FOR 10 days in July, he prayed for his life; a week later, he played for a life after Covid-19.
After getting billed half-a-million pesos for his and his mother’s hospitalization, Christian Angelo Dumalanta turned to Axie Infinity—a blockchain technology-based game—to convert cryptocurrency into cash and re-start their lives.
Hence, Dumalanta, a 22-year-old fifth-year civil engineering student in Cabanatuan City, Nueva Ecija, became one of 800,000 Filipinos who invested into, are playing and earning from Axie Infinity, a Pokémon-inspired blockchain-based game that allows users to earn cryptocurrency tokens called Smooth Love Potion (SLP).
In the game, Axies, or digital pets, battle it out in adventure mode and against other Axies as well in PVP (player-versus-player) arena. The game rewards the winning player with SLP, which can be converted into Ether, a cryptocurrency.
An SLP can be converted to actual cash, which a player can access via a bank account or mobile wallet.
According to the coingecko website, the SLP-to-PHP (Philippine peso) rate last November 17 is P3.32 and has increased 3 percent from its previous day’s rate of P3.22. The rate has followed “a downward monthly trajectory as it has decreased -7.3 percent from P3.58 30 days ago.
THE entry of Dumalanta and other Filipinos into Axie Infinity and other cryptocurrency games is not lost on public officials’ eyes.
In fact, the Department of Trade and Industry (DTI) sees the potential of crypto games in boosting the country’s digital economy.
“They [crypto games] encourage people to utilize virtual currencies and e-wallets despite the Philippines being a cash-based economy,” Trade and Industry Secretary Ramon M. Lopez told the BusinessMirror. “Enablers, such as payment and credit, facilitate digital money transactions and make it easier for buyers to purchase and sellers to market.”
The potential to earn while playing crypto games prompts the increase of digital and financial literacy among the Filipinos as well, Lopez said.
“The games expose them to the use of cryptocurrency in the digital era, instill better understanding on how cryptocurrency works and how one can maximize earning potential[; allowing] users to be more open-minded to new and innovative ideas [and/or] services,” the DTI chief told the BusinessMirror.
ACCORDING to Luis Buenaventura II, co-founder of licensed cryptocurrency exchange Bloomx, the game earnings provide the reason for users to learn about financial services, such as mobile wallets.
“These tools exist. It’s just that most people don’t know or care about them because they have never made money before,” Buenaventura told the BusinessMirror. “Suddenly, all of these guys overnight are making—not massive amount of money—but [an amount] that is substantially over what they were making before.” Bloomx is operated by Singapore-based Bloom Technologies Pte. Ltd.
To gain further traction, Lopez believes that appropriate regulations must be put in place, fostering greater trust in crypto games. These include customer protection, anti-money laundering, anti-fraud and platform security, the DTI executive added.
Overall, Lopez said that crypto games can contribute to the country’s e-commerce roadmap. It seeks to grow the contribution of the e-commerce sector to P1.2 trillion or 5 percent of the gross domestic product by 2022, he explained.
Lopez said the government, for its part, is actively doing its due diligence in learning more about the industry and its potential to grow.
“In a period where Filipinos are more open to unconventional ways and opportunities to earn income, it would be beneficial for the government to utilize their interest in promoting other digital solutions that may help improve the number of financially inclusive and tech-savvy Filipinos,” the Trade and Industry official told the BusinessMirror.
EVEN before nearly a million Filipinos turned to play-to-earn cryptocurrency-based games, the Bangko Sentral ng Pilipinas (BSP) said it already observed a “tremendous adoption of cryptocurrency use in the country through remittance or payment sector.”
In an e-mail sent to the BusinessMirror, the BSP revealed the total number of transactions involving virtual assets, such as cryptocurrencies, doubled year-on-year to 12.2 million in 2020 from almost 6.6 million a year ago. Meanwhile, the total value of transactions involving virtual assets also surged by 385 percent to P101.61 billion in 2020 compared to the year before.
