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Editor in Chief, The Taiwan Banker
Hank Huang (黃崇哲)
How Taiwan can find real value in virtual currency The Taiwan Banker NO.99107.03

When the price of Bitcoin surged last year, many experts likened it to the tulip craze in Holland during the 17th century. Nobel Prize-winning economist Robert Shiller feared that history would once again repeat itself - and Bitcoin would prove to be an immense bubble. Meanwhile, Taiwan is beginning to slowly experiment with virtual currency. The scale of this experimentation remains small - certainly smaller than in neighboring South Korea - and media reports tend to focus on blockchain (distributed ledger) technology and mining of digital currency, the electricity-intensive process by which it is made.


There are hundreds of digital currencies in existence besides Bitcoin, including Ethereum, Ripple, Dash, Primecoin, Peercoin, and many more. These currencies use different encryption algorithms and trading mechanisms to attract investors. For a new generation of investors, foreign currency allocation is no longer a matter of the ratio among the US dollar, Japanese yen and New Taiwan dollar, but the spread between Bitcoin, Ripple and NT accounts.

Virtual currency is proving useful to many different types of users, including rogue states. For instance, to bypass US sanctions, the Venezuelan government issued the petroleum-backed cryptocurrency Petro in February. Caracas hopes that the Petro will help to stabilize the domestic economy and give it independence from the US dollar-dominated financial system. The Petro is the first example of a digital fiat currency backed by a sovereign state.


Different generations prefer to accumulate and store wealth in different ways. Baby boomers liked gold. Generations X and Y prefer financial instruments like hedge funds and derivatives. Millenials, the first generation who has grown up with the internet, has taken a strong interest in virtual currency. They are attracted by its decentralized nature. We can see from how digital currency is thriving that a certain "social trust" exists among users. With this in mind, we should endeavor to gradually incorporate digital currency into our economy.


Digital currency is in a nascent stage, yet many experts have made bombastic forecasts about its future. Some say it will completely replace physical currency. Others believe it is a giant bubble that will wreak havoc on the global financial system when it bursts. Still, many observers say that virtual currency will inevitably become mainstream, but that it will take time before central banks, politicians, businesses and consumers accept it.


For Taiwan's financial industry, it is essential to adapt to the millennial generation's financial habits. Millenials are at ease with digital finance. The banking industry must take that into consideration during product development. To be sure, Taiwan has demonstrated a strong interest in financial technology. Last year, it implemented a fintech sandbox to ensure that startups can experiment with financial technology without falling afoul of current regulations. The rollout of the sandbox caught the attention of foreign media; Raconteur named Taiwan as No. 2 among five emerging financial technology centers, second only to Stockholm in Sweden. Given Taiwan's rich experience in information technology, in particular its outstanding engineering talent, fintech has great potential to flourish here.


Digital currency's decentralized nature raises important questions about the future of financial transactions and even sovereign currencies themselves. Surely, tremendous business opportunities exist in the realm of digital currency, but there are also big risks which must be managed. With its strong information technology background, progressive financial legislation and adept banking sector, Taiwan should move to regulate virtual currency and ultimately integrate it into our financial system.