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Aug 26, 2013 Will Bitcoin be accepted by emerging markets in Asia?

Bitcoin is the world’s most famous and controversial digital currency now. Of late, we read something in the news daily about this ubiquitous cryptocurrency, which has evolved into a major subject of interest particularly with regulators. Bitcoin seems to be the next big thing after PayPal.

Despite the fact that the Federal Reserve and government regulators of many countries are working to stomp out the growth of Bitcoin, it seems to be catching on and looks like emerging markets may embrace it whole heartedly.

In Asia, Thailand has taken a lead and banned Bitcoin. However, Singapore appears to be tolerant and there are many ways you can convert SGD to Bitcoins and vice versa. In fact, there is a Bitcoin exchange that is up now- ).  Germany has officially announced it to be treated as a unit of exchange and be subject to all regulations. UK seems to be very keen to promote Bitcoin and London is now the centre of Bitcoin distribution.

Starting this September, Lamassu, is rolling out an ATM-style device that will accept cash in exchange for Bitcoin. Today, Bitcoins must be extracted to a Bitcoin wallet, but the machine will bypass the difficulties of buying Bitcoin online in markets where major payment gateways aren’t supported.

So, how will the other emerging markets in Asia respond to the Bitcoin movement? Will countries like India (which is going to see Bitcoin as Buttercoin put sandbags to protect themselves or allow digital currencies to take their own course?

Here are the 7 key factors that are impeding the runaway growth of Bitcoin and other such alternative digital currencies and which need to be addressed by issuers to succeed in Asia:

1) Complexity :
The currency cannot be seen as anything more than a commodity of exchange. Presently, the entire concept of Bitcoin is opaque and its facets like digital ‘mining’ makes it appear to be a technology product than a medium of exchange. Today to generate the currency; ‘miners’ have to process a complex algorithm, which can be simplified.

So, the killer app for Bitcoin is to shed its jargon and be something that the consumers can easily relate to.

2) Unknown Risks :
Apart from the usual risks of volatility and valuation risk that any currency has, Bitcoin tends to present itself to consumers and to a variety of merchants who accept the currency, as an esoteric entity with many layers of hidden risk. To accepted widely, it needs to be transparent, open and completely self sufficient.

3) Limited avenues of exchange :
To really make a mark, Bitcoin needs to offer a large, all pervasive exchange platform where consumers and merchants can be connected to enable transfer of goods and services at notified values.
 It wouldn’t be an exaggeration to state that Bitcoin needs to build exchanges akin to the card networks like Visa and MasterCard. The world needs to see exchanges that are trusted, resilient and functions seamlessly.

4) Funding and Liquidity :
There are many countries across the world (e.g. Zimbabwe) whose currency management is in a complete mess. There are more countries battling volatility and speculative trading of currency than the world can manage!
Bitcoin could serve as a viable official alternative digital currency, if backed by global institutions like IMF or even sovereign governments.

Bitcoin would have to have more liquidity, and backed by adequate security of natural resources like oil, commodities or any other country specific item of value.

5) Converting to cash :
We have seen the phenomenal growth of electronic payments through credit, debit and prepaid cards. In recent years, we have also seen the growth of alternative payments like PayPal and numerous forms of mobile payments which are all based on electronic exchange on value and ready convertibility to cash at par value.

Bitcoin needs to integrate into the mobile networks to gain ready access and conversion to a notional value.

6) Regulatory ‘tolerance’’ :
Bitcoin needs most is for governments and regulators to allow its existence and not jump into regulating it!
If governments across Asia and other emerging markets simply tolerate Bitcoin; they needn’t even encourage it; the sheer momentum of online acceptance and innovation will help it grow.

7) Continuous innovation :
As Bitcoin doesn’t suffer from the conventional drawbacks of paper currency, it is open to innovating itself to any degree. However, such innovation has to be tempered with realism of acceptance and palatability with regulators and consumers. Being a digital entity, there is no limit to the extent of flexibility and technological morphing.
However, this ability to crowd innovation could be the limiting factor with too many cooks spoiling the broth and over innovating beyond control.

To sum up, Bitcoin is the most exciting and fascinating development in the financial world in 2013. Its meteoric rise and visibility is a clear sign of how much our world has changed.
Bitcoin is here to stay; whether it will be a prominent part of our lives or remain in the sidelines is the question haunting regulators and consumers in the coming months.

Posted by Raj Dutta - Executive Director, Quatrro on Aug 26, 2013 04:22PM

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