Late October 2017, in a written notice to the public media, the State Bank of Vietnam re-affirmed that the issuance, supply, and use of 'virtual' currency is strictly prohibited in Vietnam. In support of the prohibition, initially, the State Bank of Vietnam relied on provisions of Decree 101/2012/ND-CP on non-cash payment as amended by Decree 80/2016/ND-CP. Decree 52/2024/ND-CP replacing Decree 101/2012/ND-CP then inherits Decree 80/2016/ND-CP's provisions on the same. These clauses state that payment instruments which are not stipulated by the State Bank (i.e. – implicitly, Bitcoin and other forms of virtual currency) are illegal. In assigning a penalty for violation, the State Bank relied on Article 26 of Decree 88/2019/ND-CP on administrative sanctions for monetary-banking infringements, which prescribes a fine of between 150-200 million VND for a violation the prohibition. However, with the current development of cryptocurrencies in Vietnam whereby it is calculated that, according to data from the Vietnam Blockchain Association (VBA) in September 2023, the value of virtual currency in Vietnam received is nearly 91 billion USD in one year (from October 2021 to October 2022). Further, according to the representative of the Ministry of Justice, the Ministry of Justice is of the view that virtual currency is not prohibited in Vietnam without any specific regulations on the same.
This broad order encompasses all forms of virtual currency including, and most notably, cryptocurrencies. The most renowned cryptocurrency is Bitcoin which was the first cryptocurrency and has gained the most public recognition; however, since the creation of Bitcoin, many different kinds of cryptocurrencies have been created.
What are Cryptocurrencies?
Cryptocurrencies are digital forms of currency which are not connected to any government or central bank. Each cryptocurrency is contained within its own network; anytime a person interacts with that cryptocurrency, their computer joins that cryptocurrency's network. When a transaction occurs using a cryptocurrency, that transaction is recorded in a permanent, public digital "ledger" which is constantly being updated and shared with all the computers in that cryptocurrency's network.
To ensure that the ledger is never tampered with, computers in
the cryptocurrency's network, owned by companies and
individuals from all corners of the world, are constantly sealing
off the recorded parts of the digital ledger by encrypting the
record using complex mathematical equations. Batches of
transactions are sealed off at a time. A useful analogy would be to
compare these batches of recorded transactions to pages in a
ledger. When enough transactions are recorded to fill a page, that
page is then sealed off. The technical terminology for these pages
is a "block."
As an added measure of protection, the sealing off process is
compounding. This means that the mathematical equations used to
seal off new blocks require information from the previously sealed
off blocks in the ledger. This can be conceptualized as a chain
with each block as a link. Because each link in the chain relies on
information from the previous link, any tampering with a sealed
link will be evident in all subsequent links because the entire
chain would be altered. These aspects are the reason that the
technology used to create cryptocurrencies is called
"Blockchain" technology.
As a reward for recording and sealing off a block of the ledger, the software is programmed to award computers or groups of computers with newly created cryptocurrency. Accordingly, the process of recording and sealing off the ledger is called "mining." Computers that accomplish more of the sealing off process are awarded more of the currency. This makes the mining process competitive. The entire process consumes a lot of electricity so computers that are specially designed for mining are required in order to make mining profitable.
Because all transactions occur within the cryptocurrency's
network, every transaction is visible to everyone in the network,
the encryption step relies on information from the sealed off
blocks, and the data ledger is stored on every computer in the
network rather than on a central server, the cryptocurrency
theoretically cannot be counterfeited. This aspect, along with the
rarity of the cryptocurrency and its ability to be used in digital
transactions gives the currency value.
For these reasons, cryptocurrencies arguably function more
similarly to commodities such as gold or oil. In fact,
cryptocurrency has been classified as a commodity by the U.S.
Commodity Futures Trading Commission and is accordingly regulated
as such in the U.S.A. The major difference between cryptocurrency
and most commodities is the ability to use cryptocurrency to
accomplish small transactions. As the infrastructure for
cryptocurrency grows, cryptocurrencies are increasingly able to be
used to directly purchase goods.
As with most technologies, Blockchain technology has been
updated, perfected, and is beginning to be used for a variety of
different applications. Private companies are beginning to create
new cryptocurrencies designed for specific applications such as
real estate transactions and the recording of contracts and
security obligations. These currencies are often referred to as
"altcoins" and sometimes differ from the style of
cryptocurrency described above in several respects including the
distribution method and economic model.
