Published by Singapore Business Review – 18th July 2017
As things get disrupted within the Singaporean financial world with new tech, it’s no surprise that the way we use currency is being affected as well. In February, it was reported that Numerai— a new kind of hedge fund built by a network of data scientists—started issuing a new digital currency. Its aim? To turn Wall Street into a place where everyone’s on the same team. Could the same come to Singapore?
From Bitcoins to even newer (and lesser known, but rising) forms of currency, will this level the playing field for people in the future, or is this all just a sham that will die down? As things get digitised, what do we need to know about digital currencies, and does this mark the demise of traditional forms of currencies in Singapore?
What you need to know
To help you navigate in the world of digital and cryptocurrencies, we’ve compiled a quick list of important points you need to know:
Not all currencies were created equal
Beyond the obvious in regards to value, there are 3 main categories to be aware of:
1.) Virtual currency: Within Europe, virtual currency is defined as unregulated, digital money, which is issued and (usually) controlled by its developers, to be used and accepted among members of a specific virtual community.
2.) Digital currency: A form of virtual currency that is electronically created and stored. Some types of digital currencies are cryptocurrencies, but not all. In 2016, the US stated that digital currency operates like traditional currency, but isn’t recognised as legal tender.
3.) Cryptocurrency: A subset of digital currencies that uses cryptography for security, for the purpose of making it extremely difficult to counterfeit. A defining feature of these currencies is the fact they are not issued by any central authority.
There are different types of currencies
The most commonly known is of course, Bitcoin (which can be used at dozens of places in Singapore, a sample list is here). Coming in at a close second is Litecoin, which is actually accepted by some retailers globally and they have just incorporated in Singapore so you should be able to use it soon here too. Someone actually purchased a Tesla Model P85 (US$90,000) using 5,447 Litecoins.
Other types of cryptocurrencies include Peercoin, Ripple, Mastercoin, and Namecoin. However, if you ask what the main differences are between them, you’d be hard pressed to get an answer—these cryptocurrencies often replicate other versions, with no real improvements. For example, Litecoin was inspired by Bitcoin and in many ways, almost identical, save for the fact that it was created by using open source design.
What to do if you have them
Experts suggest putting some aside if you have them and see what develops within the coming years, as there will be regulations on the currency soon. With growing interest from investors and businesses, it looks set for growth and adoption. However, it will not happen overnight and is likely to take some time especially in highly regulated financial markets like Singapore. The environment will need to stabilise as governments, various international communities, and people on the internet decide on how the next generation of currency will transition to a digital world.
The volatility issue
The future of digital cash is uncertain, as the biggest hurdle faced by this space is volatility. Bitcoin for example has had more ups and down than a drama serial.
Why is this so? Bitcoin shares a trait associated with diamonds, gold, and other precious metals in the sense that it is relatively rare. The algorithm that controls Bitcoin production has a cut-off date of 2140, after which no more bitcoins will be added to the world economy. Naturally, a scarce asset makes it an attractive investment, but it also results in a volatile market. As shown by recent reports, Bitcoins aren’t exactly a smooth ride to riches.
So will traditional forms of currencies die? Not anytime soon. The first step is to get everyone comfortable with cashless paying systems, which in itself, has a surprisingly slow rate of adoption even in places like Singapore (at least cabbies here take credit card unlike their counterparts in Hong Kong for example), despite what ApplePay and PayWave would like you to believe. However, once the path is paved for this, the next wave may well be digital cash adoption.
The views expressed in this column are (by Carl Freer) the author’s own and do not necessarily reflect this publication’s view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.
