Beyond Rupiah: Indonesia’s Thriving Web3 Landscape

15 min readSep 7, 2023

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Author: Eujin, Jsquare

Spanning over 17,000 islands, Indonesia is not only the world’s largest archipelago but also a nation with a history as rich and diverse as its geography. With a burgeoning population of 277.7 million, Indonesia stands as the world’s fourth most populous nation. Currently classified as a newly industrialized country, its population growth rate of 0.74% further signifies a nation on the rise. Its geographical location has blessed it with a treasure trove of natural resources, from thermal coal and palm oil to nickel steel (world’s largest producer of nickel with an output of 1.6 million mt in 2022). Moreover, alongside these tangible assets, Indonesia boasts a vital intangible asset: its young labor force, with a median age of 29.9 years. This demographic presents a unique advantage.

In recent years, Indonesia has focused on improving its education system and digital infrastructure. With the efforts put into the fundamentals, the results are starting to be revealed: Indonesia now ranks 6th globally for the number of startups, making it the only Southeast Asian country in the top 10. For perspective, its neighbor Singapore has 1,142 startups, while Malaysia boasts 320. This rise in startups in Indonesia is bolstered by its young, tech-savvy population and solid investor interest. With standout companies like GoTo, Indonesia firmly stakes its claim in the global startup scene.

Ethnic and Linguistic Tapestry

Indonesia boasts a rich diversity of ethnic groups, a reflection of its archipelagic nature. The Javanese dominate the landscape with 40.1%, followed by the Sundanese at 15.5%. Other significant ethnicities include the Malay, Batak, Madurese, Banjarese, Balinese, and Acehnese, among others. This vibrant ethnic mix has naturally birthed a linguistic tapestry. While Indonesian is spoken by over 94% of the populace (namely the national language), it’s intriguing to note that it’s the primary language for only 20% of the population. The Javanese language, in contrast, is the dominant native tongue, spoken by over 30%.

Economic Landscape

Indonesia’s economic engine has been increasingly formidable. With a GDP of $1.32 trillion, it ranks 16th worldwide and stands proudly as the top economic powerhouse among ASEAN nations. However, a closer look reveals a GDP per capita of $4788, suggesting a vast potential for further economic development.

While global economic landscapes grappled with the challenges posed by the COVID-19 pandemic, Indonesia showcased remarkable resilience. Delving into the numbers, the archipelago witnessed a challenging dip in its GDP growth rate in 2020, recording a contraction of -2.07%. However, the subsequent years demonstrated a robust economic comeback. By 2021, growth rebounded to 3.70%, further accelerating to 5.31% in 2022. To place this in a comparative context, while India, another major Asian economy, experienced a sharp increase in 2021 with a GDP growth rate of 9.05%, it saw a decline to 7.00% in 2022. Indonesia’s consistent upward trajectory post-2020 signifies its strong economic foundation and adaptability.

Furthermore, Indonesia’s decade-spanning journey in employment presents an encouraging narrative. From a peak unemployment rate of 8.06% in 2007, systematic policies (in an attempt to reduce poverty) and economic strategies drove the figure downward, reaching 4.05% in 2014. Since then, the rate has hovered between 3.6% to 4.5%. Impressively, 2022 marked a historic low, with the unemployment rate dropping to 3.55%. This continuous downward trend not only exemplifies Indonesia’s steady economic management but also its ability to create and maintain job opportunities in changing global scenarios. Through consistent economic advancement and robust social safety nets, Indonesia has significantly reduced its extreme poverty rate, decreasing it from 19 percent in 2002 to just 1.5 percent in 2022 as a result.

Indonesia’s Digital Economy and Transformation

Indonesia’s digital transformation has been nothing short of remarkable. The nation’s internet penetration has seen a significant surge over the past five years. In 2018, there were 133 million internet users out of a total population of 264 million. As of April 2022, this number had risen to 210 million users out of a population of 275 million. This represents a growth of 58% in internet users over a span of just five years. The year-on-year growth rate of internet users has been consistently positive, with the most significant jump observed between 2020 and 2021, where the number of users increased by 16%. This rapid adoption can be attributed to several factors, including the widespread availability of affordable smartphones, improved digital infrastructure, and the behavioral shifts induced by the COVID-19 pandemic, which necessitated online modes of communication, work, and commerce.

*Note: (*) as of April 2022. Source: Katadata [2] and BPS*

Moveover, the average internet speed in Indonesia stands at 43.35 Mbps, ranking 113th globally, with a median speed of 24.32 Mbps, placing it at the 122nd position worldwide. While these figures might seem modest on a global scale, the consistent growth in internet users and the thriving digital economy indicate a nation that is rapidly bridging its digital divide.

