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After superpower China announced earlier this week that it has banned Initial Coin Offerings (ICO), the value of bitcoin fell 11.4%immediately after. Circulating speculations claim the ban will impact the large amounts of capital raised from ICO, a total of more than $1.7 billion from January to early September 2017.

What is ICO and bitcoin? What impact does it have on businesses and why did China, one of the world’s most influential countries, ban something so lucrative?

What is bitcoin?

Invented by the then-unknown creator Satoshi Nakamoto in 2009, bitcoin is a ‘peer-to-peer’ electronic currency. It has no physical form so it does not require a central location to store.

In other words, bitcoin runs independently from banks and financial institutions and without any involvement from those institutions, bitcoin transactions are ‘free of charge’ but this also means if they get stolen or lost, there is no possible way to recover losses.

ICO Explained

Craig Wright, an Australian entrepreneur, who claimed in 2016 that he is Satoshi Nakamoto, creator of bitcoin. Source: The Economist.

Cryptocurrency is any currency associated with the internet that uses cryptography – the process of converting legible information into an almost uncrackable code, to track purchases and transfers.

Cryptography was created to cater to the need for secure communications in the Second World War. It has evolved in the digital era thanks to mathematical theory and computer science, to become a way to secure communications, information and money online.

Bitcoin was the first cryptocurrency, other examples include Ethereum and Ether.

How does it work?

To buy or sell bitcoin, users need to have a bitcoin wallet installed on their desktop or mobile devices. The identity of users are kept anonymous but transactions are tracked with digital identification comprised of a bitcoin address and a private key.

Think of your bitcoin address as a transparent safety deposit box. Everyone knows what is inside but only the private key can access it. These “safety deposit boxes” are public logs called blockchain.

How do you get bitcoin in the first place? Users typically take part in mining.

Mining is the act of verifying bitcoin transactions by contributing computing power to match private key to bitcoin address. Whenever a new block of transactions is created, it is added to the chain of blocks, hence the name. Still with us?

For comparison’s sake, blockchain technology  is similar to Google Docs.

Before the arrival of Google Docs, users could only edit documents via Microsoft Word one person at a time because two users couldn’t edit a document simultaneously. With Google Docs, both parties have access to the same document at the same time if they are provided access.

Blockchain technology is like a shared document, but it is a shared ledger.

What is bitcoin used for?

Blockchain solves two challenging problems associated with digital transactions: securing information and avoiding duplication making the technology widely applicable to multiple use cases.

It also eliminates all the pain points with transferring money through traditional methods: crossing borders, rescheduling for bank holidays, high bank fees, failed/dropped transfers, etc.

“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.” – Don & Alex Tabscott, Blockchain Revolution

Because bitcoin allows users to stay anonymous, it has raised concerns in its application to facilitate drug deals, money laundering and illegal purchases. But as with all crime, there is a price to pay if caught.

“But if you catch people using something like Silk Road [bitcoin market], you’ve uncovered their whole criminal history,” Sarah Meiklejohn, computer scientist at University College London, says. “It’s like discovering their books.”

In more positive applications, tech giants like IBM are utilizing blockchain technology for information storage in healthcare, government, and supply chain for its accuracy and transparency.

Estimated spending on blockchain technology by banks in 2019 can be as high as $400 million.

ICO Explained

The price of bitcoin has fluctuated aggressively since it became popular in 2013 when prices rose by almost 10,000% before the biggest online bitcoin exchange sent it crashing.

Telegraph recently reported that there are currently 15 million bitcoins in circulation, each of which is worth $4,231 (as of September 2017). A single bitcoin’s sharp increase in value has many sceptics believing that we are in a bubble.

ICO Explained

Back full circle, what’s the big deal with ICO?

Similar to an Initial Public Offering (IPO), an Initial Coin Offering (ICO) is when a company offers a chance to invest in a new cryptocurrency. Instead of trading shares, companies exchange their newly created cryptocurrencies, known as tokens in ICO…essentially, code.

