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VJU MPP1719 VJU6003 finalreport vuhoangdung(17110077)

Viet Nam–Japanese University
Viet Nam National University

INTRODUCTION TO PUBLIC POLICY
FINAL ASSIGNMENT
In using one/some particular cases/examples of public policy in the practice
of Vietnam (national/local/sector levels), please present your understanding
about one of the following topics:
Identification of policy problems.

The legal problem of Bitcoin and suggestions for Bitcoin
management policies in Vietnam

Name

: Vu Hoang Dung

Student ID

: 17110077


Program

: Master of Public Policy

Word count

: 3200 words

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Hanoi, January 2018

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1. Description of urgent situation

Bitcoin is a virtual currency introduced in 2008 by a person or group calling “Satoshi
Nakamoto”. It’s an open peer-to-peer cryptographical system which allows online payment
to be sent directly without an intermediary. Transactions happen through a public ledger
called blockchain, handling users’ data anonymously. Eight years since its introduction,
Bitcoin becomes the most widely used and accepted the digital currency. Now, Bitcoin is
considered as the financial products associated with technology.
Nowadays, Bitcoin users in Vietnam included Vietnam-traders, exchanges, and merchants
who accept payments in Bitcoins have grown rapidly. In this situation, they will face a
number of risks in using Bitcoin such as legitimacy, price fluctuations, trust, security, and
consumer protection. Besides that, recently, many investors have suffered property losses
when participating in fraudulent schemes.
According to an October 30th statement1 in 2017, the State Bank of Vietnam (SBV) said that
Bitcoin is not a "lawful means of payment" in the country, and the "issuance, supply, use of
Bitcoin and other similar virtual currency as a means of payment is prohibited". From 2018,
illegal use of Bitcoin in payments will be subject to penalties of between 150 million ($6,600)
and 200 million ($8,800) Vietnamese dong (VND). The central bank states: "As from January
1, 2018, the act of issuing, providing and using illegal means of payment (including Bitcoin
and other similar virtual currency) may be subject to prosecution." 2
These solutions only meet in the short term, so Vietnam government need to provide policy
implications to legitimize Bitcoin in the current Vietnamese context. These policies not only
will benefit and protect Bitcoin users but also help to promote the development of Bitcoin
“innovation clusters” in Vietnam.


2. Initial diagnosis of the cause of the situation

Bitcoin has gained wide acceptance around the world, the reason for these solutions is to
protect the interests of the state bank in issuing money and regulating monetary policy. In
addition, it also prevents money laundering, delinquency, and social harm. As can be seen,
this is a temporary policy issued by the central bank to limit the rapid development of
Bitcoin in the recently. However, the delay of the SBV on the regulatory status may prove to
be damaging.
Here are some of the possible causes of the legal problem of Bitcoin:


Disabilities emerging in a market economy
Unfair and monopolistic competition: competition by tricks, the monopoly of price,
the control of the Bitcoin market.
- Bitcoin market is incomplete: it is the state of the market that does not produce and
supply the products that the consumer wants, showing the wrong investment and
increasing the uncertainty of the market.
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1 https://www.coindesk.com/vietnams-central-bank-announces-ban-on-Bitcoin-payments/
2 https://thuvienphapluat.vn/van-ban/Tien-te-Ngan-hang/Nghi-dinh-96-2014-ND-CP-xu-phat-vi-pham-hanhchinh-linh-vuc-tien-te-va-ngan-hang-254293.aspx

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Exogenous Factor: Natural resource scarcity - consumes electricity to find Bitcoin.
Asymmetry of information: the status of some parties acquainted with the
information but conceals that information in order to seek their own interests,
harming other actors in the socio-economic life.
- Poverty and inequality: Bitcoin leads to a deepening of the rich and poor, wealth and
income inequalities that focus on the few.
• The shortcomings of the state itself
- The lack of competition in state financial and monetary operations, resulting in the
inefficiency of banks, money transfers, inflation and asset transparency.
- Bureaucracy in the state makes payment slowly and do not use new technology
products.
• The process of globalization
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This trend is increasingly powerful in today's era, it makes each country become an organic
part of the world economy and many political issues, the society has become a common
concern. Globalization leads to the emergence of cryptocurrency, which are in conflict with
the banks’ existing in Vietnam and create challenges for the government. The development
of multinational companies, the implementation of international treaties, the dominance of
prices in the international market make the State has a responsibility to protect the
economic, social or cultural development of the country.
3. The legality problem of Bitcoin

According to David Dery, policy problem are the need and the value has not been done - or
opportunities for improvement - can be done through the activities of the State. 3
According to James E. Anderson, a policy issue can be defined as a condition or circumstance
that creates demand or public dissatisfaction, and therefore seek to mitigate or restore from
the action of the government.4
The policy issue is a contradiction that arises in socio-economic life, or a need to change the
status quo, which requires the government to enact public policy to address the desired
goals.
We can see that Bitcoin have many advantages. They eliminate transaction costs, safer than
cash, harder to forge than other forms of currency. Additionally, all payments are final and
irreversible, preventing fraudulent transactions. Bitcoin technologies are brand new and
currently developing, so legitimizing the currency will promote innovation in the industry
and catalyze the creation of new financial instruments and services based on the currency.
This will create new jobs and spur the development of expert and knowledge based in
Vietnam.

