January 25, 2018
Everyone is talking about cryptocurrency. It’s been making headlines and many are jumping on the bandwagon, but what is it really? Can you really make money from it? Is it safe? CompareHero.my talked to various financial experts to get the lowdown on cryptocurrencies.
In 1636, Tulpenwoede, which translates to tulip madness, happened in the Netherlands. It’s also known as the first major financial bubble. What happened was that the price of tulips (yes, the flower) skyrocketed because of speculation among people as it was a scarce flower. The price for tulips were rising so fast that people were trading their land, life savings, and anything they could liquidate to get tulip bulbs.
Then, some far-sighted people decided to sell their tulips to get profits. This created a domino effect of progressively lower prices because more people wanted to sell off their tulips while not many were buying. The price then began to dive, causing people to panic and sell even at a loss. At the peak of the market, a person could trade a single tulip flower for an entire plot of estate land. And when it hit rock bottom, one tulip flower was only worth the price of an onion.
Many have compared the tulip madness to the current cryptocurrency financial trend. But before you invest or dabble with it, read our in-depth guide of cryptocurrency in Malaysia to learn how you can be part of this financial trend in a safe and smart manner.
Cryptocurrency is essentially another form of currency. It is a form of money that does not require a trusted third party to verify transactions. Regular money transfer is guaranteed by your bank, while a cryptocurrency is verified by millions of computers around the world who reach a shared consensus. This allows for peer-to-peer transactions that do not involve a third party. This could theoretically be faster and safer than regular money transfers. The underlying technology that makes this all possible is called the blockchain.
Blockchains are distributed ledgers, secured by cryptography. They are public databases that everyone can access and read, but the data can only be updated by the data owners. Instead of the data residing on a single centralized server, for example a bank, the data is copied across thousands of computers worldwide.
Following the trend, there are other spin-offs, the latest being CryptoKitties. This is NOT a currency, rather it is a digitized collectible that uses the same blockchain technology as cryptocurrency.
When it comes to cryptocurrency, most Malaysians tend to associate it to and think of Bitcoin, but there’s many other types of cryptocurrency. Currently, there are 1448 cryptocurrencies available over the internet, and the number is growing. However, by market capatilization, Bitcoin does takes the lead. As at publishing date, 1 Bitcoin costs RM45,233. To see the full list of cryptocurrency available, click here.
The top 5 Cryptocurrency as reported in the 2017 Year in Review Cryptocurrency Report by CoinGecko are:
Many jargons are also used when it comes to cryptocurrency. Below are some of the most important terms related to cryptocurrency:
It should be noted that Bank Negara Malaysia (BNM) has released a statement that it will not regulate cyrptocurrency and that it is not legal tender in Malaysia. However, BNM has also stated that it will not ban cryptocurrency as it feels that a ban could curb innovation and creativity.
As cryptocurrencies are not recognised by Bank Negara, those who use cryptocurrencies will not be covered under established disputed resolution arrangements in the event of any dispute or losses. So remember, if you choose to experiment with cryptocurrencies, you will be investing at your own risk.
As with any type of financial products and investments, there are bound to be risks. When it comes to dealing with cryptocurrencies, Malaysians should understand that cryptocurrency is a high risk investment and that it is volatile. Below are some cautionary measures to take when investing in cyrptocurrencies:
When you buy cryptocurrency from a crypto exchange, don’t leave it there. Take it out and put it into a digital or hardware wallet. This is because crypto exchange may be hacked, theft can happen or your cryptocurrencies could also get stuck because of investigations.
Eu Jin, a Business Development Manager who invested in cryptocurrency Bitcoin and Ethereum shared that he is unable to cash out his investment. This is because the bank account of the crypto exchange he used has been temporarily frozen by the Inland Revenue Board (IRB) Malaysia pending investigation on tax matters.