An example would be OmiseGO ICO in August, when the payments company raised $25 million selling its OMG tokens. Since then, many news outlets are reporting millions of dollars raised in selling cryptocurrencies in a matter of a few hours.

China banned ICO because its legality is described as ‘undefined’ and it was only in July this year that US regulators began looking into it.

According to Sun Guofeng, director general of the Chinese Central Bank, banning ICO was a necessary move to stop illegal fund raising.

China-based ICOs raised about $400 million through 65 offerings with more than 100,000 investors. If it all came crashing down, China would be in hot water.

What is the future of ICO around the world and in Southeast Asia?

To clarify, holding cryptocurrencies in China by private parties is still legal. The People’s Bank of China only makes it illegal for financial institutions to hold or transact in them. It does not mean that there is no opportunity for Chinese developers and service providers in cryptocurrency.

While countries are slowly trying to control ICOs, the Southeast Asian market sees bitcoin as an opportunity to improve the financial maturity of its citizens, over 70% of whom are unbanked.

Singapore has been dubbed to be the next ICO hotbed given its a favorable location for startups, favorable regulatory standards, and supportive tax measures.

And developing markets like Vietnam are embracing digital currency as showcased by smart vending machine startup Dropfoods that announced its ICO this week and Myanmar’s SKYBIT that aims to open the country to a global market through bitcoin.

Bitcoin is not evil. Digital currency is not the bad guy. What has fueled the “ICO bubble” uproar is the excessive optimism that is outweighing rationality that usually comes with smart investing.

Tokens purchased by “investors” in an ICO can be used to transfer value within the new coin’s ecosystem, or to other cryptocurrencies’ ecosystems. The problem is that there is a high likelihood these ICO projects will fail. Why?

Take it from the creator of a famous cryptocurrency.

“Many firms are issuing a coin not because it makes sense to do so, but because they have a product they can sell quickly.” – Ethereum founder Vitalik Buterin

Vietnam expects to have nearly 100% of its households connected to the internet in the next five years. Currently, 94% of urban households and 69% of rural households in the country have access to the web.

A recent whitepaper from Kantar Worldpanel recorded a surge of 177% of people in Vietnam browsing the internet in their spare time – making the country an attractive for retail companies, especially the top 10% money makers.

Last year, 6% of urban households in Vietnam had shopped online for FMCG products and spent 3-4X more than when buying offline.

This year, 23% of high income families in Vietnam are planning to shop online more often — makes sense as they are able to afford the convenience of ecommerce.

Vietnam high-income householdThe Vietnam Ecommerce and Information Technology Agency (VECOM) expects 30% of the population will shop online in 2020 and that revenue from online will account for 5% of total retail sales, up from 2.8% in 2015.

Win over Vietnamese shoppers with social proof

Through an internet connection, customers will have easy access to a wealth of information that allows them to research before buying and making them more sceptical towards conventional advertising, especially in rural areas.

Vietnam high-income household

More Vietnamese customers do product research before buying. Source: Kantar Worldpanel

With 8 out of 10 people online everyday in Vietnam (Google, 2015), it’s natural for them to be exposed to targeted campaigns, a larger selection of products – especially on social media – and influenced by reviews from reliable community members and trusted Key Opinion Leaders (KOLs).

Social media has replaced search engines to become the more favoured ad channel for businesses in Vietnam.

Data from eMarketer shows ads in social networks to be more effective among digital channels such as news sites and mobile apps.

Vietnam high-income householdBabi.vn is a good example of how a brand can utilise Facebook to promote welfare, gain the trust of customers and increase conversions. The company created a Facebook page to build a community of mothers with young children to share their favourite products and reviews and driving traffic to the ecommerce site.  

Vietnam high-income householdThe Vietnamese also have a tendency to choose international and imported brands over local counterparts, stemming from the belief that they offer higher quality services and products. This makes the country an open battlefield for global companies.

