Asia’s role in the digital currency revolution
While some jurisdictions such as Singapore have open-door policies, others such as Vietnam favor regulation over innovation
Unless you have been living under a rock for the past year you will have heard of Bitcoin and its meteoric rise in price in recent months. This year alone the digital currency has gone from around US$700 in January to more than $6,000 this past week, a gain of more than 750%, pushing its total market capacity past $100 billion.
Many are still wondering how such a high value can be put on a virtual asset and what roles the nations of Asia are playing in this new cryptocurrency revolution.
Digital currencies are based on blockchain technology, which is in essence a distributed database containing all of the transaction records in one decentralized ledger. It is not stored on any one central computer, or controlled by any one bank or government, but resides across the Internet on a network of nodes.
Whenever a transaction is made, a “miner” will use powerful computing hardware and cryptographically secured algorithms to validate this transaction and update the blockchain, being rewarded in some of the coin for the work.
Global demand has grown as people seek alternatives to archaic, slow and expensive bank transfer systems, disproportionate foreign-exchange rates, and restrictive money-movement policies. An upsurge in government surveillance, especially when finances are involved, has also pushed tech-savvy traders and investors toward digital currencies.
Bitcoins are not the only fruit; there are literally hundreds of smaller coins called altcoins that offer some intrinsic value or purpose in order to attract traders and investors to develop their technology and nourish their network.
Ethereum, a decentralized “fuel” for digital transactions and application development, has grown exponentially in value, starting out at the beginning of this year at around $10 and currently trading at more than $300. Ethereum differs from Bitcoin in that its primary use is to facilitate the development of decentralized apps (DAPPs); it is more of a global software solution than a direct currency and aspires to be powering the Internet of the future.
China has been especially pivotal in the rise of cryptocurrencies this year, with an estimated 80% of them being mined in the People’s Republic
China has been especially pivotal in the rise of cryptocurrencies this year, with an estimated 80% of them being mined in the People’s Republic.
Every iteration of the blockchain makes the process slightly more complex, so more powerful computers are required to crunch the numbers. Bitcoin mining is now largely beyond the average person and is conducted in mega-factories crammed with computer rigs in mainland China.
The government wants control and made a decision last month to ban initial coin offerings (ICOs), followed by a general ban on cryptocurrency exchanges. This caused the global price of Bitcoin to plummet by 25%. Recent developments and reports that China may rescind these regulations created resurgence in the market to record highs this week.
China has its own cryptocurrency called NEO, which goes under the slogan of “distributed smart economy network”. It currently trades at around $28 from a high of $50 in August and lows of $0.50 in May – to say these alternative coins are volatile would be an understatement. Decisions from the Chinese government have heavy repercussions throughout the digital-currency market as their mining and investor base still constitute the biggest slice.
While China grapples for control and regulation, Japan is considered to have an open-door policy when it comes to cryptocurrencies. Japan’s domestic financial regulator approved 11 exchanges in September alone; many from mainland China are seeking opportunities with their neighbors to avoid ever tightening government policies.
Japan’s SBI investment group has backed a Bangkok-based startup that has developed its own coin called OmiseGo, named after the Japanese word for “store” and the board game Go. The digital asset aims to be the leading technology to facilitate decentralized financial transactions, payments and exchanges through the development of digital wallets.
South Korea has a slightly different stance and wants a little more control over financial transactions involving digital currencies. Just this week the central bank announced that it planned to regulate Bitcoin as a commodity rather than a currency, and it has also banned ICOs.
An initial coin offering is when a new digital currency or asset is launched in an effort to gain investors and funding – the market is a little like the Wild West and largely unregulated, with volatile price spikes and dips that can lure swing traders. Central banks claim to be protecting their users from fraud when they clamp down on ICOs. South Korea seems to be more concerned with money-laundering, as it has assigned a task force to monitor and develop policies for cryptocurrency exchanges.
Singapore has yet to issue any official regulations on digital currencies and remains open to them at present. An official from the Monetary Authority of Singapore, the island nation’s central bank and financial regulator, recently stated in an interview with Bloomberg that it would “keep an open mind”.
Vietnam conversely banned cryptocurrencies outright this week and warned traders that they would be fined for dabbling in Bitcoin and similar assets.
Russia is also a big player in the crypto world and can cause ripples throughout the market when big announcements are made. It has also moved toward more regulation of exchanges and joined China by taking the extreme step of banning digital currencies all together in October.
President Vladimir Putin recently announced that Russia planned to launch its own virtual coin called the “CryptoRuble” for use instead of Bitcoin, which, according to state-run news agency RT, he claimed creates “opportunities to launder funds acquired through criminal activities, tax evasion, even terrorism financing, as well as the spread of fraud schemes.”
A new battleground has formed within the nations of Asia, one that puts control and regulation up against technology and innovation. Governments, central banks and financial institutions generally fear the rise of cryptocurrencies because of their decentralized nature.
Continued efforts to regulate and control digital assets are implemented while users, traders and investors are striving for the opposite – freedom from banking and governmental control of their money.
Despite some of Asia’s major players in the crypto world clamping down and issuing regulatory policies, the Bitcoin bull and its smaller siblings continue to gain traction and grow day by day. Blockchain technology is here to stay, and 2017 could be for cryptocurrencies what 1995 was for the Internet.