Introduction
In an era defined by rapidly evolving digital landscapes and decentralised financial innovations, cryptocurrencies have emerged as a disruptive force, challenging traditional notions of money and finance. A cryptocurrency is a form of digital or virtual currency protected by cryptography, making it nearly impossible to forge or double spend. The majority of cryptocurrencies operate on decentralised networks employing blockchain technology, which is simply a collection of linked blocks of data on an online ledger. Each block comprises a series of transactions that have been independently validated by each validator on a network (Frankenfield, 2023). From an ASEAN perspective, the NUS Entrepreneurship Society (2023) stated that in 2020, the blockchain market size was $3 billion and it is anticipated to reach $39.7 billion by 2025 . Therefore, the usage of cryptocurrencies such as Bitcoin, Ethereum and XRP, are steadily increasing.
Purposes of Cryptocurrency and Its Influence on Blockchain Technology
One of the most well-known purposes of cryptocurrencies is its potential as an investment option. Some people became wealthy after purchasing Bitcoin when it cost less than $1 per coin in 2011 where now that $1 would be multiplied to about $43020. Bitcoin may not currently offer the same possibility it did where investors made a lot of money on their investments in it almost a decade later, but cryptocurrencies have proven to be resilient over downturn cycles. After every crash, Bitcoin prices have risen to record levels (Banks Editorial Team, 2022). While we can’t assume that Bitcoin will inevitably reach its previous record high, the cryptocurrency’s historical journey remains a compelling case study in the face of market volatility. It serves as a powerful reminder of the potential and unpredictability that define the world of cryptocurrencies, making them a subject of ongoing fascination for both seasoned investors and newcomers alike.
Other than that, cryptocurrencies also help consumers save money when transferring money, especially across countries. This is because the costs associated with using financial institutions as an intermediary in money transfers are not present when using cryptocurrencies. Major banking institutions’ fees will slow down the money transmission. You might need to send more money than you anticipated or ask the recipient to accept less. These issues are resolved by cryptocurrency’s decentralised blockchain technology (Banks Editorial Team, 2023). The use of cryptocurrencies in cross-border transactions can alleviate the stress of unexpected delays. With conventional banking, transfers may take days to clear, especially when dealing with international transactions, which can be a significant inconvenience for businesses and individuals requiring timely payments. Cryptocurrency transactions, on the other hand, often occur within minutes or even seconds, contributing to the overall efficiency of global commerce. While it’s important to note that the adoption of cryptocurrencies for cross-border transfers is not without its challenges, including regulatory considerations, their disruptive potential in this space is undeniable, making them a compelling option for those seeking to save money and simplify the process of sending funds across the globe.
Furthermore, cryptocurrency can also be used in daily transactions. Big companies like Whole Foods, Home Depot, PayPal and Microsoft are starting to adopt cryptocurrency. Cryptocurrency usage will advance and become normalised if more large companies and small businesses accept it as a means of purchasing products and services (Banks Editorial Team, 2023). . This, in turn, will increase demand for cryptocurrencies, potentially driving up their value and utility. In essence, cryptocurrency can bring about multiple benefits for consumers and firms.
Various cryptocurrencies have adopted blockchain technology and now benefit from its great versatility. For example, blockchain technology is used by luxury resale retailers to authenticate their products and to provide transparency in the process of transferring ownership (Feger, 2023). In the marketing industry, blockchain technology is widely implemented to ensure secure sharing of customer information and transparency between companies and customers (Feger, 2023). On top of that, blockchain technology is employed in healthcare to improve the processing of payments, digital medical records, provider listings as well as in data interchange and security (Feger, 2023).
Adoption of Cryptocurrency Globally
The global adoption of cryptocurrencies has expanded exponentially, reshaping financial landscapes and transcending borders. El Salvador has become a global leader in implementing blockchain technology after being the first country to accept Bitcoin as legal currency (Lacapra, 2023). Blockchain technology was designed to make it simple for Salvadorans to exchange their money between Bitcoin and the US dollar automatically. Another such example is Singapore, where the government has made substantial investments in the research and development of blockchain technology. The Monetary Authority of Singapore, the nation’s financial regulatory authority, is in charge of guiding the nation’s development of governance structures, technological standards, and infrastructure to promote the adoption of blockchain and cryptocurrencies. Its main responsibility is to keep an eye on and reduce hazards in the cryptocurrency business while fostering technological advancement (Lacapra, 2023).
