A Bitcoin Revolution in Southeast Asia?

Despite its name, shorthand for the popular tagline “You Only Live Once,” Yolo Cafe in Hanoi’s Ba Dinh District has the laid-back vibe typical of cafés in Vietnam’s capital. Young Vietnamese customers lounge on vintage couches and sip smoothies, chatting or toying with their smartphones. But in February, owner Hung Xu had an idea to set the café apart.

Inspired by friends who “mined” Bitcoin as a hobby, he posted a sign telling customers they could pay using the virtual currency. As a marketing strategy, it was immediately effective.

“People came every day to ask about Bitcoin. I was busy with interviews all the time,” Hung told me.

But the payment system was never used. After Yolo enjoyed a few weeks of publicity, the police questioned Hung. In April, he removed the sign.

“Vietnam’s Bitcoin community is still small and fragmented,” said Ho Chi Minh City-based Coin Telegraph reporter Diana Ngo. “There are miners, traders, and enthusiasts, but most of them choose to keep it quiet.”

Hong Kong’s Bitcoin Association consists of 600 members; Hanoi’s more informal group of Bitcoin adopters numbers roughly five. In Ho Chi Minh City, the country’s economic hub, Ngo said most people had “only heard about Bitcoin,” although many were “really curious.” CoinMap lists only two Vietnamese businesses that accept Bitcoin. On BitLegal, which sorts countries by their friendliness towards Bitcoin, Vietnam joins Iceland as one of only two nations marked as “hostile” to the virtual currency.

But the country’s fledgling Bitcoin entrepreneurs remain undaunted. Bitcoin Vietnam recently launched the country’s first live exchange, where people can trade the virtual currency in real time; co-founder Dominik Weil said this was “the first step” towards building Vietnam’s “crypto-economy.” While state bank official Bui Quang Tien warned that the exchange would be shut down, no action was taken and Weil dismissed the threat: “It’s not that serious. We are not in jail.”

Vedran Kajic, who helped found Bspend in his native Croatia, was surprised by the potential he saw in Vietnam during a recent visit.

“Looking at BitLegal, I thought the situation was really bad, like the government would prosecute you,” he said. “But when I talked to those guys, it didn’t seem so bad.”

“Those guys” refers to Hanoi entrepreneurs Lê Xuân Thảo and Bui Huy Kien, who constitute roughly half of the city’s Bitcoin fan club. Thao heads a startup called T-Zone, which built a multi-purpose ATM where customers can fill their Bitcoin “wallets” in addition to topping off mobile phone credit and online gaming accounts. Kien runs an online forum called Lamchame (“Parenting”) that allows advertisers to pay with Bitcoin. So far only one has done so, a price comparison website called Websosanh. But Kien remains optimistic about the virtual currency’s potential.

“Bitcoin is the future of Internet payment,” he told me. “Young people buy things on the Internet a lot. But only a small number of Vietnamese people use credit cards. They’re not secure enough.”

A growing number of entrepreneurs are convinced that Southeast Asia is one of the places the virtual currency has the most potential. While Singapore is the regional hub with the world’s highest density of Bitcoin ATMs, other entrepreneurs have their eye on nearby Vietnam and the Philippines, where high-tech development is beginning to outpace basic industrialization. A Filipino legislator even proposed creating a government-backed virtual currency modeled after Bitcoin.

“Innovation is born out of necessity,” said Arthur Hayes, one of the founders of the Hong Kong-based Bitcoin derivatives exchange BitMEX. “Southeast Asia has a high proportion of unbanked people. Bitcoin represents a way for them to access the global financial network.”

The Case for Bitcoin

While banking infrastructure is lacking in Southeast Asia, Bitcoin proponents argue that the virtual currency would allow the region to bypass that stage of development using existing technology.

“Few Cambodian people have bank accounts, but most of them have smartphones. The ground is ready for massive adoption,” said Cedric Racine, who owns Kampot hotel Auberge du Soleil. “Imagine tuk-tuk drivers and noodle soup vendors accepting Bitcoin. In this two-currency country where no one ever has change, Bitcoin is clearly the solution.”

Racine pinpoints a growing trend. Across Southeast Asia, 55 percent of people own smartphones, yet credit card ownership remains below 5 percent, with the exception of Malaysia and highly developed Singapore. In Vietnam, smartphone ownership surged to 36 percent this year, but fewer than 1 percent of Vietnamese have credit cards, according to a recent Nielsen survey, which also found that even in urban centers like Hanoi and Ho Chi Minh City, barely 38 percent of residents have bank accounts.

