FACULTY OF ACCOUNTANCY
BACHELOR OF ACCOUNTANCY (HONS) AC220
FINANCIAL MARKETS (MAF653)
ASSIGNMENT 1: DIGITAL CURRENCY
PREPARED FOR:
PUAN SITI ROKYAH BINTI MD ZAIN
PREPARED BY:
NAME: MATRIC ID: CLASS:
MUHAMMAD AFHDAL BIN ABDUL HALIM 2020859114 TAC2205C
NABILAH BINTI ADANAN 2020859472 TAC2205C
AINA SAFFIYAH BT MOHD KAMARUDDIN 2020898108 TAC2205C
NUR MASITA BINTI AHMAD AFANDI 2020482738 TAC2205C
NURUL HAYATI BINTI ZAIDIN 2020489766 TAC2205C
SUBMISSION DATE:
11 NOVEMBER 2022
TABLE OF CONTENTS
1.0 INTRODUCTION............................................................................................................. 3
2.0 BACKGROUND OF DIGITAL CURRENCY .................................................................. 4
2.1 Definitions ......................................................................................................................... 4
2.2 Characteristics.................................................................................................................. 4
2.3 Types ................................................................................................................................ 4
3.0 REGULATORY FRAMEWORK OF DIGITAL CURRENCY IN MALAYSIA ................. 6
4.0 ISSUES AND CHALLENGES RELATED TO DIGITAL CURRENCY IN MALAYSIA . 7
4.1 ELECTRICAL THEFT ...................................................................................................... 7
4.2 NON-COMPLIANCE WITH SYARIAH ............................................................................. 7
5.0 COMPARE THE USAGE OF DIGITAL CURRENCY BETWEEN MALAYSIA AND
THE INTERNATIONAL PERSPECTIVES ................................................................................ 8
6.0 CONCLUSION & RECOMMENDATIONS ..................................................................... 9
7.0 REFERENCES.............................................................................................................. 10
1.0 INTRODUCTION
The purpose of this report is to explore more about digital currency, how it works, and the
challenges and issues that digital currency faces. This report also shows the regular
framework of digital currency in Malaysia. In general, digital currency, or what we can call
digital money, is any form of payment that is entirely electronic. Digital money, unlike a dollar
bill or a coin, is not physically tangible. Online systems are used to account for and transfer it.
Therefore, we believe that digital currency is significant nowadays as our world is changing
into an online system, but it still has advantages and disadvantages. The main advantages of
digital money are that it increases transaction speed while decreasing costs and simplifies
accounting and record-keeping for transactions through technology. The disadvantages of
digital currency are that it is highly susceptible to hacking. Even as it eliminates the need for
physical storage, the technological origins of digital money make it a target for hackers who
can steal from digital wallets.
Other than that, the use of digital currency can jeopardize user privacy. Cash is anonymous,
making it difficult to identify and track its users. On the other hand, digital currency can be
tracked. Internet cookies allow for targeted advertising, but the effects of tracking digital
currency are more extensive. Without the users' consent, groups or governments could, for
instance, ban or freeze accounts.
Basically, this assignment demonstrations how digital currency in Malaysia has slowly been
acknowledged with only certain types of cryptocurrencies that are regulated under securities
laws.
2.0 BACKGROUND OF DIGITAL CURRENCY
2.1 Definitions
Digital currency is money that is exclusively available in digital or electronic form. It is also
known as electronic money, digital money, electronic currency, or cybercast. Digital currencies
do not have physical properties and are only available in digital form. Computers or electronic
wallets connected to the internet or specified networks are used for digital currency
transactions. On the other hand, physical currencies such as banknotes and minted coins are
tangible, meaning they have distinct physical properties and characteristics. Transactions
involving such currencies are only possible when their holders possess them. Digital
currencies, like traditional currencies, have utility. They can be used to pay for goods and
services. They may also be restricted to specific online communities, such as gaming sites,
gambling websites, or social networks. Digital currencies also allow for instant transactions
that can be carried out across boundaries.
2.2 Characteristics
Digital currency can be centralised or decentralised. Fiat currency, which exists in physical
form, is a centralised system of creation and distribution by a central bank and government
agencies. Popular cryptocurrencies, such as Bitcoin and Ethereum, are instances of
decentralised digital currency systems. Value can be transferred via digital currencies. Using
digital currencies requires a mental shift in the conventional paradigm for currencies, which
associates them with sale and purchase transactions for commodities and services. However,
digital currencies broaden the concept. A gaming network token, for example, can give a
player extra life or superpowers. This is not a purchase or sale transaction, but rather a transfer
of value.
2.3 Types
Digital currency is an inclusive word that will be used to describe several sorts of currencies
that exist in the electronic environment. There are three general sorts of currencies:
cryptocurrencies, virtual currencies, and digital currencies.