A virtual asset (VA) refers to any type of digital unit that can be digitally traded or transferred and can be used for payment or investment purposes. However, the BSP said it doesn’t consider gaming tokens—used to pay for virtual goods and services within an online game, such as SLP—as a virtual asset in the context of its guidelines on Virtual Asset Service Providers (VASPs).
As defined by the BSP, VASPs are entities that offer services or engage in activities that provide facilities for the transfer or exchange of a virtual asset.
Use-case for VAs
THE BSP told the BusinessMirror that the bulk (89 percent) of the total transactional value of virtual assets comprised the conversion of the virtual asset to fiat and vice versa; “proving that this is the largest use-case for virtual assets.”
“A major factor in the increase in reported transaction value is the 300-percent increase in the price of cryptocurrencies, specifically Bitcoin, which jumped from $7,218.70 in 2019 to $28,890.12 in 2020,” the BSP shared with the BusinessMirror.
According to the central bank, “moving forward, [it expects] a steady growth of VA acceptance driven by factors such as the shift of customer preference in favor of digital channels, availability of more use cases and prevalence of more competitive and customer-centric financial products and services, among others.”
The BSP told the BusinessMirror that the increasing use and appeal of play-to-earn online games to Filipinos “reflects growing digital awareness of Filipinos, which may pave the way for greater adoption of digital channels for conducting financial transactions.”
Moreover, the central bank said it also acknowledges that these innovations, if harnessed responsibly, have the potential to contribute to financial inclusion and payments digitalization through increasing awareness and familiarity of Filipinos in the use of digital platforms.
HOWEVER, the central bank is also cautioning the public against the risks involved when it comes to engaging in these games, adding that “the digital space provides borderless and wider playing field for fraudsters or cybercriminals to carry out illicit financial activities” such as money laundering.
“For example, fraudsters may use social engineering through phishing to steal [and/or] obtain the credentials of gamers who earn virtual assets,” the BSP said. “These VAs are then siphoned from their wallets and thereafter used as payments for other illicit activities such as drug dealings or payment for participation to illegal gambling sites.”
The BSP also warned that the market price for virtual assets may also become unstable over time and these also have the potential for unlawful use since these “have a high degree of anonymity and are not subject to know-your-customer (KYC) policies.”
Aside from this, the BSP explained to the BusinessMirror that digital gaming tokens are prone to hacking, theft, virus infection and cyber-threats. In case of fraudulent, unauthorized or erroneous transactions, users may also find it difficult to reverse fraudulent transactions since there is no central authority that supports or guarantees these tokens.
The BSP added that the public should be wary of accompanying challenges in enforcing legal recourse against companies that are registered and those that are operating outside the country.
Operator of pay system
WHILE the BSP earlier said it doesn’t consider Sky Mavis Pte. Ltd. as a VASP, it is looking into whether the Ho Chi Minh City, Vietnam-headquartered Axie Infinity creator can be considered as an Operator of Payment System (OPS) given the level of merchant acceptance of the in-game token SLP.
The BSP said an OPS provides services in a payment system or defines, prescribes, designs, controls or maintains the operational framework for the system.
As the Axie Infinity’s popularity as a play-to-earn game skyrocketed in the country, several merchants have also announced publicly that they are already accepting SLP as a form of payment for goods and services.
Buenaventura surmised that people accept SLP as payment for their products and services because they are also Axie breeders, who also use SLP to breed Axies.
“The only reason why people are accepting SLP as payment for their product and services is because they are probably breeders. The cheapest way for them to acquire SLP is just to exchange the product that they are selling for it,” Buenaventura explained.
One of these is the Quezon City-based “The Bunny Baker” cake studio.
Resolve on crypto
ZACH Yonzon, co-owner of “The Bunny Baker,” told the BusinessMirror they have been accepting cryptocurrencies, particularly Bitcoin and Ethereum, since 2015. Yonzon said they started accepting SLP about two months ago to support the play-to-earn industry as well as fellow Filipinos playing Axie Infinity.
However, Yonzon said he didn’t find the game enjoyable and stopped playing. But that didn’t weaken his resolve on the importance of cryptocurrency.