Despite the adoption and legal approval of cryptocurrency use in different parts of the world, there are still some countries that limit the usage of cryptocurrencies due to the nature of decentralised blockchain technology, where the government has no control over the supply of the currency. Cryptocurrencies can also facilitate illegal activities as users on its pseudonymous network can only be recognized by their network addresses. Thus, determining the origin of a transaction or the person/business behind the address can be challenging (McWhinney, 2022). One of the most well-known instances of cryptocurrency crime is The Silk Road case. The Silk Road was a Dark Web marketplace stocked with illegal items, such as narcotics and weapons, that users could easily purchase using bitcoin.The buyer did not confirm receipt of the products until the bitcoin was released from escrow. With only the blockchain addresses of the persons involved in such illegal transactions, law enforcement was at a loss. Eventually, the FBI succeeded in shutting down the market and obtaining 174,000 BTC (McWhinney, 2022).
As a result, countries like Egypt, Nepal and China have taken proactive measures to ban the usage of cryptocurrency. Due to the significant dangers, erratic value, and use of cryptocurrencies in financial crimes, the central bank of Egypt updated its warning against them in 2022 (Willing, 2023). Meanwhile in Nepal, the country’s central bank, Nepal Rastra Bank, outlawed the usage, exchange, and mining of cryptocurrencies in 2017. In 2021, crypto trading and encouraging people to use cryptocurrencies were also made unlawful. In January 2023, Nepal’s Telecommunications Authority gave all Internet service providers the order to block any cryptocurrency-related websites, apps, or online networks (Willing, 2023). Hence, it is apparent that the adoption of cryptocurrencies is viewed differently across countries, with some accruing its economic benefits whilst others remain apprehensive over its threats to national security.
Current Position of Cryptocurrency in Malaysia and Its Future Trend
Despite the considerable acceptance and recognition of cryptocurrency in other big economies such as China and the United States, Malaysian governmental authorities and business entities are yet to recognize the feasibility of cryptocurrency in the local monetary system. Unsurprisingly, according to Free Malaysia Today (2022), in the first quarter of 2022, Malaysia’s former deputy finance minister I Shahar Abdullah mentioned that Malaysia had no initiative to recognise cryptocurrencies as legal tender at the national level.
While cryptocurrencies have no central authority and regulation, a new form of currency known as CBDCs could be an alternative that is supported by central banks. This emerging trend has been widely discussed by various financial institutions in the world, including Bank Negara Malaysia as well. In simple terms, CBDCs are electronic banknotes or coins issued by the central bank. The primary benefit of CBDCs is its ability to allow users to hold direct accounts with the central banks or to transact directly with one another using the CBDCs as a legal tender. This is largely thanks to the innovation in distributed ledger technology (DLT), which is a digital system that records transactions and other details simultaneously at numerous locations without involving central data storage (Corporate Finance Institute, n.d.). Hence, CBDCs provide a more efficient and less intermediated payment channel compared to other widely adopted payment methods such as GrabPay, Credit Cards and Touch ‘n Go eWallet (Free Malaysia Today, 2022). Nonetheless, according to Bank Negara Malaysia (2020), in the near future, the central bank did not have any intention to issue CBDCs since the bank believed that the existing monetary and financial system have been effective in supporting monetary stability. However, Bank Negara Malaysia has publicly expressed their intention to conduct further research on the public interests and overall impact of digital currencies in the ever-evolving landscape of payment infrastructure.