TM Lee, co-founder of CoinGecko, a digital currency data platform said:
“The best option on staying safe when working with cryptocurrency is to use a hardware wallet. Hardware wallets are physical devices used to keep your cryptocurrency safe by storing the private keys in an offline setting, reducing theft risks. It is advisable to choose trusted manufacturer with a good reputation such as Trezor or Ledger as they have been in the market for a while and have been vetted by the global community.”
Paul Wong, author of the book Invest In Foreign Shares advice to Malaysians is to:
“Never keep your cryptocurrency in the exchanges. They can be hacked and your cryptocurrency stolen. Keep it in your online wallet and keep a hard copy of the keywords and password. You can also store the cryptocurrency in an offline wallet or ‘hard wallet” which is basically a USB drive. You plug in only when you need to transfer your cryptocurrency to other exchanges or to purchase items online”
As an investor, you should first arm yourself with insights into cryptocurrencies you are interested to invest in. Most who do invest in cryptocurrencies only look at the market capitalization, in which case Bitcoin takes the first place. However, TM Lee shares:
“The savvy traders look at various other metrics such as liquidity, developer activity, and community.”
We suggest making use of digital currency data platform like CoinGecko which will help you get more insights on a particular cryptocurrency.
If a seller is selling below market value, it is likely a scam. This is because it is very rare to be able to buy a cryptocurrency below market value, unless you managed to negotiate a deal when buying in bulk. Beware if you are contacted by a seller offering to sell “cheap” or “best price” cryptocurrency, as it is among the common ways people get scammed in Malaysia.
If you want to try your hand at investing in cryptocurrency, below are the steps:
1. Decide which cryptocurrency you want to invest in, and then research about it. Don’t depend solely on what your friends say or what you have read on forums about the rising value.
2.You will need to have the cryptocurrency. If you don’t have any this means you will have to buy some to start investing.
3. Select a crypto exchange that buys and sells cryptocurrency. Remember to deal with a reputable crypto exchange that has good track record. There will be fees involved when buying cryptocurrencies. Each crypto exchange have their own fees.
4.Use an escrow service when you are buying or selling cryptocurrency directly from an individual. Escrow service protects you from fraudulent buyers or sellers. An escrow service works by keeping your funds safe in a deposit account. Funds is placed in the control of an independent third party. This helps keep the transactions more secure by keeping the payment safe until all the terms have been met.
For example, if you have made payment, but the seller disputes the trade, the escrow service will step in and mediate the trade. This is why it is important to communicate through the escrow system when buying cryptocurrency from a seller. The escrow service will act as the arbitrator and determine who should ultimately receive the funds.
Did you know that a Nasi Kerabu stall in Kelantan accepts payment via Bitcoin? You read that right, Malaysians can now use cryptocurrency to make purchases. Aside from that, apparently a Proton car dealer in Seri Kembangan also accepts Bitcoin and Ethereum as payment. And that’s not it, there is even a Bitcoin ATM machine in Malaysia. It’s located in Ipoh and allows users to buy or cash out Bitcoin. The ATM is being upgraded to include other cryptocurrencies too such as Ethereum, Lite and Dash.
Our advice to Malaysians is to proceed with caution. As with any other investment, the same rules applies such as the importance of diversification, and understanding where you are putting your money into.
“Cryptocurrency is an ultra-high risk investment product. It really depends on your personal risk appetite. As such, generally my suggestion is to only invest money you are willing to lose.
If you are already investing in a balanced portfolio of traditional asset classes such as stocks, mutual funds, fixed deposits, and bonds; cryptocurrency can be a great addition to that already diversified portfolio. Again depending on your risk profile, a small percentage will do. Small enough to give exposure to the high return and small enough to not wipe out your wealth due to the high risk nature of cryptocurrency.”
“Cryptocurrency will always be volatile in nature. There can be violent swings on the upside and downside. You must have the stomach for it and ability to hold on to your investment for longer period of times.”
Remember, there is no safety net when dealing with cryptocurrencies. You can’t make a police report if your money gets stolen and there is no governing body to protect your investments. With the freedom to do whatever you want with your own money anonymously comes a lot of responsibility. Knowledge is power, use it wisely.