Cryptocurrencies have been making headlines again as bitcoin prices skyrocketed in the past year.
Investors using online cryptocurrency trading platform Torque, run by a Singaporean businessman, are also claiming millions lost in cryptocurrencies.
The Straits Times takes a look at the digital asset, as well as another digital asset, the non-fungible token (NFT).
Q: What are cryptocurrencies?
A: They are digital assets that are not issued by any government and are not backed by any asset or issuer, and are secured by cryptography so they cannot be forged.
Cryptocurrencies use blockchain technology, which involves a public digital ledger distributed across many computers connected in an online network.
All the computers have a copy of the ledger, so any transaction is recorded and added to this shared list of transactions.
Anybody in the network can become a “miner” and use computing resources to solve complex mathematical problems to verify cryptocurrency transactions.
So, no central authority is required to verify the transactions.
Miners are rewarded for their work with some digital tokens.
Q: Can cryptocurrencies be used for payment?
A: People can buy cryptocurrencies using real cash at exchanges and specific ATMs – there are eight here and you can sell the tokens for real cash at some ATMs. The tokens can also be mined by verifying transactions.
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The digital assets have been used to pay for goods and services, as well as an investment product.
It is not clear how many businesses here accept cryptocurrency payments. But Ms Zann Kwan, a board member of the Association of Crypto Currency Enterprises and Start-ups Singapore, said that these include professional service companies like accounting firms, architectural firms and even online companies selling baby products.
Cryptocurrencies can be transferred anonymously between buyers and sellers.
Bitcoin is the largest cryptocurrency, and its network was established in 2009. It has a limited supply, which is fixed at 21 million units. This limit is expected to be reached in the year 2140.
Q: What has been fuelling prices of cryptocurrencies?
A: The price of bitcoin has jumped 700 per cent in the past year. In the first two months of this year, it had already risen by 70 per cent, hitting a record US$61,742 on March 13.
The meteoric rise has been fuelled by institutional investors and investment funds that view bitcoin as an alternative portfolio diversifier and an asset to store value. But some experts argue against this.
Other factors include major companies, such as electric carmaker Tesla, increasingly adopting the token, as well as interest from retail investors
Investments in digital tokens have also grown. In 2017, US$2.25 million (S$3 million) worth of cryptocurrencies was invested in Singapore. But the figure for last year was US$67.6 million, according to data from market intelligence platform Tracxn. Globally, the figure in 2017 was US$727 million, and last year, it was US$1.53 billion.
Q: Are cryptocurrencies regulated in Singapore?
A: Cryptocurrencies are not regulated by the Monetary Authority of Singapore (MAS) as they are not considered legal tender.
But in late January last year, the Payment Services Act came into force that regulates cryptocurrency service providers.
But these service providers are regulated primarily for money laundering and terrorism financing risks, given the anonymity, speed and cross-border nature of transactions that cryptocurrencies facilitate, said MAS.
Digital token intermediaries that buy, sell or facilitate the exchange of the tokens must identify and verify their customers, monitor transactions, keep records and report suspicious transactions.
Q: How many offences have been committed since rules kicked in?
A: When contacted regarding cryptocurrency offences under the Payment Services Act, the police said that, so far, there is only one convicted case, that of a 24-year-old Singaporean woman who was found guilty on Jan 28 and sentenced to four weeks’ jail.
Investigations by the Commercial Affairs Department found that on Feb 27 and 28 last year, the woman provided a digital payment token service by receiving at least 13 fraudulent fund transfers amounting to $3,350 in her bank account, used the funds to buy bitcoin and transferred her purchase to multiple bitcoin wallets.
She does not have a licence to provide any type of payment services in Singapore and is not exempted under the Act.
The police warned job seekers to be wary of job advertisements that promise the convenience of working from home with an unbelievably high salary for relatively simple job responsibilities.
“Legitimate businesses will also not require job seekers to use their own bank accounts to receive monies on the businesses’ behalf. These acts are common ruses used by scammers to have individuals carry out illicit payment transfers on their behalf,” said the police.
Q: Is it safe to invest in cryptocurrencies?
A: Singapore’s Payment Services Act does not specifically offer consumer protection when it comes to cryptocurrencies, but MAS has issued advisories to warn the public of the risks of investing in them.
Cryptocurrency service providers licensed under the Act have to also show warnings to consumers to alert them to the risks of trading in cryptocurrencies.
“Members of the public who lose money from investing in (cryptocurrencies) cannot rely on any protection afforded under legislation administered by MAS,” the authority said in the past.
Ms Kwan said that investors need to understand that cryptocurrency prices could fluctuate substantially very quickly.
For example, the sharp drop in bitcoin prices last Thursday resulted in about US$100 billion lost in the token’s market capitalisation in just 24 hours.
Investors should carefully assess whether an investment in cryptocurrencies is suitable for their investment objectives and risk appetite, said the regulator.
They should carefully consider claims being made about the products offered.
Some legislative changes were recently made that can improve safeguards for consumers.
Changes to the Act were passed in January to let MAS impose measures on cryptocurrency service providers to ensure better consumer protection, when needed.
The regulator aims for the changes to take effect in the second half of the year.
Q: What are non-fungible tokens (NFTs)?
A: An NFT can be viewed as a collectible digital asset that acts as a unique digital certificate of authenticity and ownership for a physical or virtual item.
So, even though an item might be reproduced many times, there is usually only one unique NFT for the item and whoever owns the NFT is the sole unique owner of the item the token represents.
“While anyone can view the NFTs, the buyer has the status of being the official owner – a kind of digital bragging rights,” noted Reuters.
An exception is when the person who created the NFT allows more than one NFT for the same item to exist, similar to how there can be a run of 100 pairs of special edition sneakers instead of just one pair.
NFTs can be created for a physical or digital painting, video, animation, piece of music or text, a tweet, a collectible like a digital sports trading card and more.
NFTs can be bought with real money or the ether cryptocurrency, and the transactions are recorded using blockchain tech – in other words, in a public digital ledger.
This means all computers in a network have a copy of the digital ledger for NFTs, which records transaction details like when an NFT was sold, who sold the token and who owns it now. It also means such information cannot be forged.
Buying an NFT for digital art can entail getting the token – it exists as computer code – which can contain an online link to the file of the artwork that the buyer can access to view or save the digital art.
• Additional reporting by Prisca Ang