In the last few years, businesses in Indonesia have shifted focus to the e-commerce industry, encouraging the development of practical non cash based payment instruments. Starting from bank transfers, credit cards and PayPal, virtual currency is the latest breakthrough. Virtual currency, especially bitcoin has garnered much attention and interest in Indonesia. In the past, regulation was scarce, and the government had maintained quite a firm stance against it. However, the government’s reluctance to accept virtual currency did not curb local investor’s interests.

Bank Indonesia is against the sales, purchase, and trade of virtual currency because it is highly risky and speculative, considering there is no responsible authority, official administrator or underlying asset to base the value of virtual currency, while trade values are highly volatile. All the above make virtual currency vulnerable to bubble risks, rendering it susceptible to money laundering and financing acts of terrorism, which may negatively impact the stability of Indonesia’s financial system.[1]

Virtual Currency (“Cryptocurrency”)
is prohibited as payment instrument

Pursuant to Bank Indonesia Regulation No. 18/40/PBI/2016 on the Implementation of Payment Transaction Processing (“BI Reg 18/2016”) Bank Indonesia Regulation No. 19/12/PBI/2017 on the Implementation of Financial Technology (“BI Reg 19/2017”), virtual currency is digital money issued by a party other than the monetary authority obtained by way of mining, purchase or transfer of reward, and includes Bitcoin, BlackCoin, Dash, Dogecoin, Litecoin, Nxt, Peercoin, Primecoin, Ripple, and Ven. According to this definition, electronic money is not included as virtual currency. Even though virtual currency has monetary value, they cannot be liquidated into cash.

BI Reg 18/2016 prohibits the use of virtual currency in conducting payment transaction processing in Payment System Service Providers (Principals, Switching Providers, Issuers, Acquires, Payment Gateway Providers, Clearing Providers, Final Settlement Providers, and Electronic Wallet Providers). Whereas pursuant to BI Reg 19/2017, Financial Technology Providers are prohibited from conducting payment system activities using virtual currency. These regulations are based on Law No. 7 of 2011 on Currency (“Currency Law”) which states that Indonesian Rupiah is the only lawful currency in Indonesia, and that any transaction in Indonesia for the purpose of payment, the settlement of other liabilities which must be settled with money, and/or other financial transactions must use Rupiah.

Virtual Currency has no governing institution

The government’s stance to prohibit virtual currency is due to its decentralized nature. Instead of each transaction being approved by a central authority like a bank, virtual currency transactions are approved through a distributed ledger technology, typically known as a blockchain.

Blockchain is a digital ledger distributed across a network of decentralized network of computers (or nodes) containing an increasing number of data records. Once logged onto a node, data cannot be edited, tampered, removed or revised. In order to be recorded, all new transactions go through a verification process which require all participants of the system coming to a consensus that a transaction is valid. These characteristics create trustworthy information and transparency.

Blockchain can be public and non-permissioned or private and permissioned. In a public blockchain, all participants are free to add information to the blockchain. Whereas with private blockchain, access is restricted to trusted personnel.

Legal Concerns

Lack of Consumer Protection for Use and Ownership of Virtual Currency

Virtual currency as payment instrument is issued without needing authorization from any government. Transactions and distribution can be easily performed without the need of bank account, credit card or other intermediaries. Despite the many benefits of virtual currency, there are risks to

Up to now, there is no insurance for virtual currencies. In the event of loss due to hacking, fraud or theft, the risks will be borne by the owner. The lost currencies can be tracked through the blockchain, however due to the anonymous or pseudonymous transactions, identifying the movement of each currency and the perpetrator would be difficult even with a unique address (or key). Moreover, all virtual currency transactions are final and immutable. Unless the offending party is identified and willing to return the stolen currencies, the owner will have difficulty recovering them.

The lack of recognition from the Indonesian authorities towards virtual currency as a payment instrument limits the protection provided to users and owners in this aspect. However, on 2 October 2018, the Minister of Trade issued Regulation Number 99 of 2018 regarding General Policy on the Organization of Futures Trading for Crypto Assets declaring virtual currency as a commodity that can be traded as futures trading commodity. Further provisions will be addressed by Indonesia’s Futures Exchange Supervisory Board (“Bappebti”).

Applicable Law in Smart Contracts

One of the uses of implementing blockchain is to remove the necessity of involving intermediaries in a transaction by using “smart contracts”. A smart contract is a self-executing agreement stored in the blockchain as a series of codes. When the pre-configured conditions of a smart contract are met, the parties can automatically make payments or otherwise fulfill the contract.

This application is limited because computer codes cannot capture concepts and principles that require subjectivity and judgement, such as force majeure events. The codes would also require constant updates due to changing circumstances. A smart contract is also unable to entirely remove the necessity of third-party involvement in a transaction unless regulation is changes. For instance, the transfer of land and shares need to be recorded in notarial deeds.

A single blockchain may consist of nodes located anywhere in the world. This decentralized nature causes concern in compliance and jurisdiction. In the event of illegal transactions, pinpointing its exact location and applicable law would be challenging and time consuming. Therefore, it is essential to establish an exclusive governing law and dispute resolution clause to ensure customer protection and the rights and obligations of the parties to the agreement.

Data Protection

The nature of public blockchain, specifically it’s transparency and immutable data means that every transaction will be published and linked to a public key representing a particular user. Although encrypted, it is not impossible to trace a particular public key back to its IP address and subsequently the individual or legal entity it represents. A public key is used to single out the parties of any given transaction, to ensure transactions are attributed to the correct accounts or people.

Pursuant to Law No. 19 of 2016 regarding the Amendment to Law No. 11 of 2008 regarding Electronic Information and Transactions (“ITE Law”), personal data protection is the responsibility of electronic system operator, who is required to have data owner’s approval to obtain, use and utilize their personal data and give written notification to data owner in the event of data leak. With virtual currency, data protection responsibility would fall to the wallet providers, virtual currency exchanges, payment service providers, venture capital, and peer-to-peer landing to name a few.

Indonesian Government’s View

While the use of virtual currency as payment instrument is prohibited under Indonesian law, the selling and purchasing of virtual currency as commodity is allowed. Despite this, Bappebti has not come forth with further provisions regarding the implementation and requirements for trading crypto assets. The government is also in the process of compiling a regulation for e-commerce as well as for data protection based on the principles of the General Data Protection Regulation (“GDPR”) of the European Union Law.

Felicia Tania


[email protected]

Bank Indonesia Press Conference No. 20/4/DKom regarding Virtual Currency, 13 January 2018

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