Bit by Bit: The tempo quickens for local bitcoin industry

SINGAPORE — Hacking scandals, deep mistrust, massive volatility — for all the controversy and bad press it gets, bitcoin should be dead, done and buried. But the bitcoin industry here is actually gaining traction, with service providers rolling out more automated teller machines (ATMs) and point-of-sales systems and a slow but steady number of brick-and-mortar merchants getting in on the act.

Official numbers are not available, but industry players say there are about 16 physical retailers — mostly small businesses — that now accept the digital currency. This is a far cry from as recent as two years ago when there was no bitcoin eco-system. But still, industry players say, widespread public acceptance remains elusive and it could take up to a decade before more shops start saying “Pay us in bitcoins”.

Despite its name, bitcoin is a virtual commodity; there is no physical entity you can put in your wallet. The digital currency can be bought on online bitcoin exchanges, which operate much like any firm that exchanges currencies, or it can be purchased, sent and received between users via a mobile wallet app or an online account.

This month, local firm Tembusu Terminals — which in February launched what is touted as Singapore’s first locally-designed bitcoin vending machine in a bar in Boat Quay — is expected to roll out another five such machines. The new machines will be located mainly in malls and shops, co-founder Peter Peh told TODAY, adding that he believes in the potential of bitcoin as sales have been “healthy”, with many online shops also accepting bitcoin.

“Singaporeans have the know-how; it is not a problem for brick-and-mortar merchants to accept bitcoin. We are seeing a younger generation of merchants who are familiar with technology … I have even been approached by merchants over 50 years old. One of them asked us to create a bitcoin solution for the whole kopitiam,” he said.

Other local firms, such as Numoni and Bitcoin Exchange, have also rolled out bitcoin machines here, mostly in shopping areas and business districts. These machines allow users to covert cash into bitcoins and vice versa through a virtual wallet.

Meanwhile, while there are already bitcoin point-of-sales systems for online stores, more companies offering such services for brick-and-mortar merchants are also popping up here.

One such company, Coin Of Sale, which has signed up about a dozen merchants, mostly bars and cafes, and even a clothing store, will be rolling out its services within the next few weeks.

Founder Tomas Forgac said: “I think there’s a role for bitcoin in every type of economy. In emerging economies, people have more access to smartphones than credit cards and in rich countries such as Singapore and Hong Kong, it can be a hedge against inflation,” he said.

Another similar bitcoin POS company that caters to physical stores, CoinPip, has signed up about 12 merchants since popping up in January.

“The biggest value of bitcoin is lower transaction fees, as compared with credit cards or NETs,” said founder Alexander Angerer.

Transaction fees at CoinPip start at 0.55 per cent, while BitPay, a commonly used platform for online businesses, charges a 1 per cent fee. In comparison, swipe fees for Visa and Mastercard transactions are typically between 2 and 4 per cent.

And although bitcoin has yet to be adopted on a massive scale among retailers, CoinPip chief executive Anson Zeall said it has signed a contract with a physical POS provider to include bitcoin alongside other payment options such as Visa and Mastercard at stores. This newest system will be piloted soon at 700 merchants, he said.

To further boost the adoption of bitcoin, several local players from bitcoin exchanges, merchants and infrastructure providers are in the process of registering an industry group to legitimise the sector, as well as to facilitate any issues between the government and practitioners.

There are two main objectives, said Mr Angerer, who is also the chairman of this group. “We want to express the views of our members, and communicate as one voice to regulators. We also aim to be self-regulated, given all the bad press … We want to say we are self-vigilant, and set certain standards,” he said.

The industry has been dogged by bad press following the February collapse of Japanese exchange Mt Gox, where about 850,000 bitcoins worth more than US$450 million (S$565.2 million) were stolen by a hacker.

The Monetary Authority of Singapore said in March it plans to begin regulating intermediaries of virtual currencies to reduce the risks of money laundering and terrorist financing.

With the upcoming regulations, Mr Angerer said it is timely for this group to be set up. “We want to engage the Government, ask them to communicate with us, and have industry consultations on any related issues,” he said.

The group will have its work cut out for it — at least on the part of the merchants. Retailers and cafes here say bitcoin transactions have been slow to pick up as a result of a lack of awareness and trust by consumers and could take between five to 10 years to become more mainstream.

Mr Abhishek Cherian George, owner of pub The Spiffy Dapper, said transactions form about less than 3 per cent of his customer base.

“We are still looking at the early adopters, and maybe frequent travellers who find it easy to use bitcoin as it is universal. Once the Mt Gox incident blows over, maybe people may be more interested to use it in their daily transactions,” he said.

Similarly, another establishment, co-working and incubation space Eclat Office Club, said response has “not been fantastic yet”, and also pointed to negative news such as the Mt Gox incident as a deterrent to customers.

“Customers ask if it’s safe to use bitcoin, they don’t understand it yet. Education is key,” noted general manager Peter Ng.

Mr Antony Lewis of bitcoin exchange ItBit, agreed: “A lot of education is missing. Mass adoption will take up to 10 years. It takes a very long time to build up confidence, trust and infrastructure. We also have to make it useful and compelling for people to adopt this form of payment,” he said, pointing out that the system is currently not very user-friendly for customers.

Retailing experts confirm this perspective. Mr Daniel Latev, Global Head of Retailing Research at Euromonitor International, said usage is very likely to be “still fairly limited”, as very few consumers are aware of it, and its “extreme volatility” in recent times would have put them off.

“Having said that, retailers which would like to cater to the early adopter type of consumers can benefit from accepting bitcoin payments as this would position the retailer at the forefront of the technological development, in a very competitive retail market such as Singapore,” he said, adding this would most likely work for electronics and appliance specialists or department stores, and online retailers.

Ms Lau Chuen Wei, executive director of Singapore Retailers’ Association, noted that although bitcoin has been around since 2009, it is still an untrusted currency.

“It is outside of the banking industry, there is no government backing, there is no central issuer or operator and very difficult to regulate. While the early adopters may sing its praises, retailers really cannot afford to take any more risks, especially a time when they are struggling with rising costs and shortage of labour,” she added.

Things may change when the proposed MAS regulations — which require virtual currency intermediaries to verify the identities of their customers and report suspicious transactions — come through. But that is if firms are able to survive any potential costs.

Mr David Moskowitz of bitcoin broker Coin Republic said the extent of the cost of compliance would depend exactly on what MAS enacts. Costs would be minimal if regulations are kept light, such as verifying the identities of customers. But if they follow existing remittance regulations, which MAS has said they would be similar to, it would cause “a lot of problems and additional expense”, causing businesses to shut down or shift operations elsewhere, said Mr Moskowitz.