- 04/02/2018
- Category: Commentaries
The rise of Bitcoin is a global phenomenon that has attracted wide attention among world citizens because its value grew exponentially since its first launch in 2009. It is promised to be the future of financial technology, especially in terms of currency. Its existence challenges conventional currencies with its borderless, fast, secure, and “lawless” features. We will explore a few key questions surrounding the issue to provide a general knowledge about this global headline.
Q1: What are cryptocurrency and Bitcoin?
Cryptocurrency is a currency that is only available in digital form. Therefore, we cannot withdraw it from an ATM and store a physical banknote of one unit of cryptocurrency into our pocket, unlike how we do with dollars or euros. The networks in which cryptocurrencies operate use certain secret and complex codes called ‘cryptography’ that allow the owner of this digital moneyto do transactions anywhere in the world in secret.[i]
Bitcoin is one of the many cryptocurrencies that exist today, with a ticker symbol of “BTC”. Bitcoin is a type of cryptocurrency, and cryptocurrency is a general term to address the digital currencies that are circulating in the market. At this moment, along with Bitcoin, there are hundreds of other cryptocurrencies, such as Stellar Lumens (XLM), Ripple (XRP), Ethereum (ETH), and Litecoin (LTC). In many occasions and daily conversation, the usage of the terms ‘Bitcoin’ and ‘cryptocurrency’ have been mixed up even though they are not the same.
Bitcoin was invented in 2009 by an unknown person/group with the alias ‘Satoshi Nakamoto’. We can obtain Bitcoin by buying or trading it with other currencies (conventional or digital) or through Bitcoin mining. Buying or trading Bitcoin can be done through various available platforms like Coinbase and Bithumb. After making an online account, we can then transfer conventional money into the account and buy Bitcoin (or other cryptocurrencies) as we please. We can also exchange certain amount of Bitcoin with other cryptocurrencies in that platform, and vice versa. The transfer of cryptocurrencies is also possible from one person to another with a very minimum additional charge and with an instant processing, just like mobile or internet banking. Mining Bitcoins are done by using customized computers to solve sophisticated mathematical problems. Once a problem is solved, Bitcoins are awarded to the solver’s account.[ii]
Q2: How does cryptocurrency disrupt the current financial state?
Cryptocurrencies like Bitcoin offer almost complete anonymity.In order to send or receive Bitcoins, we need an address (e.g. 19t1HyYqe325NxiTATJrAR4gPJIUUkSXJY) which we can obtain without registering our full identity and background check, unlike the procedure of making a bank account or credit card. This conceals the owners’ true identity, which is desirable for some people. Yet, this so-called “anonymity” is not absolute since if we ever link our real identity to the Bitcoin address, technically we are still traceable.[iii]
Cryptocurrency could avoid the high fees chargedin the transactions of conventional currencies.[iv] Conventional transactions are mostly done between banks or financial intermediaries like PayPal, Visa, and Mastercard. Banks or financial intermediaries certainly charge customers for every transaction they made at a certain rate. Not to mention if the transaction is made with different national currencies, the adjustment has to be made further and accumulatively it can impose high fees to the trader.
However, it does not mean that cryptocurrency is completely free of charge, but rather, it does at a very low rate. Cryptocurrency trading platforms also charge its users based on the frequency and/or the value of transaction or withdrawal. Nevertheless, most charges are significantly lower than its conventional counterparts. However, not all of them are truebecause some cryptocurrencies can cost a lot in every transaction and could take hours to complete the confirmation process. Some Bitcoin users reported that they must pay high rates to transfer, as high as 40% per transaction which can take more than 1000 minutes for confirmation[v] despite the fact that before it exponentially grew, it only cost less than US$ 1 to transfer. Why so? Read the explanation here.[vi]
Q3: How do countries around the world respond to the rise of cryptocurrency?
The rise of cryptocurrency usage is responded through various manners around the globe. Some central banks are quite disturbed by cryptocurrencies, whereas some of them have tried to adapt with the new trend. South Korea, Australia, Indonesia, and India are among the countries who responded to this new currency negatively, ranging from not advising the usage of cryptocurrencies to condemning them as an illegal currency.[vii] Their worry is somehow reasonable since Bitcoin is prone to bubble and can be used to evade tax, launder money, fund terrorism, and support other illicit activities because cryptocurrency transactions are almost anonymous and hard to trace. China also reacted negatively by banning it. The Chinese government has even banned Bitcoin trading and Initial Coin Offerings (ICO) because they feared that the currency could threaten the Chinese economy. Nevertheless, the People’s Bank of China did not neglect the idea of digital currency at all and is currently developing its own digital currency.[viii] Japan and Russia are some among few countries which think that it is better to adapt than to resist. Japan legalized some cryptocurrencies as a payment method in the country and backed it with a new legislation. Russia has also shown a positive attitude by seeking a solution to accept cryptocurrencies as a legal financial instrument to tackle money laundering.[ix]
Editors: Atin Prabandari, MA(IR) and Nabeel Khawarizmy Muna Picture: pexels
[i] McGoogan, C. and Field, M. (2018). What is cryptocurrency, how does it work and why do we use it?. The Telegraph, [online]. Available at: http://www.telegraph.co.uk/technology/0/cryptocurrency/ [Accessed 24 January 2018].
[ii] Yellin, T., Aratari, D., Pagliery, J. (2018). What is Bitcoin. CNN Money, [online]. Available at: http://money.cnn.com/infographic/technology/what-is-bitcoin/ [Accessed 24 January 2018].
[iii] Buy Bitcoin Worldwide, (2018). Bitcoin Anonymity – Is Bitcoin Anonymous?. [online] Availabile at: https://www.buybitcoinworldwide.com/anonymity/ [Accessed 24 January 2018].
[iv] Investopedia, (2018). Cryptocurrency. [online] Available at: https://www.investopedia.com/terms/c/cryptocurrency.asp#ixzz549hM44uE [Accessed 24 January 2018].
[v] Browne, R. (2017). Big transaction fees are a problem for bitcoin — but there could be a solution. CNBC, [online]. Available at: https://www.cnbc.com/2017/12/19/big-transactions-fees-are-a-problem-for-bitcoin.html [Accessed 24 January 2018].
[vi] Resende, E. (2017). Why are Bitcoin Transaction Fees So High? Medium, [online]. Available at: https://medium.com/@ed_resende/why-are-bitcoin-transaction-fees-so-high-f6dea69e7db7 [Accessed 24 January 2018].
[vii] Lee, Y. N. (2017). From China to Singapore, Asian countries are increasingly uneasy with the rise of bitcoin. CNBC, [online]. Available at: https://www.cnbc.com/2017/12/22/bitcoin-china-singapore-japan-issue-cryptocurrency-warnings.html [Accessed 24 January 2018].
[viii] Lee, Y. N. (2017). From China to Singapore, Asian countries are increasingly uneasy with the rise of bitcoin. CNBC, [online]. Available at: https://www.cnbc.com/2017/12/22/bitcoin-china-singapore-japan-issue-cryptocurrency-warnings.html [Accessed 24 January 2018].
[ix] Kharpal, A. (2017). Bitcoin value rises over $1 billion as Japan, Russia move to legitimize cryptocurrency. CNBC, [online]. Available at: https://www.cnbc.com/2017/04/12/bitcoin-price-rises-japan-russia-regulation.html [Accessed 24 January 2018].