Indonesia saw a remarkable 81.6% year-on-year surge in crypto asset investors, reaching 16.3 million by September 2022. The number further increased to 17.4 million as of May 2023, according to data from the Indonesian Commodity Futures Trading Authority (BAPPEBTI).

In March 2022, the transaction value for the country’s largest crypto asset traders (namely Indodax, Tokocrypto, Luno, and Zipmex) — amounted to Rp 38.3 trillion (about $2.68 Billion at the time), as indicated by Bank Indonesia in 2022.

The digital economy’s backbone in Indonesia is its fintech sector, especially the e-Wallet platforms. Indonesian consumers have shown a strong inclination towards digital financial products. As of 27 May 2020, according to Bank Indonesia, 48 licensed e-Wallet platforms had received government approval. Leading the charge are GoPay, OVO, and DANA. GoPay, an extension of the ride-hailing giant Gojek, has been a dominant force in mobile payments. OVO, launched in 2017, has benefited from strategic partnerships like those with Grab and Tokopedia. DANA, a collaboration between Ant Financial and PT Elang Mahkota Teknologi (Emtek), has rapidly gained traction, especially through its online merchant partnerships.

E-wallet platforms like Ovo, Dana, and GoPay pioneered the digital payment landscape in Indonesia. However, the advent of services like QRIS and BI-FAST is enabling traditional banks to join the digital payment revolution. QRIS, a QR code standard from Bank Indonesia, is compatible across various e-wallets and banking apps. Meanwhile, BI-FAST facilitates seamless fund transfers between banks using details like account numbers, mobile numbers, or email addresses. With most mobile banking apps now integrating QRIS and BI-FAST, there’s a growing sentiment that users might prefer these integrated services over standalone e-wallet apps. However, the deep integration of e-wallets in digital services, such as GoPay’s association with Gojek and Tokopedia, remains a significant advantage.

BI-FAST

Launched by Bank Indonesia in December 2021, BI-FAST is a testament to the nation’s commitment to a real-time, affordable, convenient, and secure payment system. This initiative aligns with the Indonesia Payment System Blueprint (BSPI) 2025, aiming for an integrated, interoperable, and interconnected digital ecosystem.

BI-FAST is more than just a fast payment system; it’s a symbol of inclusivity and broad accessibility in the financial sector. Open to banks, non-banks, and other eligible entities, BI-FAST aims to be comprehensive. The ACI Worldwide report further emphasizes the transformative potential of real-time payment systems in Indonesia. With an anticipated 1.6 billion transactions by 2026, the integration of platforms like BI-FAST could lead to net savings of US$222 million for both businesses and consumers, potentially contributing an extra US$747 million to the economic output.

The road to crypto regulatory recognition — Indonesia

Indonesia’s dance with cryptocurrencies has been a delicate one. As with many nations, the rapid rise of cryptocurrencies and their potential impact on traditional financial systems have warranted caution and careful evaluation.

Historical Perspective: When & how did Indonesia begin to recognize crypto?

Indonesia’s first interactions with cryptocurrencies were cautious. The Bank of Indonesia, the country’s central bank, initially warned against the use of Bitcoin and other cryptocurrencies in 2014, citing concerns over potential use in money laundering and funding terrorism. By December 2017, Bank Indonesia solidified its stance by issuing a regulation that bans the use of cryptocurrencies, including Bitcoin, as a payment tool. This move aimed to protect the Rupiah’s status as the only legally accepted medium of exchange in the country.

However, the turn of the decade brought a shift in perspectives. Recognizing the vast potential of blockchain technology and the cryptocurrency market, in early 2019, Indonesia’s Commodity Futures Trading Regulatory Agency (Badan Pengawas Perdagangan Berjangka Komoditi — known as “BAPPEBTI”) declared cryptocurrencies as a tradable commodity. This effectively allowed cryptocurrency trading but within a regulated environment. In December 2022, the Indonesian Parliament passed the omnibus bill known as P2SK, which consolidates the existing 17 financial sector laws into a single act. This new law encompasses all facets of financial services, from fintech to digital banks. Significantly, P2SK expands the regulatory scope to include crypto assets with risk characteristics. As a result, the regulatory and supervisory oversight of the crypto industry will transition from Bappebti to the Financial Services Authority (Otoritas Jasa Keuangan — known as “OJK”). This transfer is expected to be finalized within 24 to 30 months post P2SK’s enactment.

Regulatory Stance in 2023

Cryptocurrency as a Commodity: Indonesia prohibits the use of cryptocurrencies as a form of payment, emphasizing that the Rupiah remains the country’s only recognized currency for most financial transactions. However, the trading of cryptocurrencies as commodities is permitted, and the central bank has reiterated that cryptocurrencies are not a valid payment method.

