While many associate digital currencies like Bitcoin with places like Silicon Valley, in reality Asia is the main region for cryptocurrency activity. The three largest economies in the Asia-Pacific region; China, Japan and South Korea have all started implementing their digital currency frameworks with mixed results.
The recent announcement by the People’s Bank of China (PBOC) to launch its own digital currency as soon as possible has made international headlines. The PBOC cited lower operating costs, greater transparency and better political control over the money supply as incentives for their efforts in this area.
China has become the largest market for Bitcoin users and miners as Chinese regulators have largely adopted a hands-off approach to Bitcoin companies and exchanges. This came as a surprise given China’s otherwise conservative controls on the financial markets. In fact, four of the five largest exchanges (based on trading volume) are located in China: Huobi, OkCoin, BTCC, and LakeBTC. The yuan is also the most widely traded currency on Bitcoin exchanges. Huobi’s 30-day yuan bitcoin trading volume is 42 times the trading volume of the largest non-yuan exchange.
It is important to note that the Chinese government is not ignoring the sector as it has stepped in when it saw fit in the past. In particular, the market for digital currencies exploded in China at the end of 2013. The early adopter BTC China outperformed Japan’s MT Gox and Bitstamp based in the EU and became the largest exchange by November 2013. At the same time, both Baidu and Alibaba accepted Bitcoin as a means of payment for ancillary services.
By December 2013, the Chinese government intervened and restricted activities, followed by Baidu and Alibaba, who dropped payment options for Bitcoin. Despite this initial intervention, the digital currency market in China has continued to grow, and many successful exchanges have emerged. While bitcoins cannot buy physical goods, many Chinese are increasingly using digital currencies to diversify investments and bypass capital controls.
As a result, Beijing’s efforts to advance the creation of its own digital currency have several reasons.
First, Beijing fears the unknown, and while it is pragmatic enough to identify and adopt a profitable trend when it sees it, it will nonetheless try to minimize its risk. The idea of allowing an entire economic sector to be based on a cryptocurrency created by an unknown company (an individual or group named Satoshi Nakamoto founded Bitcoin in 2009) with unknown loyalties and / or access to back-end code, affects Beijing deeply.
Second, Beijing was badly affected by its initial efforts to liberalize financial markets and, as such, seeks to control potential bubble-producing trends. While digital currency transactions do not pose a destabilizing threat to the Chinese economy, Beijing is attempting to introduce its own digital currency to prevent the creation of a financial subsector that is beyond the control of the central bank.
Given the high usage rates of digital retailers like Taobao (C2C), Tmall (B2C) and Alibaba (B2B) in China, the introduction of a state-sanctioned digital currency could further domesticate the Chinese internet ecosystem. In other words, China already has its own versions of Amazon, Ebay, Google, etc., so promoting its own digital currency becomes a lot easier when all the pillars of the e-commerce ecosystem are in China.
The government can push businesses to encourage transactions using the government’s digital currency, which gives the government significant control over the fast-growing e-commerce sector.
In addition to China’s recent announcement, Japan has also announced that it will introduce new regulations for cryptocurrencies. This includes registering exchanges with the Financial Services Agency, regular auditing, minimum capital requirements, and verifying the identity of customers.
These regulations are in response to the aftermath of the Mt.Gox scandal. Mt.Gox was founded in Tokyo in 2010 and was one of the first Bitcoin exchanges. The stock market grew rapidly and became the largest in the world. By 2013, 70 percent of all Bitcoin transactions were processed.
This meteoric rise came to a standstill in 2014 when Mt.Gox filed for bankruptcy after the alleged theft of 750,000 customer Bitcoins and another 100,000 company Bitcoins due to a malfunction in the security software. Since then, Mt.Gox CEO Mark Karpeles has been arrested twice for the disappearance of the aforementioned $ 480 million worth of bitcoins.
While the Mt.Gox scandal has tainted Bitcoin in the minds of the Japanese public, there is still considerable interest among Japanese companies. The new regulations further cement a code of conduct for Bitcoin exchanges and reduce uncertainty and risk for companies interested in joining the digital war. Interested parties include Sumitomo Mitsui Financial Group, Fujitsu and Mitsubishi UFJ Financial Corporation.
Japanese financial firms are looking for new markets and viewing digital currency markets as a potential growth market. Currently, these companies are restricted by Japanese laws that allow banks to own more than five percent of a company outside the financial sector, or more than fifteen percent in bank holding companies.
Japanese entrepreneurs have noticed the void created by the Mt.Gox collapse and have tried not only to create new exchanges, but also to create their own “Made in Japan” digital currencies. One of them is FujiCoin, which was developed in June 2014 by a company of the same name.
2013 was also an important year for digital currencies in South Korea, as the Bank of Korea softened its previously negative stance in December and considered its possible use by the general public. While this wasn’t a seemingly big announcement, it represented a shift in the Korean cryptocurrency landscape. During the same period, the Korean bakery chain Paris Baguettes became the first physical store to accept Bitcoin payments.
Kevin Lee, CEO of Bitcoin Korea, said, “Most Koreans are interested in Bitcoin for investment purposes. They don’t care about the policy of the Central Bank of Korea. The Korean government will follow the international bitcoin trend. “
A major hurdle for digital currencies in any country is increasing awareness and usage outside of the limited circle of early adopters and tech fans. To this end, South Korea has gone to great lengths to promote the use of digital currencies. 7,000 regular ATMs now allow Bitcoin to be purchased. This is the result of a partnership between Coinplug, a Korean bitcoin exchange, and Nautilus Hyosung, the fourth largest ATM hardware manufacturer in the world.
All three governments are breaking new ground and will see interesting developments in 2016.
Alibaba, Baidu, Bank of Korea, Bitcoin, BTC China, China, cryptocurrency, digital currency, Japan, PBoC, regulation, South Korea