This way of thinking has carried over to online shopping as well. E-retailing giants like Amazon and eBay carry better reputations over local ecommerce sites for their wide product assortment and easy return policy.

Vietnam high-income householdVietnam is a market largely overlooked by companies for its slow digital payments adoption and bureaucratic barriers to opening foreign-owned entities, but for the ones that have already set up shop within the country, the ecommerce horizon looks friendly.  

Here’s what you should know:

1. Vietnam’s online travel market is valued at $9 billion in 2020

Up to 45% of Vietnamese internet users book hotel services or air tickets, with the figure increasing by 11% annually, according to Vietnam’s deputy director of the Ecommerce and Information Technology Agency, Lai Viet Anh.

The number of travelers booking tours online has increased considerably in the last two years. About 4,000 travelers booked tours online in 2015 and it increased by threefold last year (12,000 travelers). In the first half of 2017, the number of travelers booking tours online was equal to that of the entire year of 2016.

Forecasts say Vietnam’s online tourism market’s value may reach $9 billion in the next three years.

Read the full story here.

2. Didi Chuxing partners with car booking company Careem

Chinese ride-hailing company Didi Chuxing has announced a new partnership with Middle East transportation company Careem to further its expansion in North Africa and the Middle East.

With 12 million customers, Dubai based Careem has overtaken Uber within the Middle East since its launch five years ago, with investors such as Germany auto company Daimler, and Japan’s Rakuten.

Didi’s expansion into the Middle East will put it head-to-head with Uber, who have already gained ground within the region.

Read the full story here.

3. Payless emerges from bankruptcy

Payless is set to emerge from bankruptcy after disposing of half of $847 million of debt it had built up under its private-equity ownership.

Payless has closed roughly 700 mostly mall-based US stores, but is opening four mega stores here to add to some 3,200 post-bankruptcy locations in the US and abroad, and plans to invest $234 million over five years.

The company is banking on a strategy focused primarily on brick-and-mortar sales at a time and can withstand the onslaught of ecommerce.

Read the full story here

Here’s what you should know today:

1. iPay88 expects more revenue from international market

Malaysian payment gateway provider iPay88 expects more revenue contribution from international market by end of this year in accordance to its expansion plan.

The company is looking at contribution ratio of 80% and 20% for local and international market respectively. At the moment, international revenue contribution stands at five percent.

“We are seeing a 34% growth in Indonesia for the first and second quarters of 2017 compared to the same period in 2016. Number of transaction in Indonesia also grew by 97% in the same period,” Co-Founder and Executive Director Chan Kok Long said.

In addition to Southeast Asian countries, iPay88 also presence in Hong Kong and Bangladesh. The company expects its investment in Bangladesh to break even in three years.

Read the full story here

2. Malaysian retailers urged to go digital

The Malaysia Retail Chain Association (MRCA) wants to drive the retail industry to go online for better opportunities and competitive advantages. The support from the government with the Digital Free Trade Zone (DTFZ) should help the adoption faster.

“Since the government is bringing in Alibaba, we have to rely on that wave to benefit the retailers and SMEs to the maximum,” said MRCA President Datuk Garry Chua.

Online contribution to the total sales is growing but it’s still on a gradual mode. He expects the growth to reach double-digit after the DFTZ truly kicks off.

Read the full story here

3. Grab and Uber subjected to tax checks in Vietnam

The General Department of Taxation recently sent a document requesting the HCM City Department to inspect the tax payments of Uber and Grab.

The request came after traditional taxi firms claims that they have been subject to a variety of taxes and charges which accumulates to an average tax of VNĐ 2 trillion ($91.7 million) annually, while Uber and Grab were only subject to a tax of 4-5% of revenue and only paid VNĐ 20 billion ($8.8 million) annually.