“I believe in cryptocurrency. I think that decentralizing finance is a game-changer. Cryptocurrency is just a game-changer,” he told the BusinessMirror. “We also want to offer as many avenues to pay as possible.”
Yonzon, however, admitted only a few of their customers used cryptocurrency to pay since they opened the option seven years ago. He added they have yet to encounter a customer using SLP as payment.
Yonzon said they’re still holding on to the cryptocurrencies they’ve earned so far. That means a long time: they won’t be converting these into fiat any time soon.
He told the BusinessMirror that while they received cryptocurrencies as payment, these are less than 0.01 percent.
“Pero kumita na ‘yun,” Yonzon said. [These have become profitable.]
YONZON said they would continue accepting cryptocurrency or gaming tokens as a form of payment even if only a few of their customers do so.
Yonzon told the BusinessMirror this is because he wants to “add legitimacy to cryptocurrency.”
“The more businesses or outlets that accept crypto[currency] as a form of payment, the more value it [would have],” he explained. “Because if nobody accepts crypto, wala lang siya; hangin lang siya.” [It’s nothing; like air.]
Yonzon believes cryptocurrencies would have value if more people accept it as a form of payment.
However, Buenaventura believes tokens like the SLP is really in the air.
SLP as a form of exchange will not probably work on a scale because the token is a “floating currency,” he told the BusinessMirror.
Buenaventura said it is “tricky” to quote the amount for the products and services because the SLP price changes every minute.
“There is going to be a regulatory hurdle there as well if it becomes a massive payment system,” he explained. “But I think, all this is telling you that there are more and more people in the ecosystem who are not just low-income earners but also small business owners.”
ANOTHER government agency that noticed the growth of Axie Infinity players in the country is the Bureau of Internal Revenue (BIR).
The BIR earlier said that income arising from cryptocurrency transactions must be included in the income of the taxpayer that will be subjected to income tax. This is because the National Internal Revenue Code provides, that for purposes of tax computation, gross income means all income derived from whatever source.
With the government stressing the need of filing tax for gaming revenues, Buenaventura said that players must be educated with such policy. This starts with financial inclusion, the crypto expert said; something applied to his own guild, the “Yield Guild Games.”
“We are ushering them into the formal financial sector painfully though; but there is a real motivation now,” he said.
Buenaventura believes it is only reasonable for government to tax earnings even from play-to-earn games. While some may find this “annoying” as this will reduce the earnings, he believes it’s in the best interest of a player to comply with government rules.
“I don’t think people want to be criminals. I think they would rather be legitimate; they just don’t know how to do it,” he added.
BRYLLE Uytiepo, founder of the Axie Alerts PH Facebook page, believes imposing tax rules will not deter Filipinos from playing Axie Infinity. According to the 22-year-old Manila-based chef, the earnings from the game will likely outweigh the tax compliance.
Sky Maxis also encourages Axie Infinity players to comply with laws of their home countries.
“Play-to-earn is an important shift in the nature of work; we look forward to working with physical nations (governments) on a path forward that encourages innovation and empowers gamers,” the company said in a statement in August.
Yonzon also isn’t bothered by the BIR
pronouncement. However, he doubts it would be an easy task for the agency.
The main issue is monitoring.
“How are they going to monitor cryptocurrencies? How are they going to monitor [peer-to-peer transaction? They can’t,” he said.
“I’m not even sure how do you report that because there’s no paper trail. Hindi naman bawal ‘yun [It’s not illegal] either. So there’s [going to] be a lot of questions about this stuff,” he told the BusinessMirror. “There needs to be a lot of time spent learning about how this ecosystem works before we actually start to make policy around it.”
A taxable event
WHILE it’s still an open question on how the BIR will tax cryptocurrency earnings, Buenaventura surmised the agency would tax the peso equivalent of the amount of SLP earned.
“But then, how do you prove na yun nga talaga yung kinita mo? [That you earned that much?]” he added.