“Bitcoin will enable emerging economies to skip the banking stage in favor of merchants holding their own digital cash, in a close parallel to how landline telephony was skipped in favor of mobile,” said Antony Lewis, co-founder of Singapore-based exchange itBit.

Luis Buenaventura, who heads the product division at Satoshi Citadel Industries, one of seven Bitcoin startups in the Philippines, echoed Lewis’s conviction. While only 5 percent of Filipinos have credit cards, smartphone penetration is predicted to soar to 50 percent  by 2015 – “exactly the kind of environment” where virtual money can flourish.

“I think that cryptocurrency will see the most usage in places where it fulfills a need, rather than a want,” Buenaventura said. “It leapfrogs banking systems and financial services and provides a technologically superior alternative to the people who have never had access to things like that before.”

Satoshi Citadel has focused on remittances, the area where most of Southeast Asia’s Bitcoin proponents see potential for growth. Remittances to developing countries from overseas workers are likely to hit $435 billion this year, a 5 percent increase over 2013, according to the World Bank. Vietnamese working and living overseas sent more than $11 billion back to the country in 2013; Filipinos sent home $30 billion, accounting for almost 10 percent of GDP. The collective cost of all those payments is $47 billion. Switching to what Satoshi Citadel calls “rebittances” would cut this sum to an estimated $5 billion.

Rebit.ph, the company’s biggest “Bitcoin solution,” has already been used for a few hundred payments – only the beginning of the “decentralized revolution” that Buenaventura thinks Bitcoin can start.

“Remittances will act as the gateway for average Filipinos to become aware that something exists out there that is fundamentally better than paper money or credit cards,” he said.

E-commerce is another potential area for Bitcoin to make inroads in Southeast Asia. Online sales in Vietnam surged more than 300 percent in 2013 to $2.2 billion, but most of these transactions are conducted via cash on delivery. People generally don’t have credit cards, and those who do are wary of fraud.

“People are still scared to pay online with credit cards. They’re worried their card information will be stolen,” said Hotdeal CEO Nguyen Thanh Van An, who said 90 percent of customers pay COD.

Bitcoin is “completely secure,” Weil said, making it “the ideal form of online payment.” Kajic pointed out that retailers also had a major incentive to switch to Bitcoin: “When someone pays you by credit, if they use a fraudulent card, the bank takes the money from you.” Other entrepreneurs emphasized Bitcoin’s “transformative potential” for small businesses wanting to expand internationally.

“This is the first time a group of talented developers in the Philippines can make a computer game and monetize it from players all over the world – without needing a bank account,” Lewis said.

Slow Adoption

However, the virtual currency’s popularity has yet to match the lofty rhetoric.

“Very few people have heard about Bitcoin and it’s complicated to explain,” Lamchame founder Kien said.

Wade Leathem owns the first hotel in Thailand to accept Bitcoin, Royal Prince Residence in Phuket. But he has yet to receive a single Bitcoin from a customer.

“Thailand isn’t exactly a high-tech or innovative place,” he said. “The press about Bitcoin here is almost non-existent, not to mention it was banned by the government.”

While the legal situation is actually more uncertain, no one disputes that the virtual currency has been slow to catch on: on a good day, Pattaya Beer Garden in Pattaya, Thailand, gets two customers who pay with Bitcoin. In neighboring Cambodia, Bitcoin remains a “geeky expat thing,” according to hotel owner Racine. Since Auberge du Soleil opened in February, only one guest has tried to pay with Bitcoin, a transaction that was ultimately unsuccessful due to logistical issues.

“As he left very early morning when I was still asleep, he ended up paying cash,” Racine said.

Tech in Asia editor Anh-Minh Do was skeptical that Southeast Asia would spearhead the Bitcoin revolution.

“Bitcoin hasn’t taken off worldwide so even looking in Southeast Asia doesn’t quite make sense to me yet,” he said. “Until it becomes easier to get and give Bitcoin, there’s going to be slow adoption.”

Boston University professor Mark T. Williams, who recently testified about Bitcoin to the U.S. Congress, warned that the currency would be “dangerous to consumers” until regulation was implemented.

