When mentioned in conversations among Filipinos, cryptocurrency is a controversial topic. It is often associated with scams and illegal activities. Is it really illegal, though?
This blog aims to explain cryptocurrency in the simplest way possible, making it a helpful guide for curious Filipinos who want to explore cryptocurrency.
Ano Ang Ibig Sabihin ng Cryptocurrency?
Cryptocurrency, sometimes called virtual currency (VC) is a digital form of money. It has no physical form like paper bills or coins. Unlike traditional money, it is not stored in banks but rather in an online database that every user can access. Since it is not produced or regulated by the bank, cryptocurrency is not controlled by the central government – making crypto a decentralized currency. It can be saved, sent, or used as payment.
What Is the First Cryptocurrency?
Bitcoin is the first modern cryptocurrency that was invented. In 2009, during a severe economic recession, the worst since World War 2, Satoshi Nakamoto unveiled a groundbreaking white paper titled “Bitcoin – A Peer-to-Peer Electronic Cash System.”
This document introduced Bitcoin as a digital asset and a method for global money transfers. Furthermore, Nakamoto established the first secure blockchain network, a technology still used today for various cryptocurrencies.
As a result, Nakamoto not only invented Bitcoin but also established the security measures for Blockchain. He aimed to give the public access to money and reduce financial inequalities. Starting as a simple storage, blockchain now serves as the confirmation medium for transactions, ensuring the reliability of Bitcoin and other cryptocurrencies for widespread use.
Crypto Adoption in the World
Cryptocurrency has been continuously growing in other countries like Vietnam, Brazil, United States, China, and India. These are the top 5 countries with the highest number of cryptocurrency-owning citizens.
In Vietnam, 70% of the country’s digital currency investors are between 17 to 34 years old. While in Brazil, around 26 million citizens invest in these digital currencies. The United States ranks third with 15.56% percent of its population, aged 18 to 34 years old virtual currency holders. The second highest is China with 59 million crypto owners and India ranks first with 1.42 billion crypto enthusiasts.
How Does Cryptocurrency Work?
Cryptocurrency transactions work like sending messages through a special digital network. When someone wants to send cryptocurrency, they send a message to the whole network with details like who they’re sending it to, how much, and when.
Imagine your friend wants to send some cryptocurrency to you. She starts by sending a message to the network with all the details. But her message doesn’t get processed instantly. Instead, it joins a bunch of other messages, forming what’s called a “block.” This block contains a bunch of recent transactions.
Now comes the interesting part. Miners, who are like digital detectives, race to solve a puzzle based on the information in the block. Whoever solves it first gets to add the block to the blockchain, which is like a digital ledger that records all transactions.
Once a miner solves the puzzle, everyone else in the network checks to make sure the solution is correct. If it is, the new block gets added to the end of the blockchain, and your friend’s transaction is officially confirmed.
However, this confirmation isn’t instant. It takes a bit of time for the network to process about six blocks of transactions to make sure everything is legitimate. But once that’s done, your friend can be sure her transaction went through successfully.
Types of Cryptocurrencies
Bitcoin (BTC)
Bitcoin is the first and most famous cryptocurrency, invented in 2009. People often think of it as “digital gold” because it’s a popular choice for long-term investment. Many stores and websites accept Bitcoin as payment, making it widely used for buying things online and offline.
Ethereum (ETH)
Ethereum, created in 2015, is the second-largest cryptocurrency. Unlike Bitcoin, it’s designed for more than just payments. Ethereum allows developers to build apps called smart contracts, which run on its blockchain. These contracts can do things like run games or manage financial transactions without any chance of fraud.
Tether (USDT)
Tether is a stablecoin tied to the value of the US dollar. It’s the third-largest cryptocurrency and is commonly used to stabilize the prices of other cryptocurrencies. When the market is volatile, investors often switch to Tether to protect their investments and keep the market stable.
USD Coin (USDC)
USD Coin, created by Circle and Coinbase, is another stablecoin tied to the US dollar. It’s backed 1:1 with real dollars and is available on Coinbase, a popular cryptocurrency exchange. Like Tether, it helps stabilize the prices of other cryptocurrencies.
BNB (BNB)
BNB is the native token of Binance, a major cryptocurrency platform. It’s used to pay for transaction fees on Binance, often at a discount compared to other currencies. BNB can also be used to buy other cryptocurrencies on the Binance platform.
Features of Cryptocurrency
Decentralized
Unlike traditional currency, Bitcoin and other cryptocurrencies can be processed and verified by an independent and transparent network that belongs to no single person.
Highly Secure
Cryptocurrencies have high levels of security thanks to encryption codes and public cryptographic systems. Each owner possesses a private key. The cryptographic algorithms generating these keys use many number combinations that are virtually impossible to crack. Hence, users can confidently use cryptocurrencies without concerns about hackers.
Users can stay anonymous
Scams have many forms and have become more sophisticated with technology and AI – people can now edit faces and imitate voices! Cryptocurrency owners can protect themselves because they don’t need to share sensitive information. All crypto transactions are dependent on a sequence of characters and not on the person or company using them.
Deflationary
Fiat currency, the bills and coins that people use like the Philippine peso, US dollar or Euro gets its value from people believing it and the government backing it. When prices rise due to inflation, it erodes the purchasing power of that currency.
Cryptocurrency is deflationary because its production has already a determined limit. Once the maximum supply has been reached, the production stops.
Is Cryptocurrency Legal in the Philippines?
Yes, cryptocurrency is quasi-legal in the Philippines meaning they are neither fully accepted nor completely banned. Crypto transactions are legal but they are not recognized by the Bangko Sentral ng Pilipinas (BSP) as legal tender since they are not the issuing or regulatory body.
BSP’s rules about virtual currencies (VCs) state that VCs aren’t like regular money because they’re not backed by a government or anything valuable like gold. However, because people use VCs to send money and make payments, businesses that provide services using VCs need to register with the BSP. They also have to take steps to lower the risks involved with using VCs. If a business dealing with VCs doesn’t follow these rules, it can face penalties from the BSP.
Is Cryptocurrency Taxable in the Philippines?
Yes, cryptocurrency is taxable in the Philippines, with the primary form of taxation being implemented as capital gains tax (CGT). CGT can go as high as 15%, but it will vary depending on the sales generated from exchanging or purchasing cryptocurrencies.
Additionally, Filipinos whose crypto trades are meant for reselling after a short time, their assets will be classified as inventory. Consequently, it will possibly be subjected to value-added tax (VAT), which is 12%, once it reaches the required threshold.
Key Takeaway
Cryptocurrency represents a mindset shift in the concept of money, offering Filipinos an alternative financial ecosystem that is decentralized, secure, and potentially transformative.
Despite initial misconceptions and regulatory challenges, the global rise of cryptocurrencies like Bitcoin emphasizes their increasing acceptance and usefulness. By understanding the fundamentals of cryptocurrency, Filipinos can explore virtual currencies with confidence, potentially unlocking new opportunities for financial inclusion and empowerment.
As the world embraces this digital revolution, Filipinos must stay informed and proactive in exploring the possibilities that cryptocurrencies offer for their financial futures.