Time for Bank Negara to take another look at Bitcoin

to Datuk Nor Shamsiah Mohd Yunus on her appointment as Bank Negara Malaysia governor. Those of us at the frontiers of finance welcome this as an opportune chance to engage in some uncomfortable conversations about our industry.

Malaysia has been lagging its peers on acknowledging disruptive technologies in financial services; technologies which will likely come to maturity under your watch. While most purported disruptions never came to pass, one in particular deserves significant attention: Bitcoin.

When it was invented in 2009, Bitcoin was nothing more than a curiosity. From humble beginnings, it became a global and sophisticated grassroots movement; a movement aiming to build an entirely new, open, permissionless and decentralized financial system based on the architecture of the Internet.

The Bitcoin bug hit Malaysians early on, but it was not taken as seriously as it should, despite enthusiastic outreach efforts by the local community. Fortunately, parallel efforts in other markets accumulated so much social proof that a local regulatory response became necessary.

In 2014, BNM released its first public statement on Bitcoin; not recognising it as legal tender and advising caution of its risks.

The move was understandable, but also raised more questions than it answered: What risks? What exactly is legal tender? Are we breaking the law by transacting with Bitcoin? Further prompts produced nothing – perhaps BNM felt that Bitcoin was a passing fad?

Evidently it wasn’t. Not only did Bitcoin endure, it produced a speculative mania unseen since the dotcom bubble. However absent regulatory clarity, scammers have taken hold of our market, threatening to pervert the Bitcoin narrative as nothing but a get-rich-quick scheme.

As follow up, BNM then released AML/CFT guidelines for digital currency businesses in early-2018. While a step in the right direction, these responses felt reactive: they either treat Bitcoin as a speculative investment to be warned against or a moneylaundering tool to be curtailed.

As the market mellowed by mid-2018, perhaps seeing that the worst has passed, stakeholder conversations around Bitcoin began to fade.

We appeal to the central bank not to fall complacent. Historically, it is during these down periods that some of the biggest advancements in technology, market and ecosystem were made in Bitcoin. These advancements laid foundations for the next wave of adoption.

To understand Bitcoin’s resounding resilience, it is important to appreciate the market failure it intends to fix: opening bank accounts and making transactions remain extremely frustrating. Not so for Bitcoin.

Anyone with an Internet connection can transact with anyone else, anywhere, at any time, instantaneously at marginal cost, with full confidence and privacy.

By abolishing the barriers around account creation and transactions, Bitcoin can produce an explosion of entrepreneurship. The open, permissionless, and decentralised financial system built around Bitcoin will impact more people more than any of the current fintech innovations.

We want Malaysians to meaningfully participate with the emergent Bitcoin scene, but our efforts are hampered absent an enabling regulatory environment. Ideally, any ambiguity that Bitcoin is a legal method of payment in Malaysia is removed.

Exchanges must be put under formal oversight – not only for AML/CFT, but also for reserve requirements and market integrity. We also need guidelines for accounting recognition and income taxes, without which we become easy targets for the IRB.

One need only look at Japan as prime example of what an openminded attitude towards Bitcoin can produce. Within a year of regulatory clarity,

Japan became one of the most vibrant markets for Bitcoin. This was created via a grassroots positive feedback loop that allowed its adoption to grow organically.

Consumers should not need to be reliant on banks to revolutionise banking, and should be allowed to hedge their bets in an alternative. We call upon BNM to look into Bitcoin with increased rigour; to work with us in producing a conducive regulatory environment for the local market to develop in a healthy manner.

Just as it did in Japan, we are confident this experiment will produce positive results, and that our faith in the technology will be justified.

The open, permissionless, and decentralised financial system built around

Bitcoin will impact more people more than any of the current fintech innovations.

Affendi Ariffin is the chief executive officer of Vardiz Commerce