We had an interview with Vijay Ayyar, Head of Business Development at Luno, to explore how Asia is leveraging on Bitcoin and blockchain technology.
BitX (Today called Luno, London) is a universal Bitcoin platform that provides highly secure mobile wallets, institutional quality exchanges, and various APIs for merchant and other business integration. The company started out building Bitcoin and blockchain systems for financial institutions, and was an early player in developing a fully-integrated Bitcoin system for a major multi-national bank.
Q: HOW DO CURRENT PLAYERS IN BANKING / PAYMENT LEVERAGE BLOCKCHAIN TECHNOLOGY IN ASIA? DO YOU HAVE EXAMPLES OF EXISTING BLOCKCHAIN PROJECTS BY BANKS OR OTHER FINANCIAL ORGANIZATIONS?
Bitcoin is currently still the best and most well known application of Blockchain technology. It enables two parties to send money (Bitcoin) to each other instantly, at low fees. It makes sending money seem like sending a message or email. A year back, banks started realizing the value of this technology. But they weren’t interested in using Bitcoin (the token that helps run the Blockchain). They were interested in using the Blockchain to transform how they do business by essentially removing the need to maintain multiple copies of information. The whole concept of private blockchains thus came into prominence whereby, banks and financial institutions aimed to develop private blockchains amongst themselves to make trade settlements and other forms of financial transactions.
A number of organizations are core to this development process. The key one among them is R3, which is a consortium of over 60 banks worldwide that is currently testing a private blockchain for inter-bank cross border payments. In this particular test, R3 used Ripple’s technology to rebalance their liquidity positions. Another example is one by the Commonwealth bank of Australia that undertook a global trade transaction with a bank in the US that involved shipment of cotton. The trade involved an open account transaction, mirroring a Letter of Credit, executed through a collaborative workflow on a private distributed ledger between a seller, a buyer, and their respective banks (Wells Fargo and Commonwealth Bank).
There have been similar smaller efforts worldwide, but none have actually come out of the proof-of-concept (“POC”)/pilot stage and there seems to be a sense of blockchain “hype” more than actual use cases at this point. However BitX recognises that most financial institutions will realise the limits of ‘blockchain only’ and instead re-focus efforts on decentralised digital currencies as time progresses.
Q: DO YOU KNOW OF ANY STARTUPS IN ASIA TRYING TO LEVERAGE BLOCKCHAIN TECHNOLOGY FOR INDUSTRIES OTHER THAN FINANCE? FOR EXAMPLE: COUNTERFEIT PRODUCTS TRACKING, SMART CONTRACTS AND SO ON.
There are a number of startups globally trying to leverage the blockchain for various use cases. Asia has been a bit slow to catch up to be honest. There are a number of them that we’re aware of through our general network. The folks at Attores are building a digital signing 2.0 platform, wherein every signature is logged onto the blockchain, thus providing an immutable trail of transactions. They also have an ability to create digital certificates on the platform, whereby institutions can now start issuing various certificates like degrees and diplomas on the blockchain in the form of smart contracts.
Another example is Bluzelle, which has built a platform that works with multiple blockchain protocols and provides several applications such as real time payments, smart contracts, and records management.
Digix is an asset tokenization platform for proving asset ownership on the blockchain. Essentially one is able to buy gold assets using Bitcoin or Ether.
Q: HOW WOULD BITCOIN PUT PRESSURE ON EXISTING PAYMENT SYSTEMS TO ADAPT?
Like I mentioned, Bitcoin is a revolutionary technology which enables 2 parties anywhere in the world transfer value to each other without trusting each other. Bitcoin does pose a viable threat to how we have traditionally viewed money and its flow through the economy. Every business needs to be aware of disruptive ideas and prepare accordingly. Typically, legacy businesses find it difficult to accept and adopt any new technology since the cost of doing so would involve disrupting their current business model. It is also possible that existing payment companies may very well enable people to make Bitcoin transactions and payments in the future.
Q: DURING A BITCOIN TRANSACTION, HOW IS THE DATA SECURED AND WHAT KIND OF POLICIES ARE MAINTAINED?
Security is an extremely important topic when it comes to Bitcoin since this is people’s money we’re dealing with. One common misconception amongst people when Bitcoin is stolen or hacked is that Bitcoin is unsafe. That couldn’t be further from the truth. The Bitcoin blockchain has never been compromised. When a hack happens, it is due to a lack of effective security controls at the exchange or wallet that stores the Bitcoin.
