Cryptocurrencies continue to operate in a grey area

An illustration of tokens representing bitcoin and various cryptocurrencies. Photo supplied
An illustration of tokens representing bitcoin and various cryptocurrencies. Photo supplied

Cryptocurrencies continue to operate in a grey area

Cambodian enthusiasts for bitcoin and other digital currencies are pushing ahead with their development and adoption despite efforts by the government and central bank to block the trading of cryptocurrencies while supporting the underlying technology.

In Mean, founder of the Khmer Crypto Foundation, a local association of over 100 local cryptocurrency investors and enthusiasts, said he must tread carefully because the legality of cryptocurrencies in Cambodia is not entirely clear.

The government has refused to officially recognise cryptocurrencies and has taken steps to prevent Cambodians from trading decentralised digital coins such as bitcoin, ethereum and litecoin, though it has not explicitly outlawed people from owning them.

The Securities and Exchange Commission (SECC) has warned citizens to be cautious of the risks associated with trading or investing in cryptocurrencies in the absence of a regulatory framework. The National Bank of Cambodia (NBC) has taken a firmer stance, issuing a directive in December that bans all banks and microfinance institutions from trading or advertising cryptocurrencies. As a result, many of these financial institutions prevent customers from using their accounts to buy or sell digital coins or tokens.

“It’s not clear yet whose job it is to regulate cryptocurrencies [in Cambodia],” said Mean. “It could fall to the NBC or the SECC, but it’s not clear yet which one it will be.”

He said even his KHCoin project, which launched in November 2017 as the first-ever “Cambodian” cryptocurrency, falls into a regulatory grey area that prevents him from monetising it.

“I give out the coin and I always tell people that it has no value – its value is soley based on speculation,” he said, insisting the KHCoin project is meant to serve as an educational tool and not an investment asset.

Mean created a digital wallet for KHCoin, as well as a local exchange platform to allow the approximately 5,000 Cambodians who hold KHCoin to trade it for bitcoin and certain altcoins. However, the exchange has remained in beta testing for months awaiting a clear national regulatory framework on cryptocurrency transactions that would allow it to operate legally.

“I’ve had trouble setting up my exchange platform,” he admits. “I used my own money and lost thousands of dollars to hackers [during testing], but I want to do this because I think it is important for Cambodia to show the world that it can have its own cryptocurrency.”

Despite local trading restrictions, Mean said people are buying and selling KHCoin on a daily basis. And while he stressed that the coin has no intrinsic value and that he does not endorse speculative trading, he admitted that he hopes KHCoin will gain value and said making it available on an exchange is one way to do that.

KHCoin is not the only cryptocurrency being touted as a Cambodian coin.

Entapay, a new cryptocurrency whose founders and funders are based in China, sent waves of confusion through the international crypto community when it was announced earlier this month that it would launch in Cambodia at the Asean Blockchain Summit in Phnom Penh, seemingly with the backing of the Cambodian government.

A press release issued on March 2 announcing the Entapay project and headlined Cambodia May Issue Its Legal Cryptocurrency, Following Venezuela misled many news outlets into reporting that the Cambodian government was on the brink of launching a national cryptocurrency similar to Venezuela’s Petro.

“Following Venezuela’s lead, other countries have been trying to issue legal digital tender, including Cambodia,” the press release said, adding that Entapay’s blockchain payment system has the “potential to even replace VISA as the new mainstream payment mode”.

Entapay PR director Richard Lee backpedalled a bit when asked to validate the claims.

“We never said that we had the official backing of the government,” he said. “We just said that we had their support.”

Entapay’s launch on March 7 coincided with the launch of the Cambodia Blockchain Industry Development Association (CBIDA) – a private industry group made up primarily of Chinese blockchain promoters that aspires to be “the single hub for the Cambodian government to gain access to the blockchain”.

Weibin Deng, the self-appointed head of the CBIDA, said Entapay was his association’s first and only project. He also said Entapay has the support of the Cambodian government, but stressed that it has not yet received a licence from any official state body.

“We want to support the use of blockchain technology, and CBIDA is in place to accelerate it,” he said through an interpreter. “We don’t have a financial licence for Entapay yet, but we will soon, probably by May.”

The company has not contacted the NBC, SECC, or the ministries of Commerce and Finance, to pursue the application process yet, he added.

That has not stopped plans to hold an initial coin offering (ICO) for the Entapay token, with the live website counting down to the first token sale on March 31. Pre-sales have already begun, with investors instructed to deposit ethereum to the Entapay website to receive Enta Diamond certificates that can be used to purchase Entapay tokens.

China banned ICOs in September 2017 after its central bank issued a sharp statement labelling token sales “illegal and disruptive to economic and financial stability”. The ban has forced Chinese cryptocurrency developers to look for safe havens offshore – one reason, presumably, Entapay has chosen to launch in Cambodia.

Building blocks

Blockchain is the underlying technology behind bitcoin and other cryptocurrencies. It operates as a distributed digital ledger that records transactions between two parties in a chronological list of records called blocks. Each block of new transactions is secured and linked to the previous block using cryptography, forming a continuously-growing chain of records.

While blockchain technology is not unwelcome in Cambodia – with the NBC itself implementing a private blockchain project to streamline its internal processes – public blockchain projects generally use a native coin or token to reward “miners” that secure the network and process every transaction.

Blockchain developers in Cambodia prevented from rewarding miners with cryptocurrencies have been searching for alternative ways to keep their networks secure and running.

“I am working on a blockchain project now to help manage remittance payments, but we don’t know how to secure it yet,” said Rithy Thul, a Cambodian tech entrepreneur. “However, I think maybe there is a way to do it without cryptocurrencies.”
But Pierre-Marie Riviere, co-founder of the blockchain startup daPACT, thinks that is unlikely.

“Cryptocurrencies need blockchain, and blockchain needs cryptocurrencies – they go hand in hand,” he said. “If Cambodia keeps pushing out cryptos, it also pushes out this technology.”

Yet Riviere said he could understand why the NBC and SECC have voiced concerns over cryptocurrencies given the startling number of Ponzi schemes, investment fraud and scams associated with them.

“What they’re saying is be careful and don’t give your money to coins you’ve never heard of or you will lose money,” he said. “But fear is keeping the government from trying to regulate [cryptocurrencies].”

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