What Does Indonesia's Bitcoin Ban Mean For the Future of the Cryptocurrency?
Bitcoin, the popular cryptocurrency, is the latest technology to face a ban in Indonesia after central bankers warned that it posed a threat to the stability of the national currency. The move, if enacted, would make Indonesia the second country in the region to ban Bitcoin after China announced plans to ban the currency in September.
But how, exactly, do you ban an anonymous currency that lives as ones and zeros online? Bank Indonesia is starting with the transaction services. The central bank wants to ban any tech company, e-commerce site, or payment system that accepts Bitcoin as a valid payment in Indonesia. That means you can't use your Bitcoin wallet to buy a pizza or purchase airline tickets in Indonesia.
The concern here is that Bitcoin could be used for money laundering or terrorism, according to central bank officials. They were also concerned that Bitcoin could destabilize the Rupiah—one of the most-volatile currencies in Southeast Asia.
“We will ban financial technology, e-commerce, and payment system services company that use and process virtual currency," Agus Martowardojo, the director of Bank Indonesia, told the industry news site Tech in Asia. "We will also encourage companies not to work with any parties facilitating virtual currency transactions."
But Bitcoin is more than a way to buy things in the real world. It's also an investment for traders and miners who don't mind the risk. The price of a single Bitcoin hit $11,000 USD last week, an insane level of growth considering that the cryptocurrency was worth a single US dollar when it was launched in 2010. So will Indonesia's nascent Bitcoin scene continue mining and trading the currency regardless of the ban? Probably, said Dimaz Wijaya, the founder of the virtual currency trading site Kriptologi.
It's impossible for a government to block the entire Bitcoin ecosystem or prevent someone from mining the currency—a costly process involving servers performing complicated equations to "mine" for a set number of Bitcoins still out there in the wild, Dimaz explained. Even a block on payment systems or trading sites won't stop Bitcoin users from converting their digital currency to cash, he told VICE.
"If the market is frozen, then people won’t be able to conduct transactions," Dimaz said. "But this is only temporary. It’s impossible to ban Bitcoin since it’s autonomous and decentralized."
It's also near-impossible to ban peer-to-peer transactions, which means that even with a ban Bitcoin could still be used for two of the central bank's three listed concerns—funding terrorism and money laundering. Anyone with an active Bitcoin wallet could just move their currencies out of the jurisdiction of the Indonesian central bank, Dimaz said.
“Simply put, users can easily move their transactions abroad using other currencies, for example US dollars,” Dimaz said.
That's exactly what happened in China. The county banned the use of Bitcoin in early November, triggering a short-term dip before the currency rebounded as users found work-arounds to the government's ban. Chinese money continued to flow into cryptocurrency investment projects and the market shifted to peer-to-peer transactions instead of big, open fundraising efforts for other startups, according to reports at the time.
Still, the ban has already forced two trading sites to shut their doors. Toko Bitcoin and Bitbayar shut down in early November, with Bitbayar canceling contracts with more than 1,600 merchants who were willing to accept Bitcoin as a valid form of payment.
So what about the third concern of Bank Indonesia regulators, that cryptocurrencies like Bitcoin could destabilize the Rupiah? It's unlikely because Bitcoin was never really all that popular here anyway. According to some estimates, there were about 500,000 Bitcoin users in Indonesia. Today, there are more than $10 million USD in Bitcoin transactions occurring in the country every day.
But even that volume only accounts for some 4 percent of total global transactions, explained Oscar Darmawan, the CEO of Bitcoin Indonesia, in an interview with VICE. Oscar expects this figure to rise, not fall, after the ban, in a large part because of Bitcoin's global nature. Basically, if the digital currency is still valuable abroad, then it's still valuable here.
“The analogy is simple, it’s like Indonesia is not willing to accept gold as payment, when other countries place a high value on gold," Oscar told VICE. "Asset such as Bitcoin or gold are free of boundaries."