Cryptocurrency may be a digital payment system that does not rely on banks for transaction
verification. It is a peer-to-peer payment system that allows anyone, anywhere to send and
receive money. The term "cryptocurrency" refers to the utilisation of encryption to verify
transactions. This suggests that advanced coding is required in order to store and transmit
cryptocurrency data between wallets and public ledgers. Encryption's goal is to supply security
and safety.
Cryptocurrencies include Bitcoin, Ethereum, Litecoin, and Ripple. The primary cryptocurrency
was Bitcoin, which was founded in 2009 and remains the simplest known today. Ethereum
may be a blockchain platform with its own cryptocurrency, called Ether (ETH) or Ethereum.
It's the most popular cryptocurrency after Bitcoin. Next, Litecoin is almost like bitcoin but has
moved more quickly to develop new innovations, including faster payments and processes to
permit more transactions. Lastly, ripple may be a distributed ledger system that was founded
in 2012. Ripple is often used to track different kinds of transactions, not just cryptocurrency.
The corporate behind it has worked with various banks and financial institutions.
A sort of unregulated digital currency is a virtual currency. A central bank neither issues it nor
manages its management. Virtual money examples include XRP, Litecoin, and Bitcoin. Digital
currency may be a form of money that is stored in software, applications, and networks and
used for transactions. Private issuers generally create virtual currencies that are employed by
particular online groups. A serious concern is the safety of the networks and software that
support virtual currency. There are two major sorts of virtual currencies centralised and
decentralised. A centralised virtual currency is managed by one administrator or repository.
The central administrator of a virtual currency is usually the currency's issuer. During a
regulated currency system, the role is analogous to that of a central bank while the
decentralised currency does not have a third-party central administrator or repository. Instead,
a distributed system will authenticate the transactions of a decentralised virtual currency. The
main advantage of virtual currencies is convenience. Payments with virtual currencies are fast
and straightforward due to their network-based nature. The utilisation of virtual currencies is
especially convenient in international transactions. Virtual currencies also raise security
concerns. Despite improving encryption techniques, the loss or leakage of authentication
information remains possible and can cause great losses to virtual currency owners.
A central bank that is known as central bank digital currencies (CBDCs), issues digital
currencies, which are almost like cryptocurrency. They're determined by the value of the
country's fiat currency. Paper money is a currency created by the government that is not
backed by a tangible commodity such as gold or silver. It's regarded as legal tender and can
be used to exchange goods and services. CBDCs are classified as wholesale or retail.
Financial organisations primarily use wholesale central bank digital currencies. Retail CBDCs,
like tangible sorts of cash, are utilised by consumers and businesses. CBDCs' primary purpose
is to supply privacy, transferability, ease, accessibility, and financial security to businesses
and consumers. CBDCs could also reduce the upkeep required for a complex financial
system, lower cross-border transaction costs, and supply lower-cost options to people who
now use other money transfer methods.
3.0 REGULATORY FRAMEWORK OF DIGITAL CURRENCY IN MALAYSIA
Digital Currency is regulated in Malaysia through the Capital Markets and Services
(Prescription of Securities) (Digital Currency and Digital Token) Order 2019 (Prescription
Order 2019). Digital assets come in many forms but under the Prescription Order 2019, digital
assets are categorised into two particular types which are digital currency and digital token
(collectively referred to as Digital Asset). Therefore, all Digital assets meeting the criteria
stipulated in the Prescription Order 2019 will be prescribed as securities for securities law in
Malaysia.
Digital Currency is defined as a digital representation of value that is recorded on a distributed
digital ledger that functions as a medium of exchange and is interchangeable with any money,
including through the crediting or debiting of money to an account. Meanwhile, a digital token
is defined as a digital representation that is recorded on a distributed digital ledger, whether
encrypted or not. As a result, any Digital Assets that are not recorded on a distributed digital
ledger are not covered by the Prescription Order 2019.
How Are Digital Currencies Deemed as Securities?
Digital Currency is deemed to be a security for the purposes of securities laws if it is traded in
a place or on a facility where offers to sell, purchase, or exchange the digital currency are
regularly made or accepted. Also, if a person expects a return in any form from the trading,
conversion or redemption of the digital currency or the appreciation in the value of the digital
currency.
Moreover, Prescription Order 2019 states that a digital token is deemed to be a security for
the purposes of securities laws if the person receives the digital token in exchange for
consideration. Next, if the consideration or contribution from the person, and the income or
returns, are pooled. The income or returns of the arrangement are generated from the
acquisition, holding, management or disposal of any property or assets or business activities.
Lastly, when the person expects a return in any form from the trading, conversion or
redemption of the digital token or the appreciation in the value of the digital token.
Digital Asset Offering
In Malaysia, digital assets must be issued as securities through a registered Initial Exchange
Offering (IEO) platform. IEO is a digital fundraising mechanism in which an issuer provides
investors with digital tokens in exchange for monies.
