Philippines' central bank advises due diligence on Bitcoin use
The Bangko Sentral ng Pilipinas has warned Bitcoin users to research more on the virtual currency to learn about its risksBy J. Angelo Racoma 11 Mar, 2014
Bitcoin is on the rise, both as a means of monetary exchange and as an investment instrument. The crypto-currency is extremely volatile, however, and is sensitive to market forces. Just recently, in the wake of the closure of Japanese Bitcoin exchange MtGox — which was once the biggest Bitcoin exchange — the value of the virtual currency suffered a drop from an average of about US$840:BTC1 to well below US$100:BTC1 before settling to $620:BTC1 in the recent days.
This does not mean that Bitcoin is bad, per se. The crypto-currency has been lauded for making online financial transactions faster and more secure, as well as cheaper. Everything is recorded on the public blockchain, and there are no double-payments. Transactions are also substantially less expensive than those that go through financial intermediaries.
Bitcoin’s decentralised nature a cause for concern
However, the very decentralised nature of Bitcoin is also cause for worry for regulators. Some jurisdictions have already issued warnings against the use of Bitcoin. Earlier this week, the Philippines, through the Bangko Sentral ng Pilipinas (Central Bank of the Philippines) made it official: the monetary authority is closely monitoring Bitcoin and has warned users of its potential dangers.
The public is hereby warned that such exchanges are not regulated by the BSP or by any regulatory authority in the country at this time. Thus, there are no existing regulations which would specifically protect consumers from financial losses if an organisation that exchanges or holds virtual currencies fails or goes out of business. Moreover, there is no assurance that the value of Bitcoin or any virtual currency would be stable. In fact, its value can be highly volatile.
The BSP media release seems to be carefully worded so as not to explicitly disparage Bitcoin in itself, as a means of investment or monetary exchange. However, warnings have been set against the potential of Bitcoin to do damage, in particular due to its unregulated nature. Because the BSP does not have jurisdiction over Bitcoin and transactions that go on within the bounds of Philippines Internet service providers, it will not be able to protect consumers from any losses arising from Bitcoin use.
Specifically, the BSP gives these reasons why consumers should watch out:
- Exchanges are unregulated, and therefore, there are no legal remedies for failures in exchange
- Virtual wallets can get lost or stolen
- Payments are direct and non-reversible, so there are no chargebacks or cancellations
- The value cannot be guaranteed, and Bitcoin’s value is volatile
- Virtual currencies may be used for illicit activities, and users will have no legal recourse should government agents close down a digital exchange for illegal activities
Do your research
Still, the circular has encouraged users to do more research to better understand the issues revolving around the virtual currency. “[T]he public is enjoined to familiarise themselves with some basic information on the subject,” the BSP writes. The central bank has explained the difference between Bitcoin and electronic cash — the latter is backed by actual commodities, like cash reserves, gold, silver and other such instruments used by the banking system to denote value. Bitcoin, however, is purely a currency in itself, and its value is only defined by factors like its own demand and supply, as well as the cost of “mining” each Bitcoin through cryptography.
Read Also: Why Bitcoin cannot afford to be unregulated
While mostly the realm of cryptography buffs and those on the bleeding-edge of technology, Bitcoin has recently gained momentum in the media, particularly with its being involved in the US-based “deep web” site Silk Road. Due to its semi-anonymous nature, Bitcoin had been the choice of currency for illicit trade on the site, which involved illegal substances and even hit orders.
Additionally, as its relaunch feature, Newsweek ran a story on who was believed to be the “real” founder of Bitcoin. While “Satoshi Nakamoto” was earlier believed to be a pseudonym, Newsweek journalist Leah McGrath-Goodman reportedly tracked down the founder to an actual Dorian Satoshi Nakamoto, an engineer with experience in cryptography and top-secret government projects in the US. The research has been met with criticism, even as Nakamoto himself denied involvement in Bitcoin, saying it was a misunderstanding that led Newsweek to conclude he was the Satoshi Nakamoto tied with Bitcoin’s invention.
A boon for remittances?
The Philippine monetary authorities’ official stand on Bitcoin might further fuel interest in the topic in the country, especially as quite a number of exchanges have been launching of late, including mBTC.ph, coins.ph and Bitcoin.ph.
The Philippines relies heavily on remittances from Filipino workers abroad. There are about 2.2 million Filipinos working as professionals and skilled workers around the globe. Foreign workers, or expats with relatives back home, have remitted US$25.1 billion back to the country through banks and remittance services in 2013 alone. Eliminating steep remittance fees would be a boon for Filipino families, reports CoinDesk, a popular online publication on Bitcoin trading.