Table 1: Bitcoin an SWOT analysis5
3 David Dery: Problem definition in Policy Analysis, Kansas, 1984.
4 James E.Anderson: Public policy formulation, 2015
5 Sahar Mirzayi, Mohammad Mehrzad, Bitcoin, An SWOT Analysis, 2017

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The potential of Bitcoin outweighs the threats, however Bitcoin users also need to know
more detailed about the risks that can happen, especially when Vietnam has no legal
framework for managing and using Bitcoin. It is not accidental that many financial experts
oppose Bitcoin, many countries banned Bitcoin, some countries accept Bitcoin like Japan and
Canada but are extremely cautious. At the moment, we do not know what is going to
happen to Bitcoin, the bubble may break and a financial crisis will spread throughout the
system. Meanwhile, Vietnam will also be affected because nowadays, according to
Similarweb.com, Vietnam's traffic on some Bitcoin exchanges is always in the top five along
with countries like the US, Russia and Japan.
4. Classification of policy problem

We can classify policy by sector of problems: economic issues, political issues, social issues.
In each field can be divided into smaller areas, such as: agriculture, traffic problems, trading
issues. As a result, Bitcoin's problems are economic, financial, banking and commercial.
Based on the level of authority to solve the problem, it can be classified into a national
problem (national sovereignty, multi-sector economic development, etc.), local problem or
the problem of the organization. As such, virtual currency is a matter at the national level,
requiring state intervention.
Based on the expected time to resolve the policy issue, this is a long-term issue (over 3
years), it takes time to review and analyze carefully.
Based on the subject matter of the problem, this is a matter of wide-ranging impact on many
people, involving the means of payment of many individuals and organizations.
Based on the level of complexity, this problem demands for high technology, the elite human
resources and the change of management apparatuses of many administrative agencies and
organizations.
The classification of policies is the basis for identifying the problem to be solved at any level,
in any legal form. As a result, the legality of Bitcoin needs to be addressed at the national

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level in the form of a long-term strategy for changing payment methods, accessing new
technologies and integrating into the world economy.
5. Predict the consequences of the problem
• Volatility of Bitcoin price

Bitcoin price fluctuates dramatically and depends substantially on public sentiment. These
large upswings and downswings have caused many economists to questions the viability of
digital currency. In December 2018, Bitcoin prices in Vietnam peaked at over $ 20,000, and
only a week later hit bottom at $ 10,000, which could cause huge losses for investors.
Chart 1: The price of Bitcoin

Source: http://www.coindesk.com/price/


The trust in Bitcoin

We can realize that Bitcoin is a new and emerging technology based on complex
cryptographic protocol. In addition, Bitcoins are not regulated by a centralized agency till
date, make them less reliable. To invest in Bitcoin, users must place significant faith in the
cryptographic security, trust any third parties involved, such as wallet services or exchange.
Therefore, the central obstacle to Bitcoin’s widespread adoption is social trust when Bitcoin
has not accepted in Vietnam.


Security of Bitcoin wallet

Bitcoin’s wallet security also has the problems. It specifically pointed out, that since they are
stored digitally, Bitcoin wallet can be hacked, attacked independently.6
Bitcoin is a safe protocol, but the Internet is an unsafe place. If security standards are
applied to the Bitcoin wallet, exchanges, and market, it could become the safest way to
transact money online. Unfortunately, Bitcoin exchange and marketplace technology is still
in its infancy, and security is subpar.

6 Puneet Kumar Kaushal, Dr. Amandeep Bagga, Dr. Rajeev Sobti , Evolution of Bitcoin and Security Risk in
Bitcoin Wallets, 2017

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In Vietnam, some Bitcoin-related sites have been hacked, and thousands of Bitcoins have
been stolen from sites and services such as Bitcoinica, and Bitfloor.


