In one of my talks, I asked the audience of about a hundred millennials these questions: “Who knows what blockchain is?” Ten raised their hands. “Who knows what cryptocurrency is?” About twenty.
“Who knows what bitcoin is?” Almost all raised their hands. But when I asked further, the audience referred to bitcoin as a form of investment.
The responses were not surprising. Bitcoin owes its popularity to the hype heaped on it in the last few years, culminating in a peak unit price of $20,089 in December 2017 (which had Filipinos jumping onto the bandwagon), only to crash in the ensuing months. Blockchain and cryptocurrency, meanwhile, are still confined to the technocrats in the fintech and banking circles.
These terms, however, are all related. Blockchain is a decentralized, distributed, and oftentimes public, digital ledger that is used to record transactions across many computers so that any involved record cannot be altered retroactively without the alteration of all subsequent blocks. A key feature of blockchain is its state-of-the-art cryptography – a way of securing transactions. That’s why it gave rise to cryptocurrency, a digital asset designed to work as a medium of exchange that uses the strong cryptography feature of blockchain to secure financial transactions, control the creation of additional units, and verify the transfer of assets. Bitcoin is just a type of cryptocurrency.
Think of blockchain as the next generation internet and cryptocurrency as the unit of transaction that flows through it.
It’s important to define these terminologies because the understanding and utility of cryptocurrency among Filipinos will vary. For one, bitcoin in particular and cryptocurrency in general are seen by Filipinos in the know as an investment vehicle. It’s never an investment in the first place. Just like rare baseball cards or Beanie Babies, bitcoin is being driven to absurd prices by speculators, misinformed investors, and even gamblers who think they can sell to someone else for more money in the future.
At the onset of 2018, over $60 billion value was wiped off of cryptocurrencies as bitcoin dropped below $8,000. Speculation, misinformation, lack of information and gambling are all driving prices up and down.
The true value of cryptocurrency is in enabling digital payments and financial transactions. The country’s central bank potentially sees cryptocurrency as part of its bigger plan to advance the country’s electronic payment systems. The 2016 National Payment Systems Act, among others, “bolsters the central bank’s capacity to foster the efficiency of payment systems as pipelines of funds in the financial market,” according to central bank governor Benjamin Diokno.
In addition, the central bank recently approved three additional cryptocurrency exchanges, bringing the total to date to 10. The Cagayan Economic Zone Authority in the archipelago’s far north, meanwhile, has issued 19 additional permits as of October.
What augurs well with the regulatory openness to cryptocurrency is the boost from the private sector. For instance, Union Bank of the Philippines recently launched a stablecoin cryptocurrency dubbed PHX and became the first bank in the country to conduct transactions using blockchain technology. “PHX is a stable store of value, medium of exchange and is a programmable token with self-executing logic. It enables transparent and automatic execution of payments,” a Unionbank executive said.
Moreover, Filipinos are fast adopting digital payments and financial transactions, driven by the younger generation. GCash has reported a tenfold growth in registered accounts to 20 million users over the past three years. Rival Paymaya has millions of users as well. In the medium term, the appetite of Filipinos for digital payments will only accelerate as the quality and coverage of internet services in the Philippines become better, starting with the entry of a third telco and the national broadband nationwide rollout of the Department of Information and Communications Technology.
Already, there are close to 70 million internet users in the country with more than 50 million of them using smartphones. Internet services and smartphones will become more ubiquitous as prices move down fast, making these more accessible to more Filipinos.
To recapitulate, will Filipinos embrace cryptocurrency? The answer is yes, given all the drivers just mentioned. Filipinos just need to educate themselves to avoid getting scammed.
The author is president and CEO of Hungry Workhorse Consulting, a digital and culture transformation firm. He teaches strategic management in the MBA Program of De La Salle University. Email him at firstname.lastname@example.org.