Demand for new ways of value storage is often connected to economic happenings and citizens taking matters into their own hands. In recent years, many people have been turning to cryptocurrency to find solutions to the current flawed financial system. According to blockchain analytics firm Chainalysis, emerging markets are consistently at the forefront of global crypto adoption. But does this mean crypto adoption is proving to be more successful in emerging markets and if so, why? And how exactly can crypto adoption offer real, long-lasting solutions?

Financial Inclusion in Indonesia: An Overview

The South-East Asian country of Indonesia is home to more than 60 million small businesses which act as the foundation of the country’s economy. More than 97% of the workforce is involved in working within a micro-business. However, many of those businesses are underserved by financial institutions and lack access to former banking services. Many small business owners don’t have access to a bank account. Minimum balance requirements and service fees were often barriers for small business owners. Lack of official forms of identification or significant distance to financial institutions or banks were also frequently cited as a disadvantage. Many Indonesian business owners also use cash as their primary transaction method, which makes it difficult for them to build a credit history and thus prevents access to formal funding when needed. Even though Indonesia has come a long way in terms of access to financial products and services, the South-East Asian country’s financial literacy index remains low at less than 40% as of 2022. Indonesia’s government has set a target to achieve 90% financial inclusion by 2024, with small businesses being the main focus of this vision in order to foster and support economic growth.

Due to the geographical landscape of the country, which consists of over 6,000 islands, traditional banking services continue to face challenges in light of real financial inclusion. A priority agenda for the Indonesian government is thus digitalisation which could offer a solution to the geographical landscape that currently prevents widespread access. Technological advances and the digitalisation of financial products and services can help achieve continuous economic growth and financial inclusion for citizens anywhere in the country. A Bank of Indonesia survey conducted in 2021 revealed that the adoption of cashless transactions, including debit cards and electronic money, has increased rapidly, growing 237% compared to the previous year (www.bi.go.id). According to a 2022 survey on internet usage in Indonesia, almost 80% of citizens connect to the internet using a smartphone. This shows the potential for digital apps to further support financial inclusion and make digital money management easier for many. The development of digitalisation, however, is mainly occurring in urban areas, leading to a digital divide and socio-economic disparities. The government needs to focus more on equal digital access now to ensure widespread digital financial inclusion in the future.

Cryptocurrency Adoption in Emerging Markets

Emerging markets are consistently at the forefront of global crypto adoption. “One reason for this could be the value that users in emerging markets get from cryptocurrency. These countries dominate the adoption index, in large part because cryptocurrency provides unique, tangible benefits to people living in unstable economic conditions,” the Global Adoption Report states (coindesk.com). Kim Grauer, Director of Research at Chainalysis, further supports this research: “We found that a lot of people simply don’t have the same level of access to investments and instead turn to crypto offerings. We see that a lot in places where there’s a young, tech-savvy population who are starting to have a disposable income” (forbes.com). Cryptocurrencies are seen by many as a safe haven, especially in periods of economic pressures. Despite weaker public sentiment on cryptocurrencies in the current bear market, demand has remained resilient in emerging economies. There are a few different factors that contribute to Indonesia’s growing crypto scene:

Robust & Receptive Regulatory Support from Government:

The Indonesian government carried out research, community interactions and education programs to understand the challenges and opportunities that come with cryptocurrencies. In 2019, the first set of regulations was introduced, making cryptocurrency trading legal and officially regulated by the Commodity Futures Trading Regulatory Agency. The main objective was to provide protection for Indonesian cryptocurrency traders and consumers. However, the Central Bank confirmed that cryptocurrencies are not (yet) a valid form of payment.

Fast Adoption of Crypto by Local Tech Companies:

Like many other South-East Asian Countries, the NFT gaming industry is booming. Players — especially in emerging markets — consistently use play-to-earn games as a source of income, and many of those game developers are based in Southeast Asia. Javier Tan, Co-Founder & CEO of Indonesia’s leading NFT gaming company Creoengine, stated: “Indonesian game developers have started to rise to the spotlight in order to revolutionise the gaming industry in Indonesia. I believe that the crypto ecosystem is playing a vital role in enlarging Indonesia’s gaming economy and gaming communities’’ (cryptonomist.ch).

Unbanked Population With Internet Access:

As mentioned above, the lack of financial inclusion mixed with internet access and a young tech-savvy population are key factors driving cryptocurrency adoption in Indonesia. Being able to store and manage money on a mobile phone without minimum balance or identification requirements has given financial access to citizens otherwise unable to be part of the traditional financial system.

Cryptocurrency in Indonesia Today

According to Gemini’s 2022 Global State of Crypto Report (view here), 61% of Indonesian respondents agree with the notion that crypto is the future of money, compared to only 23% in Western countries such as the US, France, and Germany. The survey only interviewed 30,000 people across 20 countries and is thus not representative of the whole population. Nevertheless, it does give a fascinating insight into Indonesian cryptocurrency adoption and shows the many benefits digital currencies can provide, especially for emerging markets that currently lack digital banking services or barriers to accessing them. In 2022, Indonesia placed second just after Ukraine in regards to the largest adoption growth, with the adoption rate increasing by a solid 115.59%. And earlier this year, Indonesia’s most prominent crypto-assets digital exchange Tokocrypto launched T-Hub, a Bali-based crypto clubhouse that aims to facilitate crypto education in real life and empower investors by providing them with the knowledge and skills needed to make the most out of the opportunities in the crypto space.

Crypto adoption in Indonesia is set to continue to rise as more businesses and citizens discover the benefits and convenience of digital assets. Cryptocurrencies no doubt have the power to transform the current financial services market and create a more inclusive digital economy in Indonesia and other emerging markets worldwide. We are excited to see how the government can further promote cryptocurrency adoption and education and the benefits it will continue to bring to Indonesian citizens and businesses alike. Oscar Darmawan, founder & CEO of Indonesian Crypto Exchange Indodax, states: “Legalising a crypto asset in Indonesia is a long journey and is still not fully accomplished, but it is progressing smoothly and showing on a good track. It requires the whole ecosystem to support this movement to bring benefits to the entire industry. I believe Indonesia has the potential to be the leader in blockchain development in Asia” (cryptonomist.ch).