Bitcoin has brought incredible profits for some but risks clearly await those who seek likewise
With growth in value of more than 1,000 per cent over the last two years there can be no doubt as to why Bitcoin created a mad rush worldwide and also in Vietnam. The story of the grounded depreciation of Liberty Reserve (LR), a private currency belonging to the same website that was demolished by US security agencies due to links with money laundering, is not too distant however. “My friends and I lost thousands of hard-earned dollars in this game,” said one Vietnamese LR investor. “Now it’s all gone and there is no one to complain to, as the transaction nodes have simply disappeared.” The LR case should be a cursory tale for ambitious Vietnamese Bitcoin investors, especially those who may not be equipped with sufficient knowledge of the field.
Online payments that bypass the banking system are nothing new, as the popularity of Paypal attests. This type of transaction, however, is not considered “anonymous”, as Paypal charges for transactions and so knows the personal details of both the buyer and the seller. Bitcoin is different. There are no other parties besides the buyer and the seller so identities cannot be confirmed.
Most countries around the world prohibit private institution and individuals from issuing their own currency or substitute currency. In addition to political and cultural aspects, there are essential economic reasons for the State to hold the monopoly on money issuance, such as control of the financial market through fiscal policies and the security of the national tax system. The characteristics of Bitcoin make it impossible for States to investigate or monitor economic activities in the system and, consequently, it becomes impractical for them to manage their financial markets as well as fight tax evasion.
Like the internet, Bitcoin has no limits (except for where firewalls are in place), which means it could feasibly become a currency for international payments. Using Bitcoin, a small wood supplier in Vietnam could receive payment directly from IKEA without a bank transfer, or a Vietnamese investor could conduct foreign exchange on a Hong Kong or Macau trading floor without experiencing any obstacles.
Analysts and experts have been wondering then whether Bitcoin is beneficial for people to use or a facilitator of money laundering and the sponsoring of terrorism. From a macro perspective, national and global, currency wars or currency speculators would vanish into thin air. Trade surplus or deficit would simply be the result of production capacity and saving ratios instead of being related to exchange rates. State banks would lose their role and may possibly disappear together with the concept of monetary and fiscal policies.
Many Vietnamese enterprises have started to accept Bitcoin in exchange for goods and services. “From my understanding, Bitcoin is not simply an online currency but a new safe transaction method that is accepted globally by well-known enterprises and brands,” said Mr Bui Huy Kien, owner of an online forum. He used Victoria’s Secret and a foreign astronautics travel agency as examples of the new trend and expressed his determination to become a pioneer in the use of Bitcoin in Vietnam.
He accepts Bitcoin as payment for advertisements and PR articles on his forum. “Not many enterprises are using the payment method but I believe that there will be more in the future,” he said. Not operating in an online environment like Mr Kien’s business, YOLO, a small coffee shop in Hanoi’s Cao Ba Quat Street, also accepts Bitcoin as payment.
Macroeconomic issues aside, such examples illustrate a notable degree of interest among small and medium-sized enterprises in Vietnam. Both Mr Kien’s online forum and the coffee shop emphasised their determination to fulfil their tax obligations. Large enterprises, however, remain cautious and are watching developments.
Placing himself in the position of a small investor, Mr Phan Dung Khanh, Head of Maybank Kim Eng’s Analysis Department, listed various risks that one may encounter with Bitcoin. Firstly, he emphasised that as Bitcoins are stored digitally and their use must be connected to the internet, users could lose everything if this digital storage becomes damaged or corrupted or if their accounts are hacked. Such misfortune can happen with any type of currency, but the remarkable fluctuations in the value of Bitcoin, which can sometimes see an 80 per cent decline, must be given careful consideration when someone decides to open a “Bitcoin portfolio”.
It is also important to bear in mind that Bitcoin does not go through any central payment system supervised by reputable financial institutions. “A currency must be issued by a State bank and so Bitcoin cannot be considered a currency, and if legal disputes arise then the owner cannot avail themselves of any legal jurisdiction to seek remedy,” said Mr Tran Minh Hai, Partner at the Basico Banking - Securities - Investment Law Firm. There is no legal framework in Vietnam for the currency as yet so if the Bitcoin system suddenly stops then there is no specific responsible party to blame and ask for reimbursement.
The Central Bank of China had recently implemented quite aggressive moves against Bitcoin by prohibiting financial institutions from trading in the virtual currency. “I believe this is a good step to take and Vietnam should also consider prohibiting trading in the virtual currency for real money and vice-versa,” said Mr Nguyen Tri Hieu, a senior Vietnamese economist. Acknowledging that not all virtual or online currency transactions are illegal or questionable, he still believes it is better to ban Bitcoin and any other virtual currencies in Vietnam in order to control and eliminate their negative impact on the orthodox monetary system and, consequently, the economy. “To do this, however, authorities may also need to map out a route or schedule and announce official warnings, so that existing investors have time to prepare divestments,” Mr Hieu added.
Mt.Gox, which was once the largest and busiest Bitcoin trading site, is now almost deserted. It was a victim of a cyber attack not too long ago and its Bitcoin investors stand to lose billions of dollars in total. On its homepage, a so-called “Important announcement to all users confirming their account” states: “Please be aware that confirming your balance on this site does not constitute a filing of rehabilitation claims under the civil rehabilitation procedure and note that the balance amounts shown on this site should also not be considered an acknowledgment by Mt.Gox Co., Ltd. of the amount of any rehabilitation claims of users.” The announcement is certainly something for investors to think about before reaching into their pockets and pulling out their wallets.
Friedrich Hayek, an Austrian and later British economist and philosopher best known for his defence of classical liberalism, once dreamed of a competitive currency that belongs to no nation. As things stand now with Bitcoin, his dream remains just that.
A source from the State Bank of Vietnam (SBV) affirmed that according to existing legal provisions the Vietnam Dong is the only legal means of payment within the territory of Vietnam. Therefore, the SBV and the government do not recognise Bitcoin as a payment facility within Vietnam’s territory and, hence, are not responsible for adjudicating disputes arising from Bitcoin transactions.
The SBV has officially given warnings regarding the risks of trading in Bitcoin and using Bitcoin as a payment facility. It is examining the matter and will soon present to the government an online currency trading framework for approval.