Terminologically, the word cryptocurrency originates from two words, cryptography and currency. As reported by Investopedia.com, cryptocurrency is a digital currency based on cryptography within a distributed network among computers on a large scale. Cryptography is a security system that makes cryptocurrency safe from counterfeiting and double spending issues.
Most cryptocurrencies are built using blockchain technology. Blockchain technology allows various entities to store, record, and verify transactions in a ledger transparently and securely in a decentralized system without the involvement of third parties. This blockchain technology forms the foundation for the largest cryptocurrency, Bitcoin.
Bitcoin is the first-generation cryptocurrency that has achieved success. Bitcoin was born in 2009, precisely a year after the global financial crisis. Initially, many doubted and questioned Bitcoin’s ability to survive. However, to this day, the resilience of the Bitcoin network is considered excellent and has never been hacked. This is due in part to the fact that the Bitcoin network is built on many nodes.
Nodes are computer networks that operate the Bitcoin network. Nodes are interconnected and communicate to build and update the blockchain database. Hacking one node does not disrupt the entire network because other nodes will quickly remove the compromised node from the overall network.
Despite this revolutionary technology, the emergence of cryptocurrencies has brought technological disruption to the financial sector. The exponential growth in global cryptocurrency usage has led to the emergence of various cryptocurrency exchanges. At the end of 2022, FTX, the second-largest cryptocurrency exchange in the world, experienced a collapse. Sam Bankman-Fried (SBF), the owner of FTX exchange, who was touted as ‘The Next Warren Buffet,’ lost his entire $16 billion fortune within 24 hours.
FTX was suspected of misusing customer funds. Through its subsidiary, Alameda Research, the company diverted customer funds for various activities such as campaign funding, social funds, and trading. FTX practiced fractional reserve, so when there were large withdrawals, FTX could not return customer funds.
This incident prompted various financial authorities worldwide to oversee cryptocurrency exchanges. The largest cryptocurrency exchange in Indonesia, Indodax, has implemented a Jointly Agreed Procedures (AUP) verification of Proof of Reserve (PoR) and Liquidity Adequacy Calculation. This step was taken to enhance customer confidence in conducting transactions.
Bappebti Regulation No. 4 of 2023 has provided a framework for cryptocurrency exchanges. The regulation stipulates that Prospective Physical Crypto Asset Traders must place all customer funds with a Futures Clearing Institution in an account specifically used to facilitate the placement of funds and settlement of Physical Crypto Asset Market transactions. The provision of buying and selling facilities and online trading systems must be examined or audited by independent institutions with expertise in information systems. In addition, Prospective Physical Crypto Asset Traders must report all managed wallets before registering as a Prospective Physical Crypto Asset Trader.
To support operational activities, Prospective Physical Crypto Asset Traders are required to provide employment contracts with employees holding Certified Information System Security Professional (CISSP) and Certified Information System Auditor (CISA) certificates when registering with Bappebti. SW Indonesia is often asked to assist Prospective Physical Crypto Asset Traders in complying with the regulations and frameworks provided by the regulator.
Through Law No. 4 of 2023 on Cryptocurrency, cryptocurrency regulations in Indonesia will undergo significant changes with the transition of supervisory authority from Bappebti to OJK. Subsequently, OJK will oversee the entire financial sector, including banking, capital markets, pension funds, insurance, fintech, cryptocurrencies, and cooperatives. The transition of supervisory authority is expected to take between 6 months and 2 years. During this transition period, Prospective Physical Crypto Asset Traders are expected to prepare for compliance with the applicable regulations.
The Indonesian government itself launched a cryptocurrency exchange on July 17, 2023, in accordance with the Decision of the Head of Bappebti Number 01/BAPPEBTI/SP-BBAK/07/2023, named the Commodity Future Exchange (CFX), under PT Bursa Komoditi Nusantara. The Indonesian government, through the Ministry of Trade, hopes that the domestic cryptocurrency exchange will increase the number of cryptocurrency transactions and create a secure transaction ecosystem for customers. IT examinations conducted by CISA holders become one of the alternatives to creating a sense of security for customers or investors on the cryptocurrency exchange.