Consumer protection

Vietnam government maintains an interest in protecting Bitcoin users. Even if Bitcoins were
recognized and regulated by the government, Bitcoin’s decentralized and irreversible nature
presents many challenges to consumer protection.
Many of the Bitcoin companies and Bitcoin institutions are established, they have a higher
risk of abruptly shutting down or being hacked. Similarly, if Vietnam government seizes
Bitcoins from a marketplace, there is no assurance money will be refunded.
Finally, there is no forum, where users can possibly reach out for any help or grievance, as a
result of which Vietnam’s consumer are being exposed to informative risks.
6. Current policies regarding Bitcoin

Picture 1: Regulatory status of Bitcoins Wordwide

Source: http://www.coindesk.com/Bitcoin-legal-map/
From the picture above, countries in the light green are those where have permitted the use
and trade of Bitcoin explicitly. Vietnam is one of the countries in yellow are considered as
contentious markets for Bitcoin. Besides that, marked in red have declared Bitcoin to be
hostile or illegal.
According to the scheme, in Vietnam, the Prime Minister assigned the Ministry of Justice to
take the main responsibility and coordinate with the State Bank, the Ministry of Information
and Communications, the Ministry of Public Security, the Ministry of Industry and Trade, the
Ministry of Finance to review the current legal framework. Then, the Ministry of Justice
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assessed comprehensively the current situation in order to propose the Government to
resolve as well as amend the law on electronic money accordingly.
The report assessing the current situation to revise the legal framework needs to be
completed before August 2015 and by the end of 2018 must develop legal documents on
virtual property. At the same time, to June 2019, it was necessary to complete the proposal
for a legal framework on taxes on virtual property. In addition, recommendations for the
prevention of violations related to Bitcoin were also completed by the Government by
September 2016.
These regulations represent a very cautious view of the government on the Bitcoin issue. At
present, although Bitcoin is banned, mining or exchange Bitcoin as other goods is not
regulated. So, it can be seen that, in the era of technology 4.0, Vietnam still create a chance
to develop blockchain platform which built up Bitcoin.
In Vietnam, Bitcoin is being considered legitimate, but it needs to be apperception that it is
commonly used by law-abiding parties to transact business. Unfortunately, Bitcoin has a
history with illegal activities, such as black market (Wannacry virus 7) and money laundering.
On July 21, 2017, the SBV sent official letter 5747NNNN-PC 8 to the government office to
respond to the issue of virtual currency. SBV does not accept virtual money as a means of
payment. Previously, the State Bank of Vietnam has presented the Government with Decree
No. 80/2016 / ND-CP9 amending and supplementing some articles of Decree No. 101/2014 /
ND-CP on non-cash payment.
We also realize that the government has not made a significant ruling on Bitcoin to argue
that the currency cannot be trusted, and could even become illegal in the future. This lack of
clear regulation also means that many Bitcoin users exist in a legal gray area, this makes
investing in Bitcoin even riskier, and limit the growth of blockchain technology which related
on the Bitcoin industry.
7. Policy recommendation

After reviewing and synthesized a number of documents, this paper will make some
suggestions on the policy for legitimizing Bitcoin and managing of Bitcoin in Vietnam.
• Recognize Bitcoin and Bitcoin Advocates & Stakeholders
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Define Bitcoin in the Law10. First, Vietnam government should define Bitcoin more carefully.
At present, Vietnam government do not have any official opinions exist explaining Bitcoin’s
status in the law. Secondly, we also need issue a clear and unified set of policies and
7 The WannaCry ransomware attack was a May 2017 worldwide cyberattack by the WannaCry ransomware
cryptoworm, which targeted computers running the Microsoft Windows operating system by encrypting data
and demanding ransom payments in the Bitcoin cryptocurrency.
8 https://thuvienphapluat.vn/cong-van/Tien-te-Ngan-hang/Cong-van-5747-NHNN-PC-2017-tra-loi-kien-nghive-thiet-ke-trung-tam-may-tinh-Bitcoin-Litecoin-368960.aspx
9 http://vbpl.vn/nganhangnhanuoc/Pages/vbpq-van-ban-goc.aspx?ItemID=111655
10 T. Alcom, A. Eagle, E. Sherbondy, Legitimizing Bitcoin: Policy Recommendation, 2017

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regulations regarding Bitcoin and other decentralized cryptocurrencies. Finally, we need to
develop thought, active and sensible policies that protect the public without stifling
innovation and economic growth.
Involve Bitcoin Stakeholders. To avoid overly strong and broad regulation of the Bitcoin
market, law-makers must ensure that they involve a variety of Bitcoin stakeholders in the
regulatory process, so that their vision and needs can be fairly balanced with government
interests. The government should work closely with Bitcoin businesses, users, miners and
advocates when creating and enforcing law.
Regulate Bitcoin Market and businesses