Lawyer Nelson Kevin G. Baldonado also pointed out that the BIR has yet to release specific rules on reporting the income on cryptocurrency earnings, including when the gains would be considered as a taxable event just like how it is defined in the United States.
Baldonado, chief legal officer of online tax-assistance and tax-payment platform operator Taxumo Inc., cited the Bitcoin as an example.
“What they do in the US is, if your Bitcoin is valued at $47,000 today and tomorrow—through decentralized finance—earns some Bitcoin valued at $48,000 for that day; that’s an example of a taxable event, wherein your crypto earns you crypto,” he told the BusinessMirror. “We don’t have guidelines [and/or] rules as specific as they do in the US. Hence, the easiest way to compute income taxes vis-à-vis cryptocurrency would be when that cryptocurrency is actually converted into pesos.”
BIR Deputy Commissioner for Operations Group Arnel SD. Guballa admitted it would be difficult to monitor income from digital transactions.
“Considering the fact that the Philippines uses a self-assessment system in collecting taxes, one challenge for the BIR when it comes to digital transactions, including cryptocurrency transactions, is the difficulty of tracking all the income arising from such undertakings,” Guballa told the
BusinessMirror. “The taxpayers merely self-report how much they earn for the taxable year.”
The BIR official also admitted they have yet to release specific guidelines on the classification of cryptocurrency transactions and cryptocurrency-based play-to-earn games and the taxation of income earned from these platforms as well as the reportorial requirements for those engaging in cryptocurrency deals.
“[The] BIR also admits that cryptocurrency poses a significant risk of tax evasion due to lack of reporting requirements of large transactions, which the BIR cannot determine at the moment,” Guballa said in his email to the BusinessMirror.
Nonetheless, Guballa said the BIR is looking at making it mandatory for Philippine-registered cryptocurrency exchanges to withhold gains from cryptocurrency transactions in a bid to make it easier for the bureau to tax the deals.
BUT this strategy cannot be easily applied to foreign cryptocurrency exchanges since there would be a need to pass a new law just like what Singapore did, according to Guballa.
“Generally, the country’s tax laws and regulations are sufficient at the moment but there is need for the passage of new laws to enhance public’s protection,” he explained to the BusinessMirror.
In going after taxes on cryptocurrency earnings, Taxumo Co-founder and CEO Eugene Jose “EJ” Arboleda said there are ways for the BIR to track these transactions, such as asking a cryptocurrency exchange to share that data since these exchanges follow KYC policies.
Arboleda also pointed out that blockchain is the “farthest thing from anonymity” and that the BIR can also access ledgers that record every transaction.
“The BIR just has to look at one of the ledgers that are available, set up a node and download that and find a way to connect names to whatever wallet addresses; and they’re ‘golden,’” he told the BusinessMirror. “It’s very easy; like someone from home can do it.”
Baldonado recommends that government go after cryptocurrency-to-fiat transactions through the banks instead of going after cryptocurrency exchanges.
“The government would not need to catch them through the blockchain; you can check them through the banks,” he told the BusinessMirror. “All of our banks comply with the requirements of the anti-money laundering law.”
DESPITE the growing interest of Filipinos in cryptocurrencies and cryptocurrency-based games, the country’s only regulation when it comes to this space is BSP Circular 1108.
These guidelines cover the operations and reporting obligations of VASPs that are in the Philippines. However, these guidelines exclude digital units of exchange used as in-game tokens in its scope.
“The use of VAs within a virtual environment, such as in-game crypto tokens, is excluded from the guidelines as these pose little to no threat to financial stability,” the BSP explained to the BusinessMirror.
Moreover, the BSP said, its regulatory focus is on VASPs providing consumers with the means to exchange fiat money to VAs to acquire non-fungible tokens (NFTs) and NFTs back to Philippine peso.
“However, if said NFTs are being accepted as payments for goods and services outside the virtual environment (i.e., gaming community) and has an interface with the real economy, it then becomes an activity regulated under BSP guidelines,” the central bank said.
As for those VASPS registered in other jurisdictions but are offering services in the Philippines, the BSP told the BusinessMirror they “need not register with the BSP at this time.”