At BitX, we make this paramount. When someone signs up with BitX, we encourage the person to make sure their account is 2FA (Two Factor authentication) secured. That means they effectively need two passwords to sign in to their account and make any changes or transactions. This increases the security of their account multifold.
We also make sure that our internal security controls are of the highest standard. We place limits on instant buy/sell transactions, have red flags raised automatically when our systems notice any unusual activity and use sophisticated software such as Chainalysis & Elliptic to track and monitor all transactions.
With regard to storage of Bitcoin we adopt a highly secure hot/cold wallet system whereby a large percentage of our customer’s Bitcoin funds are stored in cold storage. This means that those funds are “offline” and are impossible to gain access to.
We recently published a detailed blog post about Bitcoin security on our blog and we urge readers to check it out here. The other thing I would urge people interested in buying Bitcoin to do is to thoroughly research the service provider you intend to buy Bitcoin from.
Q: WHAT IS YOUR OPINION ABOUT BITCOIN USAGE GROWTH IN ASIA?
From our perspective, Bitcoin is slowly gaining mainstream adoption in Asia. We see this everyday in the numbers we track in terms of signups, transaction volumes, etc. There are a number of Bitcoin exchanges across Asia now present which brings a certain healthy competition and maturity to the industry. We see ourselves as the largest Bitcoin wallet and exchange across Southeast Asia. Malaysia is one of our largest markets and the volumes we see there are quite large. We launched Singapore and Indonesia recently and have been gaining traction quite quickly.
The use case for buying Bitcoin is currently quite simple – most people either buy it for speculation or for trading the asset. The volatility of the price makes it particularly attractive for traders. People who have bought Bitcoin as a store of value have been quite happy with the performance of the asset. It has been one of the best performing assets globally over the past year. On the day of Brexit, Bitcoin as an asset class returned 7.1% compared with Gold which returned 4.7%.
There are a number of people who use Bitcoin as a payment mechanism as well. Cross border e-commerce is one of the most popular use cases here since credit card penetration is quite low in the emerging markets and using bitcoin avoids the whole issue of charge backs for a merchant. In Indonesia for example, quite a few people who own Bitcoin use it to buy prepaid talktime.
What we have also seen is the rise in institutional interest – high net-worth individuals (“HNIs”), private funds wanting to allocate a percentage of their funds to this emerging asset class. This trend we feel will only grow over the coming months and years.
We are always testing various use cases with our users, but currently our aim at BitX is to make our platform the easiest, fastest way for anyone to buy/sell/store Bitcoin.
Q: COULD YOU SHARE MORE ABOUT BITCOIN CLOUD MINING?
If one wants to invest in Bitcoin mining without the hassle of managing your own hardware, you can join a Bitcoin cloud mining service to earn Bitcoin. Put very simply, cloud mining means using shared processing power run from remote data centres. One only needs a home computer for communications, optional local bitcoin wallets and so on.
In general, there are 3 forms of cloud mining:
- Hosted mining: Lease a mining machine that is hosted by the provider.
- Virtual hosted mining: Create a (general purpose) virtual private server and install your own mining software.
- Leased hashing power: Lease an amount of hashing power, without having a dedicated physical or virtual computer. (This is, by far, the most popular method of cloud mining.)
The important thing to keep in mind though is for users to be careful about doing their research before joining any of these cloud mining services. There are a lot of them that are also scams, hence people need to be careful.
Q: EACH COUNTRY IN ASIA VIEWS BITCOIN REGULATION DIFFERENTLY. WHAT IS THE REASON BEHIND SUCH REGULATIONS IN EACH COUNTRY AND WHY IS BITCOIN NOT DEFINED IN THE SAME WAY IN ALL THE REGIONS?
Most countries around the world are currently unsure of how to regulate Bitcoin. This is normal with all new disruptive technologies. Some countries though are taking more of an initiative in regulating the currency. The state of New York has something called a BitLicense which is its regulatory framework for digital currency companies. Japan recently passed a bill that mandates the regulation of bitcoin and virtual currency exchanges by its Financial Services Authority (FSA). So as you can see, there are steps being made to bring all of this under the regulatory umbrella in different ways based on how each country views Bitcoin. We are currently working very proactively with a number of governments and regulators around the world to help create local policy, provide education, and ensure the needs of all stakeholders are met.