TECHNOLOGY

Is Southeast Asia Ready for Bitcoin?

The cryptocurrency could be big in the region, but challenges to wider adoption remain

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BY Tanya Mariano - 10 Aug 2016

PHOTO CREDIT: Getty Images

Bitcoins aren’t something regular people think they need in their life, and “blockchain” is a term unfamiliar to most. That could change -- if the big growth potential in Southeast Asia is tapped and roadblocks are hurdled.

First,the basics. Bitcoin is, in the words of its supposed creator Satoshi Nakamoto, a “peer-to-peer version of electronic cash” that allows for fast and cheap digital transactions independent of third-party financial institutions. The kinds of bitcoin companies in existence include wallets, payment systems, mining, and exchanges where people can buy and sell bitcoins.

Blockchain, on the other hand, is the technological backbone of bitcoin – a data structure that lets a network of computers share between them a tamper-proof digital ledger of transactions, as this Wall Street Journal primer explains.

Big potential

According to Eddie Chng, vice president for Business Development and Partnerships at Singapore-based bitcoin trading platform Quoine, the region has both the talent pool needed to develop the technology, and a population with needs that could be addressed by it.

“You have an extremely skilled workforce that can identify and build solutions for the countless use cases Blockchain provides… and at the same time, it also includes countries that are the ideal customers for many of these services – countries with relatively high smartphone adoption, a high proportion of unbanked, as well as significant expat and migrant populations,” he says.

Countries like China, a giant in bitcoin mining, and Singapore, a known hub for tech and finance, are helping the growth of the industry in Asia, according to Nathan Pacer, co-founder and vice president at San Francisco-based research firm Venture Scanner.

Some think Asia may even overtake Western countries in terms of adoption.

One such use for bitcoins in Southeast Asia is cross-border transactions. Bitcoin transactions can be faster and cheaper than those coursed through traditional channels because it eliminates intermediary fees and time constraints imposed by third-party institutions.

Says Dominik Weil, co-founder of Bitcoin Vietnam, the first full service bitcoin company in the country: “While Bitcoin works more or less just as a speculative asset for people in Western countries of whom most do not have to deal with cross-border transactions more than once or twice in their life – in Vietnam, almost every family has to deal with cross-border transactions.” This ranges from families receiving money from relatives working abroad, parents sending money to children studying overseas, or businesses accepting payments from customers abroad.

More traders, less users

Still, there's still a lot to be done to effectively tap these ideal customers. Currently, as in the West, bitcoin is still more popular as a speculative asset than an alternative currency.

In Malaysia, for instance, some investors use bitcoin to hedge against the depreciation of the ringgit, which has seen sharp decline in the past years, says Colbert Low, founder of BitcoinMalaysia.com, a provider of consulting and technical services for bitcoin- and blockchain-related projects. He adds: “…when we see a downturn in areas like the stock market or property market, some investors will be moving their hard-earned money into safe assets like gold and bitcoin.”

In Indonesia, according to Suasti Atmastuti Astaman, Business Development Manager of bitcoin exchange Bitcoin Indonesia, the company tries to educate by offering free seminars, sponsoring community projects, and doing online promotions.

Security issues

Aside from educating consumers, assuaging public concern over the security of such technology will also likely be a priority, especially following the August 2 theft of more than $60 million from bitcoin exchange Bitfinex in Hong Kong (in Vietnam, however, Weil says they saw a spike in transactions as people bought bitcoins on the cheap in the wake of the resulting price slump).

“The most important lesson for all {bitcoin} industry participants,” Weil says, “is you cannot be paranoid enough about security. And security by obscurity is not a sufficiently good practice if the price tag on a successful breach of your systems is so high.”

Regulatory challenge

But perhaps the biggest challenge facing the industry is regulatory. Says Chng, “With any ground-breaking technology, it very rarely fits into existing regulatory frameworks. Countries all over the world are trying to define how to classify digital currencies so they can apply regulation in such a manner that protects its people, but also not wanting to apply overly strict rules that would potentially stifle [growth].”

Astaman says the Indonesian Bitcoin industry needs clear guidance from the government. However, “…until they know how they can prevent criminals from using Bitcoin as a method for money laundering, we still have to wait for a long time.”

There are bright spots, however. Low says Singapore’s regulatory sandbox approach is a step in the right direction, and Malaysia is looking closely at the fintech space. The State Bank of Vietnam, says Weil, has likewise made significant advances in their research into this technology and will likely “come up with a very sensible regulatory framework in a timely manner.” The Philippines is also on a “good trajectory,” says John Bailon, founder of Manila-based bitcoin company Satoshi Citadel Industries. “Our regulators are open and intelligent enough to understand not to kill the baby in the cradle.”