New Money: Is Bitcoin the Future of the Philippines?
At the time of writing, bitcoin, the most popular form of virtual currency, reached a historic high before pulling back, but still keeping relatively high value. Bitcoin is only one of a cryptocurrencies—so called because it's a digital asset that relies on cryptography—and digital currency-based industries that have spawned since the concept was introduced in 2008 by a mysterious inventor who goes by the name of Satoshi Nakamoto.
Because of the rapid pace of technology, it can be hard keeping up with the developments in cryptocurrency. Grappling with the technology behind cryptocurrencies can be daunting, so let’s start by looking at the underlying concepts.
Unlike the cold hard cash you may have in your wallet right now, there is no central entity that issues bitcoins. Traditional currencies are issued and backed by a central institution such as a government or bank which decides how much money it will print and distribute. Bitcoin is completely decentralized and there is no singular entity issuing the currency. In a typical currency, money doesn’t have value on its own, but it has a guaranteed equivalent (usually in gold reserves or other precious metals). Bitcoin’s value is dependent on supply and demand, as well as the integrity of the system.
Unlike the cold hard cash you may have in your wallet right now, there is no central entity that issues bitcoins.
The concept of money and its ownership can be simplified as a verifiable entry into a ledger or database of transactions, accounts, and balances. Every time you spend or earn money, this ledger gets updated and the final authority on the contents is your bank. With bitcoin, however, all transactions are recorded in a shared public ledger which is available to all computers in the network. Every computer in the bitcoin network, or peer keeps a record of all the transactions ever made. Previous entries cannot be changed on this public ledger, it can only be updated with new entries. This shared public ledger is also known as a blockchain. After an entry has been added to the blockchain, it becomes permanent.
The blockchain can be compared to bank records or a passbook. A block which is a part of that blockchain is analogous to a single receipt from an ATM. Entries in the blockchain cannot be altered, and are governed by stringent cryptographic processes. The blockchain maintains integrity at all times because of several distributed consensus mechanisms in the network.
Bitcoin is exchanged among users who possess bitcoin wallets. Initially, users have the option to acquire bitcoins by purchasing them via an online exchange. The wallets can be considered as a portable version of this public ledger mentioned earlier. When bitcoin is transferred between user wallets, this transaction is added to the shared public ledger or blockchain. The history of each wallet can be publicly seen on the bitcoin network. The wallets have no names and personal information attached to them, so essentially the wallet owners are anonymous and are therefore safe from identity theft. A bitcoin wallet can be used to generate a bitcoin address which can be used to send and receive bitcoins.
For added security, the wallets have a private key used for signing transactions. This is to verify that it is indeed the owner of the wallet who is involved in the transactions. The transactions are typically confirmed by the network within ten minutes.
The wallets have no names and personal information attached to them so in essence, the wallet owners are anonymous and they are safe from identity theft.
The process of confirming and auditing the transactions is called mining, and it is performed by specialized machines in the network. The machines perform extremely complex mathematical computations, and, as an incentive for processing the transactions, miners earn bitcoins which are extracted from the system. The number of bitcoins are finite, however, and over time, the miners need to expend more computing power to earn bitcoins as they become more rare. There will only be a total of 21 million bitcoins in existence and the last bitcoin is expected to be mined by 2140.
To give more clarity on bitcoin, we asked two individuals to share their expertise on bitcoin. The first respondent is Miguel Cuneta (MC), who is the co-founder and Chief Community Officer of Satoshi Citadel Industries, a financial technology company based in the Philippines. The second person is bitcoin miner and tech blogger Alexei Rivera (AR) who is the founder and editor-in-chief of thetechnoclast.com.
What does your company do?
Miguel Cuneta: Satoshi Citadel Industries (SCI) is a fintech startup that uses blockchain technology such as bitcoin to provide financial services to everyone. Since 2014, we have been building an ecosystem for blockchain-based services and products focused on the Philippine market.
What are the products and services for the Philippine market?