The SC issued the Guidelines on Digital Assets in 2020 in accordance with the CMSA 2007
(DA Guidelines) to regulate the issuance of digital assets for fundraising using IEO platforms.
The DA Guidelines outline the eligibility requirements for applicants, as well as the
requirements and obligations that IEO operators and digital asset issuers must fulfil.
Under the Digital Asset Guidelines, an IEO operator also bears the following obligations in
relation to its investors’ digital tokens which is to ensure that the token holders’ digital tokens
are properly segregated and safeguarded from conversion or inappropriate use by any person.
Also, to establish and maintain a sufficiently and verifiably secured storage medium
designated to store digital assets from investors.
4.0 ISSUES AND CHALLENGES RELATED TO DIGITAL CURRENCY IN MALAYSIA
In short, digital currency is legal in Malaysia, however it is not a legal tender that can be
recognized as a satisfactory payment for any transaction in the country. Therefore, there are
several issues and challenges that will be discussed in this study.
4.1 ELECTRICAL THEFT
There are cases related to illegal misuse of electricity for bitcoin mining activities. According
to the statement of Wan Nazmy Wan Mahmood, chief distribution network officer Tenaga
Nasional Berhad (TNB), that a total of 7,209 cases of electricity theft involving mining premises
were recorded over a period of three years from 2018. Statistically, Selangor, Kuala Lumpur,
Perak, and Penang recorded the highest cases in this crime because the offenders target
industrial areas as they use a lot of electricity to operate the activity.
In a press conference at the Malaysia Anti-Corruption Commission (MACC) headquarters,
MACC chief Tan Sri Azam Baki said that their modus operandi was to bribe TNB technicians
during their inspection to turn a blind eye to power theft for the purpose of bitcoin mining.
Indirectly, threatens a person’s integrity because of the high and lucrative payment offered.
The impact from this syndicate TNB losses more than RM 2.3 billion for the past four years.
This matter is taken seriously and is a hindrance to the authorities especially to TNB because
it causes huge losses to the energy industry and triggers the stability of the electric supply
systems and public safety. Referring to Takiyuddin Hassan, minister of energy and natural
resources explained that excessive use of electricity that operates machines 24 hours nonstop
can cause a short circuit due to non-standard fuses and load exceeding cable’s capacity can
trigger a fire outbreak.
4.2 NON-COMPLIANCE WITH SYARIAH
Islam is main religion in Malaysia which encompasses all aspects of life including financial
management. However, the financial sector is becoming increasingly advanced causing
issues whether it is compatible with shariah.
According to Perlis Islamic Religious and Malay Custom Council considered digital assets
such as Bitcoin to have a certain value and should be traded legally. Nevertheless, the digital
currency is not control by Bank Negara and placed under the regulation of laws related to
money laundering (Anti Money Laundering and Counter Financing of Terrorism Policy for
Digital Currencies [Sector 6]).
The challenges arise due to the latest digital developments. Among them are legal rights and
obligations regarding damage or loss of life caused by autonomous driving, the basic contracts
allowed for digital wallets and assessments for the gaming industry (in terms of violence,
abusive language, and criminal imitation), and digital status of exchange traded funds.
Moreover, shariah emphasises the implication of activities on humans, society, and the fate of
humans in the afterlife based on Islamic teachings. Since the main goal of shariah is to bring
benefit to mankind, therefore any threat of harm that arises will be examined and discussed
to reach an official decision for reference by all.
5.0 COMPARE THE USAGE OF DIGITAL CURRENCY BETWEEN MALAYSIA AND
THE INTERNATIONAL PERSPECTIVES
Over the past decade, rapid technological innovation and the increasing pace of digitalisation
have transformed the payment landscape in Malaysia. Digital payment adoption has
accelerated, alongside a more diverse landscape of payment service providers. More recently,
digital currencies are gaining traction typically leveraging on tokenisation and DLT to facilitate
P2P transfers without the need for intermediaries. Central banks are also experimenting with
central bank digital currencies (CBDC) a new form of central bank money that represents a
direct liability of the central bank.
Currently, they do not have any immediate plans to issue CBDC. In Malaysia, the financial
system continues to support the functioning of the economy, while the existing monetary and
financial policy tools continue to be effective in safeguarding monetary and financial stability.
Moreover, domestic payment systems including the RPP continue to be safe and highly
efficient to support the needs of individuals and businesses and facilitate migration to digital
payments.
There is a three phase in Central Bank Digital Currency (CBDC). It is a multi-year exploration
to assess the potential of CBDC to address gaps in the financial sector and achieve public
policy objectives. Phase 1 is Cross-border wholesale CBDC via Project Dunbar (2021-2022).