“Unlike traditional money transfer systems, there are no consumer laws to protect against theft and loss of money,” he said. “Bitcoin has the potential to reduce the cost of global money transfer, but to mitigate the risks there need to be global standards, uniform regulation and central bank oversight.”

The lack of such oversight – and the uncertainty about what it would entail – makes many retailers reluctant to start accepting Bitcoin.

“No Asian country has made a clear positive statement about Bitcoin. Retailers are all waiting for the regulators. The regulatory definition could potentially accelerate the arrival of big players,” said Aurelien Menant, CEO of Hong Kong-based Gatecoin, the first global Bitcoin exchange.

Or it could do the opposite, as in Taiwan, where the government refused to allow Bitcoin ATMs. The Chinese government’s strict controls have also deterred the development of Bitcoin on the mainland: while mining and trade are concentrated in the country, few startups or merchants use it. Australia’s tax office recently instituted a “double GST” policy, meaning that the virtual currency would not be treated like money and businesses would be taxed for using it.

“If any ASEAN country were to institute something like that, it would drive Bitcoin underground overnight,” Buenaventura said.

In Vietnam, the future of Bitcoin is still uncertain. Three men in the southern province of Khanh Hoa were arrested in March for trading Bitcoin. In October, the prosecutor dismissed the charges, stating that the transaction was not illegal since Bitcoin was not banned.

“Bitcoin is not accepted by the Vietnamese authorities as a legal means of payment. However, the government has not issued any formal document or provided a legal framework to ban Bitcoin transactions. Due to the lack of legal framework, some websites still permit Bitcoin payments, even for shopping online,” said Huynh Cong Tam, senior associate at Ho Chi Minh City law firm Russin & Vecchi.

Bitcoin Vietnam founder Weil was unperturbed, although he acknowledged that the stakes were high: “If the government were to ban it, you couldn’t run a legit business.”

Le Duy Binh, managing director at consulting firm Economica Vietnam, viewed the fact that the state bank “prudently” held off from cracking down on Bitcoin as an encouraging sign that “there might be a future for Bitcoin in Vietnam.” However, he didn’t expect the currency to be recognized any time soon.

“If Bitcoin was recognized as a currency in Vietnam, the government and central bank would have to completely change their mindset. Bitcoin does not need the central bank. That makes them really concerned,” he said. “Monetary authorities in Vietnam aim to maintain a balance between goods and money supply, directly intervening when necessary to preserve this equilibrium. Bitcoin would deprive them of control over the money supply.”

Libertarian Appeal

Bitcoin’s appeal goes far beyond its role in online payment. Advocates see the virtual currency as an economic equalizer, creating social change in the same way that the Internet did two decades earlier. BitMEX co-founder Hayes told me that companies using Bitcoin for remittances were “liberating low-income people from the rapacious Western Unions of the developing world.” Weil asserted that the technology had the potential to be the “second digital revolution.”

“I really like that no one controls the system,” Bspend co-founder Kajic said. “In Vietnam, the government has massive restrictions on money flow in and out of the country. But they cannot control Bitcoin. You can send $100,000 out of the country and no one will know.”

Writing in the New York Times, economist Paul Krugman takes a less benign view.  “Bitcoin fever was and is intimately tied up with libertarian anti-government fantasies.” However, not all Bitcoin advocates are opposed to regulation. Weil differentiated the “legit business” of Bitcoin Vietnam from the underground economy, saying that making the virtual currency legal would encourage mainstream adoption.

“Libertarians are in fact an obstacle for Bitcoin development,” said Giang Le, research director at Tactical Global Management. “Law enforcement and government endorsement are needed to make it mainstream. Only then will banks and businesses start using it as a mean for transactions.”

As Bitcoin continues to grow, this divide could likely expand. One of Asia’s firmest believers in libertarianism is millionaire investor Roger Ver, referred to in some circles as Bitcoin Jesus.

“People living in countries with the most restrictive laws have the most freedom to gain from using Bitcoin,” Ver told me. “Bitcoin gives each individual complete control over their own money regardless of what laws stupid politicians pass. It will bring economic freedom and inclusion to everyone on the planet.”

Yolo Cafe owner Hung wasn’t convinced.

“It’s a nice idea, but some governments don’t like feeling that they can’t control their people or the economy. I don’t think it can be realized,” he said.