Furthermore, according to Wong at al. (2022), there are various potential determinants in influencing the cryptocurrency adoption behaviour amongst Malaysian users, namely output quality, perceived accessibility, perceived security, and result demonstrability. Output quality can be defined as the impact of the user’s cognitive instrumental processes on perceived usability; perceived accessibility can be defined as the ease of consumer usage of a particular technology; perceived security can be defined as the users’ awareness on uncertainty and severity of the consequences; and result demonstrability can be defined as the magnitude of the noticeable and communicable results of using a particular technology. Interestingly, the empirical results of study showed that output quality, perceived security and result demonstrability has established a positive relationship with the adoption behaviour of cryptocurrency among current and potential users in Malaysia (Wong et al., 2022).
On par with the difficulties of implementing cryptocurrency in Malaysia, Malaysian users remain reluctant to use cryptocurrency for transactions. Zubir et al. (2020) found that although Malaysians were aware of cryptocurrency as a whole, the vast majority still preferred conventional online payments methods such as PayPal, credit card and Touch ‘n Go eWallet.
The development of cryptocurrency in next 10 years in Malaysia has the potential to be revolutionised more quickly, due to the emergence of artificial intelligence (AI). This could change finance, business and investor behaviour and improve acceptance of cryptocurrency into consumers daily transaction processes.
Barriers to Implementation of Cryptocurrency in Malaysia
The reason of why government is not confident in recognizing the feasibility of cryptocurrency is that some experts worldwide have deemed cryptocurrency such as Bitcoin exhibiting their positions as lying somewhere between currency, financial asset as they are more prompt to be leveraged as speculative assets and trading assets, rather than to be used as legitimate and conventional currency (Yussof & Al-Harthy, 2020). Also, the second reason could be that cryptocurrency will certainly be less susceptible to enforcement by law and regulation (Yussof & Al-Harthy, 2020) as there is no central authority that oversees or regulates the currency.
From consumers’ perspective, there are several reasons hindering the adoption of cryptocurrency in Malaysia’s markets. For example, as cryptocurrency depends on market demand, its volatile nature may discourage risk-averse consumers from leveraging it to purchase goods and services (Moorthy, 2018) . In other words, cryptocurrency prices can soar high suddenly, but they can also drop drastically in a short period of time, making some individuals have less confidence to exchange real money for cryptocurrency. Evidently, this is extremely different with the cases of adopting fiat currency such as U.S. Dollar and the Euro, where there is central authority that regulates the value and supply of the money via monetary policy. Another reason is the absence of a mediating third party (Moorthy, 2018). For example, should an individual mistakenly transfer the fund to a wrong recipient, the individual is unable to seek help from third party in charge of the transaction to resolve the issue. In contrast, transactions with traditional currency allow the involved parties to go to banking institution to seek assistance.
Additionally, another issue that arises is whether cryptocurrency complies with the principle of ‘gharar’ in Islamic Law. In general, gharar is a broad concept that associated with any form of deception, uncertainty, and risk. According to the definition given by Investopedia (2022), gharar is a term that is widely applied in Islamic finance to assess the legitimacy of risky investments such as forwards, futures, options, and gambling. As cryptocurrency is a form of speculative asset, it violates the concept of gharar in Islamic finance to a certain extent, due to the fact that its future value is always unknown. Therefore, this would definitely be an obstacle for cryptocurrency’s position to be recognized officially in Malaysia, where the majority of its citizens are Muslims.
Disadvantages of Adopting Cryptocurrency in Malaysia
Undoubtedly, there are various disadvantages of cryptocurrency that can impact users, community wellbeing and environmental health.
One such negative environmental effect is the massive energy consumed by mining cryptocurrency. This is due to the fact that the process has been heavily dependent on computer networks to mine coins into circulation. Unsurprisingly, according to Katuk (2022), Tenaga Nasional, which is the electricity provider in Malaysia, has found innumerable reported cases of illegally taping electrical supplies for the purpose of cryptocurrency mining activities. Not only that, but the energy consumption for cryptocurrency such as Bitcoin is indicated to exceed the usage of every refrigerator in the US. The underlying reason for this phenomenon is that Bitcoin mining requires high-powered computers and massive power to assist in its transaction process (Katuk, 2022). The application of concession algorithms which ensure that every transaction initiated is valid and requires all nodes to communicate back and forth, will further boost the energy consumption (Rusli & Zolkipli, 2021).
