23 November 2017
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The Big Read: As Bitcoin roars on, more jump on the cryptocurrency bandwagon - but what’s the catch?

04 Nov 2017
Angela Teng

It is threatening to throw the financial world, as we know it, into disarray but by all accounts, the rise of cryptocurrencies - a form of virtual currencies - will take some stopping.

Governments and regulators are sitting uneasy, while businesses increasingly turn to it. Piqued by the soaring value of cryptocurrencies, investors are also watching developments closely, wondering whether to follow others in taking the plunge despite the huge risks.

Here in Singapore, the Monetary Authority of Singapore (MAS) said last month that it will not rush into regulating cryptocurrencies but be vigilant to risks, amid growing interest among investors – a few of whom told TODAY they have ploughed in at least a five-figure sum, and seen their money pots grow.

Around the world, there is also increasing acceptance of cryptocurrencies in mainstream commerce and gaming. One can use them to buy groceries, pizza, coffee and books, for instance. In August, Burger King introduced its own cryptocurrency WhopperCoin in Russia. The tokens would be used to reward customers for each purchase of the Whopper burger. Once a customer has collected enough tokens, he can use them to buy burgers. The coins can also be transferred and traded online.

The value of cryptocurrencies globally - vastly dominated by Bitcoins - totals about US$183 billion today, up from US$17 billion at the start of the year. In comparison, the world’s entire diamond market is valued at about US$250 billion.

The World Economic Forum estimates that within the coming decade, a tenth of the global gross domestic product will be stored using blockchain technology.

Recently, CME Group - the world’s largest exchange owner - reversed course and said it plans to introduce Bitcoin futures by the end of the year, only a month after dismissing such a plan. The largest cryptocurrency climbed to a record high after the announcement, and has continued its ascent since. On Friday (Nov 3), the value of one Bitcoin hit a new all-time high of US$7,454 (S$10,165.77), compared to US$1,000 on Jan 1.

However, experts warn that cryptocurrencies are extremely volatile, and their values could be diminished substantially - when for example, countries ban them - even becoming worthless overnight. Vietnam is the latest to enact a ban, following in the footsteps of South Korea and China. On the other end of the spectrum, Japan has embraced these digital currencies.

Mr Shayne Tan, 25, a business undergraduate at Singapore Management University, has invested S$20,000 so far in several cryptocurrencies including Bitcoin, Ethereum, OmiseGo, eBoost and Memetic. He plans to grow his portfolio, pointing to the growing activity in the blockchain ecosystem. Blockchain technology - simply put, it is a tamper-proof, distributed digital ledger that records transactions - in the financial industry is fueling the rise of cryptocurrencies.

Technology entrepreneur Sharon Lourdes Paul, 27, also has a portfolio worth a five-figure sum and this comprises only her profits after she has cashed out her initial capital. “I will continue to invest,” she said.

But not all investors are convinced. Some, like a 65-year-old seasoned retail investor who gave her name only as Mdm Ng, told TODAY she is steering clear. “It sounds like betting and doesn’t seem reliable. How do you entrust your money and life savings to the Internet, to businesses without a physical presence?” she said.

Unlike fiat money, cryptocurrencies - which have divided opinions in financial circles - have no physical equivalent and are merely a digital medium of exchange. JPMorgan Chase CEO Jamie Dimon famously called Bitcoin a “fraud”, while American economist and New York Times columnist Paul Krugman had described it as “evil”. “I’m still deeply unconvinced,” Mr Krugman wrote in 2013. "To be successful, money must be both a medium of exchange and a reasonably stable store of value. And it remains completely unclear why Bitcoin should be a stable store of value.”

Speaking in a recent interview with Bloomberg News, MAS managing director Ravi Menon said Singapore does not plan to regulate cryptocurrencies but it will remain alert to money laundering and other potential risks stemming from their use.

“As of now I see no basis for wanting to regulate cryptocurrencies,” he said. He noted that “very few jurisdictions regulate cryptocurrencies per se”, with most taking the approach that “the currency itself does not pose the risk that warrants regulation”. Singapore already requires virtual-currency intermediaries such as exchange operators to comply with requirements to combat money laundering and terrorism financing, Mr Menon added. “So we just have to look at (cryptocurrencies) case by case to see which ones we will need to bring into the regulatory ambit, and which ones will have to stay outside,” he said.


Cryptocurrencies are, as the name suggests, digital assets using cryptography to secure and verify transactions.

With the cryptography, a cryptocurrency is difficult to counterfeit. Proponents have called it “digital gold” or “decentralised currency of the people”, free from political influence amid disillusionment in some countries with central banks, bankers and government control over monetary policy in recent times.

Bitcoin is by far the most popular cryptocurrency. Its origins can be traced back to a white paper published in 2008 authored by a “Satoshi Nakamoto”. Till today, it is not known who wrote the paper which was titled “Bitcoin: A Peer-to-Peer Electronic Cash System”, and whether it was done by a person or a group. The persona had communicated by email and in the official Bitcoin forum. But in April 2011, Nakamoto asked American Bitcoin developer Gavin Andresen to take over, before disappearing. About three years later, Amsterdam-based coder Wladimir van der Laan took over as Bitcoin’s lead developer, and has remained in the role since.

Bitcoins are obtained through a peer-to-peer computer process described as mining. Miners have to solve mathematical problems to verify the transactions, or payments from one user to another on a decentralised network.

Mining involves adding Bitcoin transaction data to a global public ledger of past transactions. Each group of transactions is called a block, which is built on top of each other, forming a chain. The ledger of past transactions is called a blockchain. Like gold, there is a number a finite amount of Bitcoin that can be mined. The algorithm that fuels the Bitcoin network is designed to generate 21 million Bitcoins, and the system regulates itself to ensure a steady supply. At the current rate, the supply will be exhausted by 2140.