The Ministry of Transport will provide information to the tax agencies to clarify Uber and Grab taxes soon and will work with the Ministry of Finance, especially the General Department of Taxation, to share documents and calculate tax management options more tightly to avoid inequality in tax collection.

Read the full story here

Vietnam’s economic development has been the cause of a widening income gap between those working in developed, urban centers and others in rural locations. The country’s income distribution is predicted to be among the most unequal in Asia Pacific by 2030.

The highly polarized nature of Vietnam’s current market means a few things:

  1. Companies can either target one particular social class and specialize or
  2. Mid-range brands have the opportunity to consolidate both a premium and more affordable product line under one umbrella

An example of a company that does this successfully is Viet Tien Garment, an apparel and footwear maker that has different brands to serve different age and income levels. For example, it launched Vee Sendy for younger shoppers and TT-up for its mature customers.

The company is valued at $50.2 million and claimed 2.3% market share in 2016, which is considered positive in Vietnam’s fragmented market.

Serving individual social classes

Source: Euromonitor

Social class E, the lowest income class is expected to remain the most prevalent in the country until 2030, which is good news for FMCG companies as they represent a large market for basic necessities.

According to Nielsen, FMCG items are experiencing a growth surge in Vietnam, especially beyond Ho Chi Minh City and Hanoi.

In 2016, nearly 6% of Vietnamese urban households shopped for FMCG items online at least once and found themselves spending 3-4X more than they would on an average shopping trip offline.

Social class A, the highest income class is expected to be the second fastest growing segment until 2030.

Luxury automaker Mercedes Benz already counts Vietnam as one of its fastest growing markets in Asia and Chanel recently opened its first flagship store in Ho Chi Minh earlier this year – demonstrating a positive step in the direction of Vietnam’s growth.

As Vietnam and US trade grows 20% annually, analysts believe that increase in income will stimulate consumption of luxury labels, especially if they are portrayed as a status symbol.

“Why would I spend $300 on something that doesn’t relate to me, and has no voice?” says Ha Nguyen Thu An, Head of Social at Ogilvy. “Everyone gets Louis Vuitton because of their brand story.”

Apart from multi-brand marketplaces such as Lotte.vn and Robins.vn (previously Zalora), consumers do not have direct access to luxury items and instead, are only exposed to fast fashion pieces or mid-tier brands such as Nike and MANGO.

The future of Vietnam’s consumer landscape

Whether these companies choose an offline, online approach, or both, the country’s classes are both showing signs of economic growth and an appetite for goods they can show off.

Wrapping up for the day? Kick back and enjoy today’s latest ecommerce headlines.

 

1. Tencent doubles down on Southeast Asia

Tencent, maker of WeChat and China’s most valuable tech company, is doubling down on its push into Thailand and the Southeast Asian region.

The Chinese giant has formed a joint venture with Ookbee, the firms announced today, investing US$19 million to turn the venture into a “content ecosystem” for digital media. Prior to this, Tencent also announced that it was investing in Thailand’s Sanook Online, a contents portal.

It seems that Thailand will be the place for Chinese giants to flex their power muscles.

Read the rest of the story here.

 

2. China’s BitSE’s blockchain technology used in fashion to fight counterfeits

In the same way that bitcoin’s blockchain is an immutable ledger of peer-to-peer transactions, VeChain creates a record and digital trace of physical items. Each item is given a unique ID, which is paired with either a NFC chip or a QR code, depending on the client’s requirements. That binds the item’s digital identity to real-world transactions.

Read the rest of the story here.

 

3. Vietnam retail ecommerce to reach $10 billion by 2020

Nguyen Thanh Hung, chairman of Vietnam E-commerce Association (VECOM), agreed that the development of mobile phones and applications had contributed to promoting purchasing activities.

Hung said the country’s e-commerce had been developing at a growth rate of 30% a year. “Businesses have quickly shifted from offline to online retail. Several are even totally doing business online,” he said.

Read the rest of the story here.