It is unclear from the State Bank of Vietnam's declaration
whether use of all of these other altcoins is similarly prohibited
in Vietnam. Part of the confusion stems from ambiguous rationale
for the prohibition. The official release by the State Bank simply
states that Vietnam has already created a legal framework for means
of payment and that virtual currencies fall outside the scope of
that framework.
Possible Rationale for Vietnam's Prohibition of Virtual
Currencies
There are several theories regarding the underlying rationale for
the State Bank's Prohibition. One theory is that the
prohibition is a protectionist measure for Vietnam's current
currency, the Vietnamese Dong (VND). While VND has remained stable
in recent years, it has experienced significant fluctuation and
devaluation over the course of its existence which makes VND more
difficult to trust than other more stable currencies. As internet
penetration steadily increases in Vietnam, ecommerce has similarly
been steadily becoming more predominant. If enough people begin
using methods of payment other than the domestic currency, it could
potentially lead to a collapse of VND. Historically, collapse of a
state currency is accompanied by severe repercussions such as civil
unrest.
Another possible rationale looks to the strong correlation between
countries that have banned cryptocurrency and the levels of
corruption in their government. From its inception, cryptocurrency
has been touted as an anti-corruption tool designed to circumvent
the control of corrupt governments. Other countries that have
placed prohibitions on the use of cryptocurrencies include Bolivia,
Ecuador, Kyrgyzstan, Bangladesh, Nepal, and China, with Russia
likely to officially follow soon. As of 2016, Vietnam was ranked
113 by Transparency International's Corruption Perception
Index, which awards countries with little perceived corruption the
best ranks. For context, Denmark, which was found to have very
little perceived corruption, was ranked first, and Somalia was at
the very bottom of the list, ranked 176th.
The third rationale may lie in the State Bank of Vietnam's careful and slow approach to this matter. While this body may be fully aware that the application of blockchain technology and the use of cryptocurrencies are an irreversible trend, it needs more time to check all possible impacts. This is to ensure that such trend must be fully under its control. Just two months before the State Bank of Vietnam's above statement, the Prime Minister of Vietnam gave greenlight for a scheme on creation of a legal framework for management and handling of cryptocurrency and virtual property. One should not however expect that a complete legal framework on cryptocurrencies could be available before 2020.
A forth rationale, and the one that is most regularly cited by countries that have banned cryptocurrency, is the attempt to combat the nefarious, illegal activity for which cryptocurrencies are often used. Because of the anonymous, decentralized nature of cryptocurrency, cryptocurrency is well-suited for illegal online transactions. Particularly at the genesis of cryptocurrency, it is no secret that its primary use was the purchase of illegal goods and services in a murky segment of the internet commonly referred to as the Darkweb. Despite a severe lack of data related to these underground online marketplaces, it is well documented that cryptocurrency is the primary form of payment. The idea is that if country prohibits the means of purchasing goods and services on these markets, it will be easier to stamp out the activity all together. As cryptocurrency has evolved and more legitimate uses have been developed, this rationale for prohibition has become weaker.
At this point, it remains unclear whether any one of these rationales, or some combination, was the driving factor for the State Bank of Vietnam.
Moving Forward
Moving forward, it would benefit the Vietnamese government to clarify their position on cryptocurrency and, more generally, Blockchain technology. As noted above, the technology has significant applications beyond pure ecommerce. It is clear from the media penetration and ever-increasing value of cryptocurrencies that the technology is shifting from the margins into centerstage. As more and more large businesses embrace the technology and more countries develop legal framework for cryptocurrency, it is evident that cryptocurrencies are here to stay. Vietnam should think twice about repercussions of turning its back on what is promising to be a key aspect of the digital future.
As a positive development, on April 2024, the representative of
the Minister of Justice – Mr. Cao Dang Vinh, Deputy Head of
Civil Law Department – advised that the Ministry of Justice
itself does not prohibit cryptocurrencies and virtual assets.
According to Mr. Vinh, cryptocurrencies and virtual assets have
many potential risks of being exploited and appropriated and thus
Vietnam needs to have specific regulations to govern
cryptocurrencies. On February 2024, the Government tasked the
Ministry of Finance with the development of legal framework for
virtual assets and it is expected that, by May 2025, the legal
framework for such a matter must be completed.
Creating a well thought out legal framework for regulating
cryptocurrency and Blockchain technology, as other developed
countries are doing, would signal to the international community
that Vietnam is in-step with the international frontrunners in
commercial technology and development. Phrased another way, it
would announce to the world that, as the future of commerce
unfolds, Vietnam is here and Vietnam is ready to play.
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