CHAPTER I INTRODUCTION. Usually regulation lags behind technological developments by some years,

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1 1 CHAPTER I INTRODUCTION A. Underlying Background Usually regulation lags behind technological developments by some years, new technologies supported by advances in encryption and network computing is driving transformational change in the global economy. It can be proven by waves of Financial Technology hit Indonesia, for example: Uber and Gojek left without a set of clear legal instrument at that time, and now the new wave of the Financial Technology hit Indonesia in the form of decentralized currency system called Bitcoin. The aforementioned argument was proven on 2008, when a group of people under the pseudonym name of Satoshi Nakamoto released a journal regarding a system of virtual electronic cash, that is both a payment system and a currency. The name of such electronic cash is called Bitcoin. 1 The Bitcoin system offered a purely peer-to-peer version of electronic cash which allowed online payments to be sent directly from one party to another without going through a financial institution and allow users to make direct and anonymous transactions via the Internet. 2 In other words it is untraceable and no government institution to supervise it. This so called Bitcoin revolutionized the usage of transfer system of money because they only rely on third party network, different with a normal 1 Satosi Nakamoto Bitcoin: A Peer-to-Peer Electronic cash system, 2009 retrieved from last accessed on 28 March David Descoteaux 2014 Bitcoin : More than a currency, potential for innovation Montreal economic institute economy note

2 2 clearing system in bank. 3 In Bitcoin they did not rely on any authorities so user did not pay transaction fees to third parties to process their payments. Bitcoin can be categorized as a virtual currency. It s defines as a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency. 4 The key difference between virtual currency and real currency is that virtual currency does not have legal tender status in any jurisdiction. 5 In other words, a virtual currency is one that is not administered or issued by a sovereign. Since its introduction in 2009, Bitcoin has witnessed increasing popularity and adoption. 6 Because they offered two main benefits of using Bitcoin which are privacy and convenience. 7 By means of privacy and convenience is the sender and receiver will remain anonymous and the method of payment is using Internet as their intermediary. 8 However,the existence of Bitcoin raised concerns. Numerous people use Bitcoin to conduct crimes, such as facilitate money laundering, tax evasion, and trade in illegal drugs and child pornography. 9 The greatest scandal regarding misuse of Bitcoin can be found in Silkroad, a website which sells any goods including the illegal one. 10 The scandal of misuse of Bitcoin opens question 3 Bitcoin, What Are the Advantages of Bitcoin?, BITCOIN PROJECT, last accessed on 29 March Matthew Kien-Meng Ly COINING BITCOIN S LEGAL-BITS : EXAMINING THE REGULATORY FRAMEWORK FOR BITCOIN AND VIRTUAL CURRENCIES, Harvard Journal of Law and Technology Vol 27 5 Ibid 6 Ibid 7 Bitcoin Project, Op.Cit 8 Bitcoin, Is Bitcoin Anonymous?, BITCOIN PROJECT, faq#is-bitcoinanonymous accede on 1 April Reuben Grinberg Bitcoin: An Innovative Alternative Digital Currency Hastings Science & Technology Law journal 10 Global Drugs Policy Observatory 2013, Analysis of Bitcoin and Silkroad Swansea Iniversity

3 3 whether Bitcoin can be acceptable as a legal method of payment, because many people misuse it. On 6 February 2014, Bank Indonesia issued a statement, which urges the Indonesian people regarding the use of any virtual currency. 11 In the official statement, all risks related to the ownership of Bitcoin or so-called virtual currency are borne by the owners not Bank Indonesia. However, until this day there is no regulation in Indonesia explicitly stating that Bitcoin or any digital currency is illegal. The Indonesian Government relies on the Indonesia Currency Law No, 7 of 2011 which states that only Rupiah is acknowledged as a method of payment in Indonesia. 12 Such press release was not followed by any legal instruments such as in law or relevant regulations. What if Bitcoin is the future method of transaction in Indonesia? Considering the rapid growth of Internet user in Indonesia, because Bitcoin simply relies on the Internet. Indonesia is an archipelagic country ties to into economic relations with its neighboring states such as Australia, Singapore etc.; the existence and legal certainty of Bitcoin in Indonesia will simplify transaction among its people because they only need an Internet and a mobile phone as a device to execute its transaction. Imagine a farmer in Aceh wanted to order some fertilizer from its producer in Australia. Using Rupiah, they need to convert their money into Australian dollar it precludes the fee of the third parties and also it will take a long time to proceed a transaction. Using Bitcoin people can easily engage transaction with everyone in the world using their mobile devices without 11 Bank of Indonesia Press Releases No. 16/6/Dkom accessed on 30 March Law No 7 Year 2011 concerning currency, Article 2 para 2