According to co-founder Bobby Ong of CoinGecko.com, a Singapore-incorporated cryptocurrency startup, there are currently more than 1,000 cryptocurrencies and tokens worldwide. Popular cryptocurrencies today include Bitcoin, Ethereum, Litecoin, Ripple and Monero.

The elusive nature of cryptocurrencies is one reason why regulators and financial institutions are uncomfortable dealing with it.

In September, the People’s Bank of China banned initial coin offerings (ICOs), saying that it is disruptive to economic and financial stability. Regulators in some other countries have followed suit.

ICOs are used by startups to raise funds for new cryptocurrency ventures. ICOs bypass rigorous and regulated capital-raising process required by venture capitalists or banks. In addition, funds that are lost due to any fraudulent initiatives may never be recovered.


While the spectacular rise in the value of cryptocurrencies has dominated the headlines and ignited people’s interest, experts were keen to stress that it is not just a vehicle for investments. To see it merely as such would undermine its larger purpose, they added.

“Cryptocurrency is a new platform allowing innovations to come about. This is not just about a currency, there are so many applications you could create on top of that,” said Mr Anson Zeall, the chairman for Singapore’s Cryptocurrency and Blockchain Industry Association, or Access.

Bitcoin was the first application of blockchain technology, an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way. The ledger itself can also be programmed to trigger transactions automatically.

Reports and studies have concluded that the technology could eliminate back-office roles in financial services and bank businesses - such as clearing and settlement of trades, financing, as well as tax and regulatory reporting.

Mr Zeall said: “The benefit is that it is decentralised. If there is an attack on a network, the asset is not affected. Everyone has the same copy of the blockchain. This technology is very powerful, it helps businesses to think globally and there are no borders anymore.”

Singapore University of Social Sciences (SUSS) professor David Lee noted that it comes with “social benefits”. He said: “The market is only focusing on prices, but if you understand the technology, this is going to change how businesses are being done, relationships are being fostered, governance is being implemented, and society are being reorganised.”

Blockchain technology has been identified by MAS a key component of efforts to transform Singapore’s financial industry. Recently, the Republic signed an agreement with Hong Kong to cooperate on fintech (financial technology), including on a project using blockchain for trade finance. Prof Lee believes that Singapore is the leading “thinker and regulator” in this field. “This technology levels the playing field... (It) is not just a technology, it is an enabler for change in society structure and it empowers the individual. This is why some gonverments are fearful while others embrace it,” he added.


Given the enormous potential of blockchain technology, it is little wonder that some are betting big on cryptocurrencies.

Among them is consultant Titan Lee, 30, who has more money put into cryptocurrencies than in his bank account. Underpinning his bullishness is the belief that the blockchain technology will revolutionise the future, as he put it.

Similarly, Mr Tan pointed to recent developments, including the Russian government’s plan to open up Bitcoin trading to qualified investors: “Such trends will inevitably lead to hundreds of billions of dollars being allocated into Bitcoin in the coming years and will allow Bitcoin to achieve new highs.”

Still, another investor, Mr Spencer Yang, 28, warned those who do not know enough about cryptocurrencies against speculating in them. “We should focus on it as more of a utility rather than as an investment,” said Mr Yang, who works as the general manager for Asia at Esports company Unikrn. Mr Yang noted that there was “too much speculative activity” in China, which led the authorities to clamp down on cryptocurrencies, prompting prices to tumble by almost half.

Mr Shaun Djie, co-founder of cryptocurrency startup DigixGlobal, reiterated that people should not invest in cryptocurrencies looking to make a quick buck.

Alluding to China’s ban which was announced in September, Mr Ong said: “It is very common for cryptocurrency prices to fall 50 per cent in a few hours, or to lose more of its value in a matter of days.”

Both Mr Djie and Mr Ong also warned against scammers preying on ignorant investors who are eager to “chase the next big wave”. “I would say 90 per cent of cryptocurrencies and ICOs are scams built by teams with just a powerpoint presentation and no working product… I tell all beginners to avoid ICOs as it is too risky for them,” said Mr Ong. “But if they are really interested... first look into buying Bitcoin and Ethereum, and then look very strongly into wallet security.”

Vulnerable wallets could get hacked and investors will have no recourse, he noted.


In September, Mr Zeall told the media in an emailed statement that Singapore banks have closed accounts of several companies which specialise in providing cryptocurrency and payments services.

Mr Zeall told TODAY there has also been feedback from startups which previously did an ICO that they “take longer to open a bank account now”.

There needs to be “more communication between the stakeholders in our ecosystem – the banks, industry, and regulators”, he stressed. Reiterating that banks have much to gain from blockchain technology, he argued: “More investors are coming in by the day to invest in this, and if banks are still closing down accounts of cryptocurrency companies, it is not healthy.”

Softwares are available that help guard against fraud and money laundering, Mr Zeall pointed out. He cited the example of Japan, which has been researching decentralised payments for almost a decade.

SUSS business lecturer Lo Swee Won felt that cryptocurrencies - which are a key element of blockchain technology - are here to stay. “Take supply chain as an example, blockchain is not only there to pave new ways for consumers to get information about a product, but to also effectively ‘shorten’ the supply chain by allowing every party access to a single, trusted and reliable data source,” she said.

For investors like Mr Tan, he will continue to invest in Bitcoins for now, noting the decentralised system’s resilience to hostile moves by large economies.

“This financial innovation has proven the biggest critics wrong time and again. For that reason, cryptocurrencies will not be going away anytime soon,” he said.

Mr Lee added, half in jest: “The day the neighbourhood uncle at the coffee shop and taxi uncles are asking about how to buy Bitcoin, then it’s probably time to sell.”