MC: We provide services ranging from mobile money (bitbit.ph), payment processing (bitmarket.ph), cryptocurrency exchange (buybitcoin.ph) and remittance (rebit.ph). We also have auxiliary services like prepaidbitcoin.ph, getkeza.com, and lifebit.com. Our Bitbit wallet app allows anyone to use cryptocurrencies and convert them to pesos instantly, pay bills, buy load, and send money to anyone in the world with a bitcoin wallet.
What is the future of bitcoin in the country?
MC: The future of bitcoin looks bright, especially here in the Philippines. For the last three years we have seen our transaction volumes and user base increase steadily, and since the BSP published regulations for bitcoin exchanges, our industry is pretty much legitimized. Our country has a 3% credit card penetration rate, yet we have the fastest smartphone growth and over 40 million internet users. We believe that technologies like bitcoin will allow us to leapfrog current financial technologies.
How would a bitcoin-empowered system work in a Philippine setting?
MC: Blockchain technology will streamline financial services and make moving money around as easy as sending an email or message, and a lot cheaper than traditional methods. For a country like the Philippines where 10% of our GDP comes from remittances and the cost to send money is almost 10%, this is a big deal. OFWs, for example, will save a lot on fees when sending money home to loved ones. Blockchain technology can cut the cost of sending money considerably. Applications of blockchain for document verification and identity management will also be a big factor in improving the way our government systems function.
What do you think of the Central Bank's stand on the regulation of virtual currencies such as bitcoin?
MC: SCI was directly involved in the technical working group that formulated circular no. 944. We worked closely with the BSP for almost three years and provided the necessary data to help in the process of deciding how to regulate VC [virtual currency] exchanges. The BSP was one of the first central banks in the world to publish official regulations on bitcoin/cryptocurrency. We think this is a great breakthrough for our industry as a whole, and we are lucky to have such a progressive central bank that encourages innovation.
Bitcoin is a groundbreaking new technology that has massive potential. It is a platform for permissionless innovation in the financial sector and can change the way we see trade, ownership, and trust.
What kind of careers are suitable for those dealing with virtual currencies?
MC: Anything from finance, governance, trading, e-commerce, and of course, marketing, and business development. Just like the early days of the internet, the cryptocurrency and blockchain industry is still in its infancy. The technology has the potential to do to the financial industry what the internet did for media, telecommunication, and publishing. We at SCI have grown from 4 founders to almost 50 employees in 3 years, so there is definitely a career in this industry today. Blockchain expertise is already a very valuable skill-set in [the] tech sector.
Do you have any advice to those wanting to go into bitcoin transactions?
MC: Bitcoin is a groundbreaking new technology that has massive potential. It is more than just a digital currency. It is a platform for permissionless innovation in the financial sector and can change the way we see trade, ownership, and trust. This is not a get rich quick scheme. The best thing to do is educate yourself and learn as much as possible about the technology before getting into any aspect of the industry. Also, use tried and trusted services (like ours, of course) when dealing with cryptocurrencies.
How did you get started with bitcoin mining?
Alexei Rivera: Most small-time miners like me actually mine other cryptocurrencies that surround bitcoin. I started a few months ago when several factors—particularly growth in Ethereum, the second- largest cryptocurrency—allowed for even small time computer geeks to get in the game. At the same time, recent developments in the space now lets pretty much every Joe and Jane to get into low risk mining-for-hire work in exchange for bitcoin as payment. This made a world that was much harder to get into before now a very low-risk endeavor. As someone who works in the IT industry, it seemed like a good fit.
What are the minimum requirements?
AR: For bare minimums, you would just need a relatively recent and power-efficient computer with a graphics card. In more commonplace terms most people who have gaming PCs should be able to mine with the system they have at home. Mining is graphics card intensive because the software will use it as its main compute power. All the other parts of the system doesn't really matter all that much and most miners will build a very low-end rig with multiple graphics cards to maximize their power efficiency.