4 4 precluding the difference of exchange rate between countries and it will consume less time. Because Bitcoin have the same rate in every country and transaction will be carried out with Internet. Furthermore, the main goal of Bitcoin is to create a universal currency, which can be easily accessed by anyone without having the fear of different rates between countries. However, because there is no legal certainty in terms of protection both for the user and the developer, Bitcoin cannot be further developed in Indonesia. Countries around the world such as Germany and United States have already regulated the usage of Bitcoin. By writing this legal research, the writer wants to conduct research on what grounds can Bitcoin be classified as a currency and as a legal method of transaction. Moreover, if Bitcoin might be categorized as a legal method of transaction, who will be responsible if all of sudden the Bitcoin Bank goes bankrupt? Or what determines the exchange rate from Bitcoin to other currency such as Pound sterling, US Dollar, etc. B. Problem Statement The Primary research question that this present research seeks to explain and finds is the legality of Bitcoin in Indonesia as a currency and method of transaction in Indonesia by following sub-questions as follows: 1. How is the legality of Bitcoin as a Currency and Method of Transaction in Indonesia? 2. How do other states regulate Bitcoin or Virtual currency in their legal system?

5 5 C. Purposes 1. Objective Purpose The rapid growth virtual currency user throughout the world, notwithstanding the simplicity of Bitcoin offers advantages rather than normal currency. It attracts people to use it. The ambiguity of its legality in Indonesia makes the growth of Bitcoin being stalled and creates a negative mindset towards the people because there are no government institutions that protect them. By examining the available mechanism of protection towards the user under Indonesian Law such as Indonesian Civil Code and other relevant instrument. The writer seek to clear such ambiguity by analyzing the relevant law and instrument, the pro and contra applying this new currency or method into Indonesia. Moreover this legal research will analyze and make a comparison towards other states such as United States of America, Germany who already accept Bitcoin as a currency and method of payment. By analyzing and create a comparative study, the writer intends to seek on what grounds such new currency can be implemented in Indonesia and the protection towards it. In this regard, the writer hopes that this legal research can give significant contribution towards the adjustment of Indonesian law with the rapid growth of the society. Particularly in applying and adjusting a new method that has not yet been regulated in Indonesia. Rather than blatantly reject an innovation which make the life of its people easier. This thesis offers on how to accept and adjust such progress.

6 6 2. Subjective Purposes This thesis is a prerequisite of International Undergraduate Program Faculty of Law Universitas Gadjah Mada to pursue a degree of Sarjana Hukum (S.H.). D. Originality of Research This statement is aimed to certify and guarantee that the Library deposit digital copy is the own work of the author, or fully and specifically acknowledged wherever adapted from other sources. In this regard, the author has conducted research through online Library of Faculty of Law Universitas Gadjah Mada of which found none similar writing having related issue of this thesis or it s legal questions. However writer found several writing similar to the writer s thesis such as : 1. A thesis, titled Pengunaan E- Currency (Mata uang elektronik) sebagai alat pembayaran dalam transaksi e-commerce ditinjau dari aspek hukum perbankan, by Ilman Yaqin in 2008 from Universitas Jember. This thesis merely analyzes the use of virtual currency as a method of payment in the e-commerce field. This present research is different from the above-mentioned thesis in terms of the research problems. As the former writers seek to analyze the usage of e-currency as a method of payment in the e-commerce alongside with the Banking Law principles. Meanwhile this present research is trying to explain the position of bitcoin as a currency and

7 7 method of payment in Indonesia legal system based on their legality status. 2. A thesis titled Transaksi jual beli Bitcoin dalam perspektif hukum Islam, by Muhammad Iman Sabirin in 2015 from UIN Sunan Kalijaga. This thesis merely analyzed whether the Bitcoin is considered as a legal method of transaction under Islamic Law perspective. This present research is different from the abovementioned thesis as a whole. From the outcome of the thesis and it s research problems. As the former writers seek to analyze the bitcoin transaction under Islamic Law perspective. Meanwhile this present research is not to make an analysis of bitcoin under a specific law, specifically under Islamic law. Whether, the writer desires to analyze bitcoin under Indonesia Law as a whole. 3. A thesis titled Tinjauan fiqih muamalah terhadap uang digital Bitcoin dengan studi pada dsn-mui dan perusahaan artabit, by Nur Lailatus Sholihah in 2014 from UIN Jakarta.. This present research is different from the above-mentioned thesis in terms of the topic and research problems. As the former writers seek to analyze and comparison the usage of e-currency or bitcoin into an Islamic Law perspective with a case study by a company who runs bitcoin in Indonesia. Meanwhile this present research is trying to analyze and create a comparison and it s legality of bitcoin as a currency in

8 8 Indonesia with other states that has put digital currency into their legal system. Even if those writing above discussed Bitcoin or virtual currency as their issue in the thesis or legal research. Such writing did not provide a definite answer on whether or not Bitocin is legal in Indonesia and they did not make any comparative study on how Bitcoin or other virtual currency are being treated in the respective country. E. Benefits 1. Academic Benefit By providing elusive reasoning and comparative study on how other states reacts to this modernization. With specific focus on a new currency and it s clarity toward the customer. This legal research is expected to give contribution for the development of legal science, particularly on the commercial law of Indonesia. 2. Practical Benefit This legal research is expected to provide benefit for the society, legal practitioners, state officials and most important: to the Indonesian people in adapting the rapid change of a method in applying into a law.