What Is Crypto? How It Works, Its Risks, and Legal Status in Indonesia
Crypto is a digital asset that uses cryptography and blockchain technology to support secure and transparent transactions. In Indonesia, crypto is legal as an asset that can be traded, but it is not recognised as a legitimate means of payment.
The range of digital investment instruments is becoming increasingly diverse, in step with technological developments and growing public interest in digital-based assets.
Beyond the more familiar stocks and mutual funds, crypto has become one of the instruments attracting considerable attention, both as an investment asset and as part of financial technology innovation.
So how does crypto work? What risks need to be understood, and what is its legal status in Indonesia?
What Is Crypto and How Does It Work?
Crypto is a digital asset that can be used for online transactions and investment. Every crypto transaction is recorded and secured using cryptographic technology and a blockchain network.
The blockchain network allows digital records to be stored securely and transparently. Every transaction is verified by a network of computers before being recorded on the blockchain.
When someone buys, sells, or sends crypto, the transaction is processed through the network. Once successfully verified, the transaction data is added to the blockchain, making it difficult to alter or manipulate.
To store and manage crypto, users need a digital wallet, which functions as a place to hold crypto assets and carry out transactions.
These two technologies enable crypto transactions to be carried out securely, transparently, and in a way that is difficult to change without the network’s approval.
Legal Status and Regulation of Crypto Assets in Indonesia
In Indonesia, crypto assets are legal to own, buy, sell, and trade as commodities or investment assets. However, crypto assets become illegal if used as a currency or as a means of payment for everyday transactions in Indonesia.
It is therefore important to understand the legal foundations governing the use of crypto so as not to become involved in cases of misuse. The main regulatory pillars include:
Law No. 10 of 2011 amending Law No. 32 of 1997 on Commodity Futures Trading;
Minister of Trade Regulation No. 99 of 2018;
Commodity Futures Trading Supervisory Agency (Bappebti) Regulation No. 2 of 2019;
Bappebti Regulation No. 5 of 2019;
Bappebti Regulation No. 6 of 2019;
Bappebti Regulation No. 9 of 2019;
Bappebti Regulation No. 2 of 2020.
Crypto Asset Trading Mechanism
Prospective customers must register through a licensed Crypto Asset Trader by meeting the Know Your Customer (KYC) principle.
Customers deposit funds into a segregated account held by the crypto asset commodity trader.
Crypto assets that have been transacted are stored by the crypto asset commodity trader in a depository.
There are financial records between the crypto asset commodity trader and the futures clearing institution, including records of crypto asset ownership.
Transaction data is reported by the crypto asset commodity trader.
Crypto assets come in various types with different functions and characteristics. Some of the popular crypto assets in the global market include:
Bitcoin (BTC): The first and largest crypto by market capitalisation. Bitcoin is often regarded as a store of value and is widely chosen for long-term investment.
Ethereum (ETH): A crypto that supports smart contract technology, making it the foundation for various decentralised applications (dApps), NFTs, and digital finance projects (DeFi).
Tether (USDT): A stablecoin pegged to the US dollar. USDT is widely used as a transaction medium and to reduce price volatility risk.
BNB (BNB): A crypto asset developed by the Binance ecosystem. BNB can be used to pay transaction fees, access services in the Binance ecosystem, and for various blockchain applications.
Solana (SOL): A blockchain known for its high transaction speed and relatively low costs. Solana is widely used for developing decentralised applications and NFTs.
XRP (XRP): A crypto asset designed to facilitate cross-border fund transfers with fast processing and low transaction fees.
Benefits and Risks of Crypto Investment
Crypto investment offers attractive profit opportunities, but it also carries risks that must be understood before investing. This needs to be considered to avoid falling into fraudulent investment schemes. Here are the key benefits and risks:
Benefits of Crypto Investment
High return potential: Crypto prices can rise significantly, offering potentially substantial gains for investors.
Easy access: Crypto investment can be done online through available crypto asset trading platforms.
High liquidity: Many crypto assets can be bought and sold at any time, making transactions easier.
Portfolio diversification: Crypto can complement an investment portfolio alongside other instruments.
Risks of Crypto Investment
Highly volatile prices: The value of crypto assets can rise or fall sharply within a short period.
Security risks: Crypto assets can be lost if an account is hacked or if the user fails to secure their digital wallet and access credentials.
Regulatory changes: Government policies on crypto assets may change and affect trading and investment.
Risk of loss: As with other investment instruments, crypto investment carries the risk of losing part or all of the invested funds if prices decline.
How Beginners Can Start Investing in Crypto Safely
For beginners, crypto investment should be done gradually, accompanied by an understanding of how it works and its risks. By understanding the risks, you can improve your chances of profit and avoid excessive anxiety. Here are several steps to start investing more safely:
Learn the basics of crypto: Before investing, understand how crypto assets work, blockchain technology, and the factors that influence price movements.
Use an official platform: Make sure you buy and sell crypto assets through a platform registered with and supervised by the competent authorities in Indonesia.
Start with capital you can afford: Invest funds according to your current financial situation. Avoid using money needed for daily needs or emergency funds.
Choose crypto assets with a good reputation: Beginners should start with widely known crypto assets, such as Bitcoin or Ethereum, before considering higher-risk alternatives.
Keep your account and digital wallet secure: Use strong passwords and enable two-factor authentication. Never share your account or digital wallet information with anyone else.
Crypto is a digital asset that offers investment opportunities alongside risks that must be understood. Although it is legal in Indonesia as a tradable asset, crypto investment still requires a sound understanding of how it works, its potential returns, and its risks.
Frequently Asked Questions
Is crypto safe? Crypto uses cryptographic and blockchain technology designed to keep transactions secure. However, crypto investment still carries risks, such as high price volatility, the potential for fraud, and hacking risks if accounts or digital wallets are not properly secured.
What is Bitcoin in crypto? Bitcoin (BTC) is the first crypto asset, introduced in 2009, and remains the crypto asset with the largest market capitalisation.