAE Blockchain Strategy 2021”. Also, this digital technology has successfully implemented in domestic and cross-border transactions.
In this article, we will lean Blockchain technology and cryptocurrency briefly. Also we will cover how UAE’s banking system adopted it successfully over conventional banking system.
Blockchain Technology In Depth:
Blockchain technology is a new technology that records cryptocurrency trades as a digital ledger. However, the fundamental factors behind blockchain technology are mathematical, economic, and cryptographic principles. These principles record the data of various participants without any other authority. Moreover, blockchain technology chronologically records transactions in almost real-time as this is a digital, immutable, and distributed ledger. The information that blockchain maintains is selling, purchasing,g, and exchanging digital assets.
Key Factors of Blockchain: Blockchain technology stores each piece of data as a “Block”. Users can add the transactional blocks to the existing chain of blocks, creating a chronological picture. This technology has transparency, and each block is unchangeable and can be seen by everyone.
Blockchain acts as a chain of blocks; with every transaction, the data creates a new block with a cryptographic hash. This is linked with the latest block, a notation of time, and transactional information.
The process of updating the blockchain is called mining. This procedure includes- adding and creating new blocks and coins.
In blockchain technology, the device that runs is termed as “Node.” This is simply a computer that has access to the blockchain. The computers are connected, creating a network of nodes in the blockchain that run the database.
Cryptocurrency and Blockchain Technology:
Cryptocurrency is a digital currency with no physical attributes; it is only available in digital form. Hence, digital currency transactions are done through computers, electronic devices, or “digital wallets” connected to the designated digital networks. Bitcoin and Ethereum are names of cryptocurrencies that use blockchain technology for transactions. These Digital currencies have the same utility as physical coins or currencies and can be used for regular purchasing. However, the UAE accepts cryptocurrency or digital currency payments for various trade licenses and visas. Dubai Financial Financial Authority enabled traders to pay for trade licenses through crypto-currency by government-owned licensing company KIKLABB in Mina Rashid, Dubai. Furthermore, the Dubai Financial Services Authority (DFSA) declared a new business plan from 2021-2022 to create a vigorous roadmap for crypto regulatory standards. Again, in April 2018, the UAE launched the Emirates Blockchain Strategy 2021.
Importance of Introducing Blockchain in Banking:
The Banking sector is the main key component of economic activities and currently with technological advancements many changes and challenges. Blockchain technology offers many solutions to this sector to smoothen its activities. This technology mordanize the operations maintaining the transparency and mission as a financial institution. Blockchain technology creates a hassle-free work environment that eliminates the paperwork that was supposed to create inefficiencies.
Relationship between traditional banking and digital banking:
The emergence of digital currencies would significantly affect the traditional banking and financial systems. This system can reduce the demand for banks as digital systems hardly need any media like banks. Digital systems can speed up the transaction process and reduce the fees.
Digital banking systems can.
This may bring change in consumer behavior also. As the digital transaction processes are faster, smoother, and more convenient, so many people will switch to this, especially the new generation.
Business conduction systems can be fully changed by digital systems. Blockchain technology and mobile money facilitate hassle-free access to financial services. Moreover, this will increase global economic participation by offering quicker, cost-effective,e and effective local and international transactions.
According to experts, would solve many problems occurring in traditional systems such as fraudulence, transaction lags, and operational risks.
Blockchain technology can reshape the traditional banking system. It can automate inter-organizational systems, create more transparency, and improve conventional operational benchmarks.
Blockchain technology may reduce infrastructure costs by an average of 30% for eight of the 10 largest banks on earth.
Blockchain Technology in UAE’s Banking System:
The UAE has successfully implemented blockchain technology and created It's position as a fintech capital of the world, following the Emirates Blockchain Strategy 2021.
The government aims to save 11 billion AED in transactions and document processing, 398 million printed documents, and 77 million work hours annually.
This process and new development projects.
One of the successful blockchain based banking projects is Etisalat Digital's launch of “UAE Trade Connect” in June 2019. This project exposed estimated 3.75 million fraudulent transactions in the UAE annually. Again, Emirates NBD developed a wire fraud prevention system in March 2018. And they observed a 99% reduction in check fraud in 2019.
In 2019, Abu Dhabi Commercial Bank (ABCD) ran end-to-end blockchain trade finance transactions with completely automatic documentation as the first bank in UAE.
Abu Dhabi Global Markets (ADGM) took an initiative to know your customer (KYC) process using blockchain technology. This announcement is to exchange “know your customer” data licensing authorities and financial institutions. This was launched in the year 2020 and involved banks- Emirates Islamic, Emirates NBD, Commercial Bank of Dubai, Abu Dhabi Commercial Bank, HSBC, RAKBANK, Mashreq Bank and Dubai Economy and DIFC.
In 2020, the Bank for International Settlements (BIS) conducted a survey and found that more than 60 central banks are involved in digital processes.
The Central Bank of the United Arab Emirates (CBUAE) and the Saudi Arabia Central Bank (SAMA) released a report called “Project Aber” which was a digital currency project. The project successfully showed that distributed ledger technology was feasible to create transactions at the domestic and cross-border levels.
Emirates BlockchainTechnology 2021:
In this era of great technological pace blockchain and artificial intelligence have become the major topic of every discussion. The UAE is a global trade hub and It's continuously trying to get innovation through technological advancements to enhance profit and face economic challenges. So, realizing the power of technology and innovation the UAE government launched the Emirates Blockchain Strategy 2021 and Dubai Blockchain Strategy. This strategic approach aims to transform half of government transactions through the blockchain platform.
Blockchain and Banking Efficiency in UAE:
National Development Bank is Emirates NBD, the UAE's second-largest bank by assets. So, their entry into the digital world depicts a strategic shift to mainstream blockchain-based trade and finance. Therefore, this strategy facilitates the UAE's becoming the global crypto hub and is set to bring financial and economic revolution throughout the region. Emirates NDB aims to pressure regional peers to follow suit and increase institutional capital. Moreover, NBD introduced a Mobile Banking App called Liv X that offers the fastest, safest, and most convenient way of banking.
The GCC institutions managed $2.1 trillion as assets, but less than 5% were linked to crypto-currencies. The Liv X app and the Virtual Assets Regulatory Authority (VARA) partnership enable users to sell, buy, and trade cryptocurrencies directly. Consequently, this initiative brings innovation to the financial sectors and creates a seamless banking experience. Zodia Custody provides security services for crypto-currency assets to enhance the rapidly flourishing financial landscape.
Conclusion:
The advances in telecommunications and information technology play a vital role in banking and businesses. Blockchain technology is considered to be a significant invention in the financial sector. As a result of this people and administrators both have a faster and convenient experience. Finally, awareness of this technology should be created through training and workshops to incorporate it more effectively in businesses. It is expected to expand its application in a wider way. It is assumed that UAE's strategic approach is going to bring more financial success in the future by using this technology.
This is for all business owners, financial consultants, brokers, entrepreneurs, legal consultants, or individuals seeking to finance their business or start a new company. Seek professional help, by reaching out to the contact below, you can get in touch with the author of this blog: WASIQ SUHAIL.
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