Let's pause for a bit. Okay, now, let's fast-forward. You're now five years into the future. You walk into a restaurant, have a fine meal, and ask for the bill. The waiter hands you a tiny tablet and you whip out your phone to scan the QR code on it. It blinks "paid". Done with your supper, you walk out and tap your phone to hail a cab. At your destination, your driver hands you another tiny tablet and you scan the QR code there as well.
It might sound like a scene from your usual sci-fi flick, but I'd like to think this future is not too far away. Take your imagination further and envision paying with money that is not controlled by a single institution. Imagine this money being sent across political borders, with virtually no fee, being received safely and fully by your recipient. After all, it is your money. Shouldn't you have full control of it?
This is the powerful possibility of virtual currencies. The most popular, Bitcoin, has piqued interests over the past five years.
On January 18 2014, I attended a Bitcoin meetup at AELOGICA. The local Bitcoin community is still a fledgling, but you could feel the attendees' excitement. There were roughly 40 people jampacked inside the venue, with ages ranging from early 20's to late 60's. While chowing down food sponsored by BuyBitcoin.ph, amateur economists introduced themselves to software developers; entrepreneurs explored opportunities with like-minded people; and libertarians expressed their opinions about money and the state. There was even a Bitcoin-themed cake purchased with -- of course -- Bitcoin.
Despite the recent negative press about MTGOX, I am excited about the potential of Bitcoin. Bitcoin's major philosophy is decentralised trust. Think of it like having checks and balances amongst the participants in the network. MTGOX and many exchanges today do not embrace this philosophy. MTGOX was a centralised exchange where you had to give your full trust to one entity to do business. However, what emerges from the ashes of issues like that of MTGOX is a stronger ecosystem. The Bitcoin community acknowledges that centralised exchanges are weak points, and have taken this philosophy to heart. A product of this is MetaLair, a decentralised cryptocurrency exchange with the ability to exchange fiat money as well.
While I would not consider virtual currencies to have completely taken off here in the Philippines, last January's meet up showed me that it won't be long before they do. I felt that the biggest hesitation in the meet up were regulatory issues. Does our central bank consider them to be currencies? Are they commodities? How will they be taxed? There seem to be no answers yet. As one attendee quipped, and I paraphrase:
Speak with lawyers and they will tell you to "Go ahead and try. Let's see what happens in court."
The Philippines has some catching up to do to arrive at that future smoothly operating with virtual currency. Everyone who attended represented the growing population shaping the virtual currency ecosystem in this country.
Why should Filipinos bother knowing more about decentralised virtual currencies? I could give you four reasons.
First, about 10% of Filipinos live and work abroad. Collectively, they send about $2 billion per month back home. Money remittance services charge from 2% to 10%, depending on the amount being transferred. Calculating conservatively, let's assume the fee is 3% to send the money back home. That 3% of $2 billion is $60 million per month. This is not a trivial amount. Virtual currencies could help lessen the burden by removing or reducing remittance fees. You can transfer bitcoin directly from the sender to the receiver, or course through a local bitcoin exchange which will likely have lower fees. This also would benefit those who are employed by foreign entities and work remotely. The salaries they receive would be subject to smaller or no remittance fees.
Second, and this is closely related to my first point, is that businesses may sell goods and services for bitcoin without having to wait for the infrastructure to arrive here. For example, PayPal, a popular payment system, is usually chosen by businesses to receive money online. But it wasn't even made available here for many years after its establishment. Plus, its strict regulations and expensive fees kept the barrier to entry high. In comparison, when I heard about Bitcoin in 2011, I learned that all I needed was an internet connection and I could charge anyone, anywhere in the world. I would not even need to worry about the hassle of opening a bank account, stolen credit cards, and chargebacks.
Third, Filipinos are not big credit card holders, but we are huge mobile phone users. Cash is still the preferred mode of payment, which is why many local online companies still accept bank deposits. With a virtual currency like Bitcoin, there wouldn't be much need for bank visits. You could use your phone and send money across the wire immediately, without having to answer to credit companies.
Fourth, and my last point: I think that the introduction of virtual currencies will increase the common person's knowledge about what money is. Increased public knowledge of how this money-thing works is important. Since we use it every day, shouldn't we know more about it? We need to ask ourselves: How is our money regulated? Why is it regulated and who does it? Why is there inflation and why do some people believe it is a "secret tax"? Why do some people think virtual currencies could be a way to store their wealth? How could virtual currencies be a way to help prevent financial crises? What are the implications of any government not having control over the money that its citizens use? These questions will probably lead you to other questions. But I encourage you to stay curious and keep inquiring as a good citizen should.
I would not be surprised if the world eventually moved away from fiat money. I am not an expert, but from where I stand, virtual currencies could fly and replace the old money system.
It is an extremely exciting time to be alive and participate in this global phenomenon. My hope is that our country - its people and the government - embrace the changes and transition into the future as smoothly as possible. This future is not hard to imagine. The gears are already in motion.
If you have questions, contact me via Twitter @rtayag.