Why Singapore doesn't need Bitcoin

The island will get its first Bitcoin ATM in March, but does it really need another currency which main appeal is the anonymity it offers, especially since Singapore is reportedly susceptible to money laundering?
Written by Eileen Yu, Senior Contributing Editor

It's cool, it's hip, and it's virtual. Bitcoin has garnered much attention the world over, including here in Singapore where news broke this week that the island will be getting its first Bitcoin ATM. The question, however, is whether the country needs another currency, especially one that carries with it inherent risks.

Singapore-based trading platform, Bitcoin Exchange, purchased a Lamassu system and is scouting for a location to place the ATM, which will begin operation in March. The company plans to acquire more units if demand grows, according to Bitcoin Exchange's director Zann Kwan.

She told local newspaper MyPaper that Bitcoin buyers in Singapore currently need to wait at least a day after transfering money, including service fees, to an overseas exchange before they receive their Bitcoins. "This is not cheap and defeats the concept of bitcoin... A Bitcoin vending machine makes it very easy and safe to buy Bitcoin, and avoids such additional costs and other risks," Kwan said, pointing to the possibility sellers might default on the transaction.

She told CoinDesk.com the company had yet to decide from which exchange it would base its rates. "There are a few bars that are accepting Bitcoins now and people are talking about it, but you need a few people to start the ball rolling, then the momentum will pick up," she added.

According to Lamassu, an ATM unit is priced from US$5,000 and can issue Bitcoins in 15 seconds. Another Bitcoin ATM manufacturer, Robocoin Technologies, last month said it was negotiating plans to bring its kiosks to Hong Kong.

While countries such as China and Thailand--and possibly India and Indonesia--have outlawed the use of the currency, Singapore has chosen a different route by choosing not to regulate it, but warning businesses and individuals they will trade with Bitcoin at their own risk. The country's Inland Revenue Authority last month outlined tax requirements for transactions involving the digital currency.

That my government has somewhat embraced Bitcoin isn't surprising, since it traditionally has been deemed to be business-friendly. In its annual report released last October, the World Bank again ranked Singapore the world's easiest place in which to do business, offering the most business-friendly regulatory environment for local entrepreneurs.

Inherent risks may damage Singapore financial reputation

This friendliness, however, has brought with it global critics who say the nation has become a tax haven and hub for money laundering activities.

Add Bitcoin to the equation, and such risks may exacerbate. The currency's biggest appeal is the anonymity it affords its users, and it is this trait that has led to the associated risks, including money laundering and funding of illegal activities.

In a risk assessment study released last month, the Singapore government said the country was potentially susceptible to money laundering and terrorist financing, adding that some sectors needed stronger oversight to mitigate such risks. The report assessed 14 financial and 8 non-financial sectors in the country including banks, money changers, casinos, and money lenders. It noted that internationally-oriented and cash-intensive sectors, in particular, were at risk. "Full banks face higher inherent risks, owing to their large customer volumes and the international nature and the international nature of their transactions," it said.

Bitcoin also is international by nature, as is its transactions. Furthermore, its appeal to buyers and sellers who seek anonymity has led to illegal activities and the sale of contraband goods, some of which eventually shut down sites such as Silk Road and Sheep Marketplace.

It is such risks that have led China and India to warn against the use of the digital currency. Nonetheless, this hasn't stopped retailers and consumers from lapping up the currency of the month.

A "cool" novelty for merchants, but not compelling payment option

Some merchants in Singapore have started accepting Bitcoins, including Bartini Kitchen, Squash Passion, Artistry, and Hospoda Microbrewery. I asked fellow ZDNet blogger and restaurant owner in Singapore, Howard Lo, if he planned to follow suit. Here's his reply:

"Bitcoin is cool and I think there's a certain PR value for accepting Bitcoins. The geeky folks, of which there are many in Singapore, would probably come check you out just to see what it's like to do a transaction using Bitcoins.

But is it worth training the staff and implementing the infrastructure to support Bitcoins? To be honest, I don't know what is needed to actually accept Bitcoins. I imagine it's just an electronic transfer into the Bitcoin account. But I'd want to figure out if it is worth the tradeoff in time to support just 1 or 2 people per week who might actually pay by Bitcoin.

The fluctuation in the value of Bitcoins is worrying. There's the possibility of making a lot just from that fluctuation, but what if the value drops dramatically? Alternatively, do I convert the Bitcoin into Singapore dollars at the end of each night? That could be a hassle.

And how do I display my prices in Bitcoin? Let's say a S$15 lunch set...do I change the Bitcoin price every day since the currency fluctuates so much?

I'm not concerned about someone hacking my Bitcoin account, but I will need to look into what kind of Bitcoin fraud happens. Whether it's a customer perpetrating a fraud on me or someone pretending to be my restaurant and somehow getting money from someone else."

Indeed, money laundering risks aside, there remains many questions about the viability of Bitcoin. Why would it appeal to Singapore consumers who already are used to cash, electronic payment NETS, credit and debit cards as payment options?

Sure, Bitcoin is universal and currency-agnostic, but purchasing in a foreign currency isn't an issue for Singaporeans who are very familiar with e-commerce. The one attraction in this case would be the ability to transact in a currency that's stable so online shoppers will know how much they're spending and won't lose out in the local-foreign exchange. But with its highly fluctuating and volatile state, Bitcoin currently is unable to offer this.

And for the merchants, as Howard pointed out, there currently are few reasons for him to want to offer it as a payment option.

In the Sheep Marketplace incident, Reddit user "kyerussell" rebuked anyone for thinking they could get their money back. "It seems that this subreddit is full of people that don't understand the fundamentals of bitcoin and somehow think that this'll result in people getting their money back. It won't. That's the point of bitcoin... You aren't going to get anything back. None of you are going to get anything back, and it's by design. This is EXACTLY how Bitcoin is supposed to work. Bitcoin would be fundamentally broken if you somehow got your money back."

And unlike theft of real cash, it remains to be tested if there will be legal recourse for the loss of the digital currency. As a ZDNet reader pointed out: "Really, I would say it is exactly like black market cash."

With all the associated potential risks, and many unanswered questions, there is little reason to choose to transact in Bitcoin over traditional payment options. If its value stabilizes, and governments start recognizing it as a legal currency with a proper framework for consumers to seek recourse, perhaps then. But, just not right now.

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