Apart from that, the disadvantage of adopting cryptocurrency is the possibility of losing funds. This is because private keys that are required in individual credential management are irreplaceable. Also, private keys play a vital role in cryptography to encrypt the data using a complex mathematical algorithm (Rusli & Zolkipli, 2021). Consequently, once the owner unexpectedly forgets details of the key, he will be unable to retrieve his entire cryptocurrency investments or cryptocurrency stored in a digital wallet.
Lastly, cryptocurrency may further aggravate the issues of criminal and illegal activities. For instance, as explained by Rusli & Zolkipli (2021), there have been innumerable cases of cryptocurrency exchanges and wallets being hacked in the past few years, resulting in the theft of millions of dollars, despite the general conception that blockchain technology is highly secure. Additionally, criminals involved in illicit purchases and money laundering can initiate cryptocurrency transactions more easily, as compared to conventional banking options, since the account can be accessed by anyone in a borderless manner. Of course, scam syndicates have also been taking these opportunities to attract individuals to their so-called investment schemes that guarantee high returns, commonly via social media platforms such as Facebook, Instagram, and Twitter. Studies indicate that a vast majority of the victims have no comprehensive knowledge of cryptocurrency and investment but have unrealistic financial goals (Pesan by Qoala, 2023).
Advantages of Adopting Cryptocurrency in Malaysia
The integration of cryptocurrency has multiple benefits for both Malaysian users and the entire monetary system. First off, the most significant benefit is its transparency, underpinned by open source blockchain technology. In other words, by remaining decentralised, a public record of all transactions is recorded and reflected on a digital ledger called a blockchain (Stax, n.d.). Put simply, blockchain allows each user to see their code via open software. For instance, auditors can review cryptocurrency security whereas the general public can provide suggestions to enhance the blockchain system (Rusli & Zolkipli, 2021).
Secondly, use of cryptocurrency is advantageous due to its potential wealth accumulation characteristics. Undeniably, due to the most contentious spike of Bitcoin price in the past, cryptocurrency has been gaining attention amongst new investors worldwide. Cryptocurrency has been leveraged as a trading asset that possesses extreme resilience during bust cycles. According to Banks.com (2022), some platforms even provide interest for the cryptocurrency deposited, to address the worries of investors regarding lack of cash flow. This is similar to the privilege of receiving interest payment at a specific point of time as the conventional bank deposit account.
Thirdly, adopting cryptocurrency in daily life will enable quick, easy and direct fund transfers directly between two parties. This is due to the fact that cryptocurrencies only require internet connection to trade or transfer, unlike conventional bank accounts that also require legal documents to enable registration (Bank.com, 2022). Not only that, but the removal of artificial barriers imposed by major banking institutions have substantially reduced the transaction costs of fund transfer for consumers (Yussof & Al-Harthy, 2020). This especially applies when transferring money overseas and is largely thanks to the decentralised structure that operates in a borderless manner.
Conclusion
In conclusion, as cryptocurrency is traded in the billions every day, it is evident that cryptocurrency is becoming an unprecedented virtual form of money and credit, probably due to the various advantages brought by it, namely transparency of transaction, opportunities of wealth accumulation, as well as faster and more cost-effective transaction processes.
However, cryptocurrency can have several negative implications on investors, users, and the community. Therefore, it is vital for regulators in Malaysia to look into the potential risks for the purpose of protecting users from cyber-crimes, and subsequently establish new legislations and guidelines to ensure the balance between public security versus productive innovation. For instance, relevant authorities in Malaysia should regulate the crypto creation process and the transaction process, especially in the current phase of widespread cryptocurrency adoption.
Apart from that, as responsible investors and users of cryptocurrency, it is extremely important to understand the risk associated with these assets and to make decisions according to one’s risk tolerance. Also, responsible business entities should uphold strong moral principles, instead of focusing on the pursuit of pecuniary gains through unethical business practices.
Hence, it can be said that cryptocurrencies could still be beneficial for the monetary system in Malaysia, as long as each individual and organisation plays their own roles wisely, strategically and ethically.
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