- Push to clarify money service business Licensing Laws. The government should clarify their
legislation surrounding licensing requirements for entities which purchase virtual currencies.
To prevent money laundering activities, companies which engage in Bitcoin purchases be
required to register with Ministry of Finance and maintain records of their transaction
histories.
- Consumer Protection in Online Wallet Service. Companies which maintain online wallets for
Bitcoin users operate within a legal grey zone under the law. In this case, the value is being
stored on the servers of the company in the form of text files. If a user’s wallet becomes
compromised, its contents are lost or stolen, the companies would be the ones issuing
refunds to users whose wallets are compromised, not the government.
- Clarifying Tax code. Taxation is the question surrounding Bitcoin. Bitcoin have the dual
properties of a highly-liquid instrument like cash in one’s local currency and an exchange
instrument such as foreign currency or even stock. Moreover, a user has the capability to
generate new Bitcoins through mining, which makes it completely unlike any existing
financial instruments.
- Combatting illegal Markets: Money laundering and illegal trade in Bitcoin is one of the
reasons why Vietnam government did not accept Bitcoin. The government should combat
illegal markets by targeting unlawful business, rather than consumers. By working with
technology experts and developing algorithms to analyze the ledger, the government could
spot illegal activities in Bitcoin more effectively than they can in cash.


Vietnam Bitcoin reserve

Vietnam government should help to stabilize the currency by maintaining a reserve of
Bitcoins. They could buy and sell to moderate supply and demand, smoothing out dramatic
shifts in the market. The government can also help to ensure that the Bitcoin network
remains honest by providing computational power to honest nodes in the network.


Policy transfer

- Vietnam need to learn and consider the mode of issuance, operation mechanism, impact
factors, modes, methods, and behavior. This experience is extremely important to the
government. For example, in Korea, to avoid speculation, the Korean government is rushing
to establish rules related to Bitcoin as limit the amount of investment, as well as the age
limit for investors.
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- Bitcoin can be considered as money in a specific community but only in this community. If
Bitcoin moves from a community to the whole society and the country, it should be strictly
managed. Even in countries with modern facilities and good management like Japan, the
shift from investment to real money has to go through strict regulatory authorities, which
are only recognized in some jurisdictions like few areas of investment.
- Since virtual currency can be a scam to the community, we need to guide the population,
equipped with knowledge or even ban capital raising activities with virtual currency as in
China.
- In some developed countries, Machine Learning, Artificial Intelligence, and blockchain
technology are the subjects of general education.
8. Conclusion

Bitcoin has already demonstrated a great deal of promise as a technology capable of
reshaping how we view and use money. The insufficient knowledge of economy and crypto
may make people destroy economy made up of digital currency. The purpose of bitcoin is to
create a currency through public ledger without the need of the third party and to establish
a trust through peer to peer collaboration. Bitcoin is just the beginning of new technologies
based on the blockchain platform, which will impact all areas of finance, banking, healthcare
and education and so on. Blockchain is an inevitable trend in the world, helping to
significantly reduce transaction costs, secure data sharing and being included in university
training programs.
With steady growth in digital currency, a parallel economy is developing and it is the time
when Vietnam government should step in and put regulations into it. Decentralized virtual
currencies should be acknowledged, Bitcoin stakeholders should be brought into the
decision-making process. Putting regulations may help State to impose taxes and prevent
black money to sustain in the system. It would be wrong to say that the system of digital
currency has evolved perfectly as it still lacks the potential to build a good economy which
even fiat currency is also not able to do in the history at time of global recessions.
Future work in Bitcoin involves those aspects that can manage instant boom and burst in the
economy stability depends upon the centralized taxation system by government. Perhaps
this digital currency system currently does not get any close to that. It would be interesting
to see how society and states will grow up without any central power as economy strength
of any state is hooked on the currency.

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Reference
1.
2.
3.
4.
5.
6.

David Dery: Problem definition in Policy Analysis, Kansas, 1984.
James E.Anderson: Public policy formulation, 2015
T. Alcom, A. Eagle, E. Sherbondy, Legitimizing Bitcoin: Policy Recommendation, 2017.
Vallari Dubey & Team, Vinod Kothari Consuntants, Bitcoin India Report 2017, 2017.
Sahar Mirzayi, Mohammad Mehrzad, Bitcoin, An SWOT Analysis, 2017.
Puneet Kumar Kaushal, Dr. Amandeep Bagga, Dr. Rajeev Sobti , Evolution of Bitcoin
and Security Risk in Bitcoin Wallets, 2017.
7. S.Nakamoto, Bitcoin: A peer-to-peer Electronic Cash System, 2008.
8. Bitcoin Foundation, Our mission, 2013.
9. Bitcoin Charts Market, Nov. 2013.
10. Coinbase Security, Nov.2013.
11. http://vbpl.vn/nganhangnhanuoc/Pages/vbpq-van-ban-goc.aspx?ItemID=111655
12. https://thuvienphapluat.vn/cong-van/Tien-te-Ngan-hang/Cong-van-5747-NHNN-PC2017-tra-loi-kien-nghi-ve-thiet-ke-trung-tam-may-tinh-Bitcoin-Litecoin-368960.aspx

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