SINGAPORE: It looks like a simple gaming computer. But Mr Dexter Ng and his group of friends realised that it was able to produce cryptocurrencies through a process called "mining".
Armed with a powerful graphics processing unit, these computers are able to solve complex math problems which will gain the user rewards in the form of cryptocurrencies like the bitcoin.
Bitcoin is just one of the many cryptocurrencies out in the market, but it is currently the most highly-valued.
BITCOIN PRICE SOARS
Its price soared to a record high of nearly US$7,500 on Nov 8, compared with around US$1,000 at the beginning of this year, and it has therefore generated greater investor interest among Singaporeans.
Bitcoin’s popularity has trickled down to other “alternate coins” like Ether and Litecoin, sparking interest in cryptocurrency mining in general.
So Mr Ng and his friends built more powerful “mining” computers and started selling them.
“Then we posted photos online, on Facebook, and people started asking how much is this and they wanted buy it off,” the 29-year-old said. “So I sold it to people who queried on Facebook, and after a while, we started selling many on Facebook, so we decided to incorporate this company.”
Mr Ng said that the sales of rigs have shot up in recent months. The company used to sell about 15 rigs per month in July this year, but it is now selling about 100 rigs a month.
“Customers come in and order 50 rigs on their own. Compared to last time, probably one person only buys one or two. Now we get customers who buy 10, 20 or even 50,” he added.
Called Mining.sg, the company in Geylang Lorong 23 boasts a 1,100-square-feet office space that can house up to 45 rigs.
Each rig can fetch from S$5,000 to over S$6,500, depending on its processing power.
TRADING OF CRYPTOCURRENCIES
Cryptocurrencies can be traded on exchanges for cash. And as the hype over cryptocurrencies grows, exchanges that operate in Singapore are reporting greater activity as investors jump on the bandwagon.
One such exchange, Coinhako, told Channel NewsAsia that the number of users using the platform has doubled since the beginning of this year.
Another exchange platform, Quoine, said it has seen double-digit growth in the demand for cryptocurrencies since the beginning of this year, with bitcoin seeing the highest increase in demand.
Mr Ian Chan, who bought a rig three months ago, says there are other factors to consider when mining cryptocurrencies for investment.
“Calculating the percentage of return is one thing but what if this machine every day gives me issue, where I need to debug or whatever,” he said. “Then to me, am I buying something that I need to work on every day? From that angle, if I start with buying 20 units, then my problem multiplied 20 times. So I start with one, try it out and if it is good, then I slowly increase my investment in that.”
Mr Chan’s rig is currently mining a cryptocurrency called ZCash. All the coins in his rig mines go into a virtual wallet, which he can then choose to cash out or store in the hopes that its value will rise in the future.
The amount of ZCash his rig mines currently gives him an income of about S$300 a month.
After removing the additional electricity cost that comes with having a rig running 24/7 in his home, Mr Chan estimates that he would take about two years to break even.
His 13-year-old son, Ryu, also now has his own mining rig.
While the soaring prices of bitcoins might be a sign that this alternative form of investment is gaining investor confidence, there are concerns over whether the rise is too much, too fast.
Mr Thomas McMahon doesn’t think that the bitcoin prices are in a bubble.
“If you look at it statistically, it's actually probably still really cheap in terms of an asset class,” said Mr McMahon, who is the founder of Cleer, a digital commodities platform that is built on blockchain, the technology that underlies the use of cryptocurrencies.
But not everyone agrees.
Cryptocurrency researcher Stanley Yong said: “The price going up is probably a bubble, given that it has reached more than US$7,000 per bitcoin. And the question for us is not whether it is a bubble. But how long this bubble will be there. And whether that speculation will result in a correction that will be painful and destructive versus a correction that is healthy.”
MAS WON'T REGULATE CRYPTOCURRENCIES
The Monetary Authority of Singapore told Bloomberg last month that it will not regulate cryptocurrencies, but that it will monitor activities around these coins and decide what are the risks which would require regulation.
So while the jury is still out on whether cryptocurrencies will be accepted into the mainstream, industry watchers generally agree that bitcoin's recent price surge is not purely speculative.
Part of its rise is based on some economic fundamentals - the belief that the blockchain technology underlying these virtual currencies has the potential to disrupt the economy.
“Blockchain itself is a revolutionary technology. It's really a systemic shift,” said Mr McMahon.
Blockchain is essentially a chain of blocks, each of them containing a set of data. These blocks are stored in a distributed ledger. So unlike a centralised one, there is no one authority over it. Instead, every user in the network has access to the data stored in the ledger, and it cannot be changed by anyone.
“The ledger architecture that sits on the backbone of blockchain has an incredibly innate ability to create irrefutable, immutable retention of data in perpetuity,” Mr McMahon added.
If blockchain is the way of the future, it is no surprise then that some are betting big on cryptocurrencies.
But Mr Yong also cautioned that investors should be discerning if they're looking to put their money into cryptocurrency businesses that are built on blockchain.
“Not all of them are equal. Not all of them are based on new economic models. Even when a promoter of such cryptocurrencies is to point to something innovative, there is no sure win in many of these cases even when there is no intent to commit fraud, even when the people behind the cryptocurrency are sincere in their intentions, there is always a high chance of failure,” Mr Yong said.
Whether cryptocurrencies are the future or just a fad, experts say that as with all forms of investment, investors should do their homework and understand the risks before diving in.