The Securities and Exchange Commission (SEC) was reported to be finalizing a cryptocurrency framework last year. The SEC, however, declined to issue any comment for this story.
BALDONADO believes the BSP’s issuance of guidelines on VASPs is already a “good step forward.” He said he would push for more regulations in the country to support the growing public adoption as well as to protect the investing public.
“Sayang kasi yung technology kung hindi natin nama-maximize,” Baldonado told the BusinessMirror. [It’s a pity if we can’t maximize the technology.]
He said it would be better if government addresses the gray areas.
“Mabuti nang ma-define mo na lahat, ma-regulate mo yung crypto, para mas ma-integrate natin sa buhay natin,” Baldonado added. [It would be good if you can define everything, you can regulate crypto, so that we can better integrate it into our lives.]
According to Arboleda, government must first define whether cryptocurrency is a security or a currency. For Baldonado, classifying it as a security would mean there are other taxes that need to be paid.
BUENAVENTURA said the Philippine government needs to improve its knowledge in cryptocurrencies first before thinking about regulation as going into the latter’s path could stifle innovation.
“No one is going to argue [that], of course, we want to support innovation. But we have to be careful about the regulations we apply because that has a very broad effect on hurting innovation if it’s applied wrongly,” he said.
He pointed to Singapore as a model. The Philippines’s neighbor has created a “regulatory sandbox” to support innovation in the cryptocurrency space.
For its part, the BSP vowed to facilitate an “enabling regulatory environment” that ensures regulation is proportionate and fair, maintains stakeholder collaboration and ensures consumer protection throughout the developments in this sector.
Meanwhile, Sky Mavis has expressed willingness to work with governments in the future.
“What we are building is completely unprecedented and, as we scale, working with governments will become necessary,” Sky Mavis Co-Founder Aleksander Leonard Larsen told the BusinessMirror. “We look forward to working with officials and institutions that don’t want to stifle innovation.”
GOVERNMENT trade and industry officials are looking more on the innovation side.
The DTI said that crypto games can further help Filipinos adapt to modern technology. Such is necessary to support a digital economy, a sector that was proven to be crucial during a pandemic.
A report commissioned by Google Philippines noted that the country’s digital economy may reach P5 trillion by 2030, given that it ramps up its digitization efforts, especially for the micro, small and medium enterprises.
Buenaventura believes cryptocurrency would become a bigger part of everyone’s lives.
“I think cryptocurrency, in general, is here to stay. There’s nothing in my mind that would stop it from doing so,” he said.
He also expressed optimism that Axie Infinity, which is still young, will do well in the coming years.
“I am hopeful that it will provide alternative income for a long time to come,” he told the BusinessMirror, adding that in his view, “my role in the industry right now is to kind of help make that happen in the Philippines because I genuinely think this is opening doors for people and creating opportunities in a way that was never really possible before.”
What is NFT?
THE digital pets in the Axie Infinity game are considered non-fungible tokens (NFT), a type of digital asset that holds value and certification of ownership. These NFTs exist through a blockchain, which is a digital system or ledger that records transactions.
“Each token has a digital signature that makes it unique from any other token and this is why it can be used to represent a unique object (physical or virtual,” Moneybees Forex Corp. CEO Paulo Roberto E. Del Puerto told the BusinessMirror). “That is why, if you have an NFT or, say a digital art piece or a character in a game, it means that you own that specific piece or character.”
Del Puerto noted that the primary growth driver of NFTs in the Philippines currently is the play-to-earn games. The tokens include the characters and weapons in the games, among others, he cited.
“Now NFT is paving the way for financial empowerment—providing a way for people to earn income initially either from their artwork or by playing games. I am sure that pretty soon, we’ll see more implementations,” he added.
In the art space, Puerto noted that several Filipinos are already minting and selling NFT art globally.
The Moneybees official believes that NFT projects will continue to flourish in the country given the “overflowing” creative talent pool.
Image courtesy of BM Graphics: Job Ruzgal