What is the estimate or ballpark income figures for a typical individual bitcoin mining operation?
AR: In today's market, mining bitcoin directly is nearly impossible without a massive amount of capital. The reason is that bitcoin's network is now comprised of powerful dedicated server-like specialized mining boxes and to earn from that particular currency you'll need to build your own. Most players that are getting into the space are actually mining other currencies like Ethereum—where smaller low-cost rigs can still make a difference. For a low cost gaming PC with a $200 graphics card, you can expect to earn about US$45 a month before incidental costs. In general, the return of investment is computed at around 6 months if you pick the right equipment.
Bigger operations, even in the mid-tier space, can earn up to 1000 times that by just scaling their operations the same amount. However, most miners you see today have probably an average of 10 to 20 graphics cards running 24/7, making an average of 450 to 900 dollars a month.
How much have you spent on hardware and electricity? Is the monthly value still worth it compared to the value you get from mining?
AR: Because I mix a personal gaming PC and a separate mining rig in my operations, the costs have a gray area between them. But in my books I've spent about PHP60,000 for all of the brand new equipment to build the 24/7 mining "cave" I set up. My electric expenses run just under PHP3,000 and that separate rig earns about US$180 a month—so about PHP9,000 net per month. Given that valuation, I consider my investment to be paid for in full before the end of this year and all future earnings will be profit.
But there are other factors to consider. Bitcoin as a currency is on a huge uptrend, with predictions from traditional financial institutions claiming it will pass US$5,000 or US$10,000 equivalent value in a few years. Most miners like myself are also interested in keeping our earnings, whether it be on other cryptocurrencies we believe in or bitcoin itself. We expect our earnings to sell for higher than possibly [two times] its worth in maybe 2 years. If you count that in as part of your profits, then the prospects are still pretty good. If not, then it’s still a 6-month ROI at the current market.
You can be a small drop in a bucket and still make enough to where you're happy with, investment-wise.
Can you compare mining now and a few years before—is it still a profitable enterprise?
AR: The evolution of cryptocurrency mining has been quite interesting to follow, even if I hadn't taken part in it until very recently. Bitcoin dominated the early years and there was a surge around 2014 when GPU miners caught on. However, it quickly became less friendly of an industry due to dedicated mining equipment for bitcoin which pushed out GPU miners. Recently with the introduction of other popular currencies, small time miners can come back into the arena and get at least a decent amount of money without having to invest in industrial crypto-machinery. In its current state, it has become incredibly easy to set up a simple computer and start mining with a decent return of investment. You can scale your growth to however much capital you want to put in, or you can mine with as small a margin as you'd be comfortable with. It is profitable even in a very small scale—gamers could earn from their PCs while they're sleeping, for example.
Is there a local mining community? Are there local large-scale bitcoin mining operations similar to China?
AR: Locally I've seen a lot of miners that are about 2 [to] 5 times my size, and communities are abundant. I don't think we have operations as big as China where large warehouses exist that are powered direct from geothermal plants and are in much better climates, but as long as you're earning a decent amount then you shouldn't care how big other people are. The mining community isn't so much as a competition because we don't operate like corporations that can monopolize certain aspects of it. You can be a small drop in a bucket and still make enough to where you're happy with, investment-wise. The only time small operators could get pushed out is if their costs run higher than their earnings and so far that's not in the horizon yet.
Are there other cryptocurrencies to watch besides bitcoin?
AR: Ethereum is the second most popular one out there after bitcoin, with Bitcoin Cash, Litecoin, Ripple, Dash, and NEM following behind. You'll need to do a lot of research if you want to keep track of where each one is going, but overall Ethereum is on an upward trend, same with NEM. Most miners can actually choose which ones to mine depending on the markets, so there's a lot of opportunities here and new currencies are popping up everyday ready to be mined or traded for profits.
It's still the wild, wild West out there, so tread carefully. Bitcoin is the safest of all currencies because of its wide reach, but there's still some inherent risk there since it is a very new system.