It will explore the application of multiple CBDCs to enhance cross-border payment efficiency
via a common shared platform. We see the potential of CBDC in addressing the longstanding
frictions in cross-border payment arrangements such as low speed, high cost, limited access,
and insufficient transparency.
Phase 2 is Domestic wholesale CBDC (2022-2023), which is Explore innovative solutions
using CBDC and DLT to enhance and future-proof RENTAS. This POC will provide us with an
opportunity to reimagine and future-proof our domestic wholesale payment system, RENTAS.
And for the phase 3, Domestic retail CBDC (beyond 2023), which is explore the role of CBDC
in promoting innovation and enhancing retail payment diversity and resilience. Although we
already have an efficient real-time retail payment system namely, the RPP we see the potential
of retail CBDC in complementing the RPP and serving as a catalyst to spur greater innovation
in the financial sector.
Currently, Central Bank of Ecuador to be the first central bank to implement centralised CBDC
for the public ('Dinero Electrónico ‘). Under this scheme, the CBE exclusively manages e-
money, and allows citizens to hold an e-money account at the central bank (Dec 2015)
Implementation met with mixed success, riddled by slow take-up rates and concerns raised
on its reliability. Others country also were like Malaysia, which is they aren’t ready yet to fully
implement the digital currency. Bank of Japan, Bank of Estonia and Sverige’s Riksbank only
show their interest in digital currency since they collaborating with the European Central Bank
to explore more in digital currency. While Bank of England, US Federal Reserve and European
Central Bank is like Malaysia who already do their research and published to people. But some
country like Canada, Singapore, China and Russian were already experiment with the digital
currency since 2016.
6.0 CONCLUSION & RECOMMENDATIONS
To conclude the discussion above elucidates the digital currency in Malaysia as
cryptocurrency and Bitcoin are becoming more popular and increasing in terms of users and
transaction volumes. The use of bitcoins and other digital currencies has the potential to make
businesses and societies more effective and interconnected, but they could also have harmful
consequences such as being susceptible to hacking and scams that can drain accounts in
minutes. Cryptocurrencies, like any innovations, have both significant advantage and
disadvantages. This invention offers yet additional opportunity for creativity and vision from a
legal and regulatory viewpoint. Digital currency, if regulated cannot be a domestic regulated
tool but has to be applicable globally. It should be remembered that regulations are always
changing and that different countries have different views on virtual currency. Malaysia has so
far adopted a "minimalist" strategy and may adopt a wait-and-see approach related to
cryptocurrencies.
It is recommended that Malaysia carefully examine its financial regulatory policies and
determine how they might be changed to accept the use of digital money. Therefore, Malaysia
should implement dual currency system, whereby a specially designed national
cryptocurrency would co-exist and complement fiat money (Malaysian ringgit). Moreover, The
Central Bank of Malaysia Act, 2009, which officially established a dual financial system, should
be applied to digital currencies so that both conventional cryptocurrency and Shariah-
compliant cryptocurrency are available.
7.0 REFERENCES
Adam, A. (2022, March). MACC bust bitcoin mining network across peninsula with arrest of
18 people, over RM4.4m in assets frozen. Malay Mail; Malay Mail.
https://www.malaymail.com/news/malaysia/2022/03/01/macc-bust-bitcoin-mining-
network-across-peninsula-with-arrest-of-18-people/2044704
Hazim, A. (2022, May 24). Risks of scams in Malaysia’s crypto... Retrieved November 7,
2022, from The Malaysian Reserve website:
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scammers/#:~:text=Global%20scams%20in%20crypto%20amounted,cases%20from%
202017%20until%202021
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in 2021. Retrieved November 7, 2022, from Malay Mail website:
https://www.malaymail.com/news/malaysia/2022/02/17/bukit-aman-bitcoin-crime-in-
malaysia-increased-drastically-in-2021/2042244
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from Free Malaysia Today (FMT) website:
https://www.freemalaysiatoday.com/category/nation/2022/01/24/rm2-5-billion-losses-
in-electricity-theft-by-bitcoin-miners/
Corporate Finance Institute. (2020, May 13). Virtual Currency. Corporate Finance Institute;
Corporate Finance Institute.
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Frankenfield, J. (2022). Digital Currency Types, Characteristics, Pros & Cons, Future Uses.
Investopedia. https://www.investopedia.com/terms/d/digital-currency.asp
Omar, M. N. (2021, November 25). Syariah considers potential harm of digital currencies.
NST Online; New Straits Times.
https://www.nst.com.my/opinion/columnists/2021/11/748863/syariah-considers-
potential-harm-digital-currencies
RDS Project. (2022, April 18). Deep Dive: Digital Currency in Malaysia. RDS Law Partners.
https://www.rdslawpartners.com/post/deep-dive-digital-currency-in-malaysia
Ahmat, N., & Bashir, S. (2017). Central Bank Digital Currency: A Monetary Policy
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