Why is Asia so obsessed with cryptocurrencies?
Cryptocurrencies have entered the mainstream for a while now, buoyed by a mix of controversy, investor interest, and, well, ramblings by influential personalities (read: Elon Musk).
But what exactly are cryptocurrencies, and why are they so popular here in Asia?
Tech Wire Asia explores.
Cryptocurrencies: Their science explained
Cryptocurrencies are essentially digital or virtual currencies secured by cryptography, which is a class of security techniques that encrypts data to ensure only the receiver and the sender receive them.
While not impossible, cryptography-secured information can be exceedingly difficult to “hack” into or be tampered with. This thus makes cryptocurrencies almost impossible to counterfeit or double-spend and hence are seen as secure.
This security feature of cryptocurrencies is primarily based on the nature of the technology powering them — blockchain.
A blockchain is a highly secure, decentralized database system that stores records of data in a cryptographic format. Unlike normal databases, blockchain data created by users (transactions) are not stored in a central location (like a data server).
Instead, they are stored on the machines or systems of the people who create the data, across a network. As creators store that data themselves, they ‘own’ their data, thus the system is considered ‘decentralized’.
Normal data stored on data servers risk being accessed and/or manipulated by the data server owner, or may even be lost due to accidents; also, it may be difficult to have a record of these events.
However, with blockchain, every transaction created and recorded is permanent and secured with a cryptographic ‘lock’, and the transaction is broadcasted to everyone who owns copies of the blockchain. It is immensely difficult to hack into it to change transaction details, hence why blockchain is transparent and trustworthy.
Cryptocurrencies: Their popularity explained
Popular cryptocurrencies such as Bitcoin (BTC) are exceedingly lucrative because of their privacy and security features, as well as their high valuations.
Cryptocurrencies are also often decentralized, meaning their transactions cannot be traced or linked to individuals, hence offering privacy for their owners.
Importantly, this also means that cryptos are virtually immune to interference or manipulation by governments.
As such, they can understandably be in competition with centralized currencies, such as fiats issued by central banks.
In May this year, financial giant Goldman Sachs reversed its previous anti-crypto stance, declaring that cryptocurrencies are, indeed, viable as an asset class.
However, the prices of cryptocurrencies such as Bitcoin are extremely sensitive to the smallest of movements in markets, economies — and even to influential people on social media.
Bitcoin’s long history of price volatility has seen it grow from barely US$1,000 per coin into the tens of thousands.
It reached its peak valuation this year when it hit a record US$68,521 per coin.
You can think of cryptocurrencies as high-risk, high-value investments — able to rise to insanely high valuations but also crash so hard.
Even so, that has hardly made a dent in its popularity.
Earlier this month, the value processing of popular crypto Bitcoin had surpassed that of Paypal’s — even making up a chunky 27% of Mastercard’s transactions.
Additionally, an increasing number of investment funds and banks are now adjusting their services to make crypto trading more accessible to investors, too.
The popularity of cryptocurrencies in Asia
Cryptocurrencies are so popular here that recently, Mastercard teamed up with three leading cryptocurrency service providers in the Asia Pacific and launched their own crypto-funded Mastercard payment cards.
In Singapore, more people are trading crypto or using them to pay for goods or services as more places accept cryptocurrencies as payment.
In Thailand, the Siam Commercial Bank had also recently acquired a 51% controlling stake in local cryptocurrency exchange operator Bitkub Online.
Even the Commonwealth Bank of Australia recently announced that it was providing crypto trading services.
On the other side of the coin, however (pun unintended), some countries appear to be obsessed with pushing back against cryptocurrencies, partly because of how harmful it is for the environment (especially bitcoin mining), can facilitate criminal activity, and increase crypto scam activities, among others.
Case in point: China’s longstanding ban of any and all crypto activity in the country.
Observers, however, argue that China’s dogged pursuit of wiping out crypto is likely because they pose a threat to the government’s push for their own sovereign digital currency (CBDC), the digital yuan.
India, which banned cryptocurrencies in 2018, has softened its stance a little as the Supreme Court overturned the ruling in 2020. It will, however, be pushing for stronger regulations soon.
So why is Asia so obsessed with crypto?
And yes, including, and especially, China.
As compared to the rest of the world, the adoption rate of digital (especially emerging) payments is better in Asia, according to Mastercard Asia Pacific’s executive vice president, digital & emerging partnerships and new payment flows, Rama Sridhar.
Asia also has a high population of consumers who operate across borders, whether via online purchases or physical travel. As such, there is a higher expectation by consumers here, as opposed to the West, to have more seamless, global, and interoperable frameworks for payments.
The Asia Pacific, especially ASEAN, is home to the largest number of underbanked and unbanked populations, meaning to say, they either do not have bank accounts or do not use financial and credit services by banks.
Furthermore, typical investment options such as accessing shares and stocks are often out of reach financially for many, due to the high starting costs involved.
And the thing about cryptocurrencies is that they are virtual/digital, borderless, do not require a high amount of initial financial investment, and importantly — aren’t bogged down by the usual red tape from banks. All you need is a digital wallet to hold your cryptocurrency, a crypto exchange in your region, and you’re good to go.
Conversely, transacting digitally with a bank account, for example, can be quite a hassle, in that one needs to create that account, which takes time; deal with app limitations and service downtimes, and other complexities of banking services.
In the Asia Pacific, governments have taken notice of the immense popularity and demand for cryptocurrencies, so much so that APAC leads the world in cryptocurrency regulation.
Asian consumers are ravenous for faster, safer, and more hassle-free payment options, something which cryptocurrencies can offer, aside from other real-time payments.
Understandably, all these together make it attractive to Asian crypto owners to transact, own and/or hold financial assets.
So what’s the takeaway, then?
Well, if you’re intending to do business in Asia, it might be wise to consider accepting not just digital payments, but cryptocurrencies as well — and sooner, rather than later.