Crypto Exchanges: Indonesia’s recognition of the potential of the crypto market is evident in its establishment of the world’s first state-backed cryptocurrency bourse in July 2023. Supervised by the BAPPEBTI, this bourse will list licensed cryptocurrency companies, including giants like Binance, Ripple, Ethereum, Tether, and Bitcoin. PT Kliring Berjangka Indonesia and PT Tennet Depository Indonesia have been appointed as the futures clearing house and the crypto asset storage manager, respectively.

CBDC (Digital Rupiah): As mentioned in the White Paper published by Bank Indonesia (issued on 30 Nov 2022), it clearly stated that “Money is the blood of the economy”. However, as for the government, the invention and mass adoption of cryptocurrency has the possibility to somehow overtake Rupiah as a form of payment and settlement (namely “shadow currency”). Thus, the government is in great fear of losing its monetary sovereignty which could then destabilize the entire financial system.

In this case, Bank Indonesia, which possesses the lowest credit risk, has been proactive in its approach to digital currencies. Project Garuda aims to explore the optimal design for the Indonesian Central Bank Digital Currency (CBDC), known as the Digital Rupiah. CBDC has shown the capacity to meet the three core principles below while paving the way to the digital era of the future.

“First, fulfilling the public’s need for a risk-free medium of exchange accessible in digital form; second, maintaining monetary sovereignty; and third, ensuring the effectiveness of the implementation of the central bank’s mandate in maintaining monetary stability, financial system stability, and payment system efficiency and security.”

*Framework of the Digital Rupiah* (Source: WhitePaper — Bank Indonesia)

This project is a testament to the nation’s commitment to exploring the potential of digital currencies. The CBDC will undergo three phases of development, each marked by public consultations, technological experimentation, and policy reviews.

Indonesia, like many nations, is in the process of finding a balance between innovation and regulation. While it recognizes the potential of cryptocurrencies and blockchain technology, it remains cautious to protect its citizens and the integrity of its financial system. It will be intriguing to see how Indonesia’s relationship with cryptocurrencies evolves, especially as more nations around the world start embracing this new digital frontier.

Well-known Web3 Projects in Indonesia

Indodax

Indodax is Indonesia’s premier cryptocurrency exchange, known for its robust platform and extensive selection of crypto assets. Founded in 2014, Indodax has grown exponentially, boasting over 5 million members who can effortlessly trade popular cryptocurrencies such as Bitcoin, Ethereum, and Ripple. The platform’s convenience, speed, and security make it a trusted choice for traders both in Indonesia and globally.

Indodax’s credibility is further bolstered by its certifications and permits from the Commodity Futures Exchange Supervisory Board (BAPPEBTI) and the Ministry of Communication and Information of the Republic of Indonesia. It’s not just local authorities that recognize Indodax’s value; the global cryptocurrency data aggregator CoinMarketCap ranks Indodax as a Top 50 Spot Exchange, praising its exchange volume, traffic, liquidity, and the authenticity of its reported trading volumes.

Paras — NFT Marketplace

Paras, an NFT marketplace based in Indonesia, successfully raised $5 million in seed funding (in 2021) through a private round and Initial Dex Offering, with contributions from investors like Black Dragon Capital and Dragonfly Capital. Founded in 2020 by Rahmat Alariqi and Afiq Shofy Ramadhan, the company plans to use the funding to create crypto-native intellectual property focused on games and comics. In addition, Paras introduced Paras Comic, a platform for reading, lending, and selling digital comics, as well as purchasing NFT collectibles designed by comic artists.

Ghozali Everyday

The last Indonesia project to be mentioned has to be an NFT project named “Ghozali Everyday”. Ghozali Ghozalo, also known as Sultan Gustaf Al Ghozali, is a 22-year-old Indonesian computer science student who turned a school project into a successful NFT collection called “Ghozali Everyday.” The collection features 933 self-portraits taken by Ghozalo between the ages of 18 and 22, from 2017 to 2021. Initially intended for a school video, Ghozalo decided to turn the photos into NFTs on the OpenSea marketplace.

Ghozalo described the collection on OpenSea as, “It’s really a picture of me standing in front of the computer day by day.” However, the Indonesian NFT and crypto communities resonate with the values embodied in Ghozali Everyday, as the digital world often calls for mindfulness and authenticity. The collection was launched on January 9, 2022, at $3 per picture. Within days, the floor price soared to 0.9 ETH (approximately $3,000) before slightly decreasing. The collection’s total traded volume on OpenSea reached 314 ETH, or more than $1 million in just 5 days (January 14, 2022).

Conclusion

Since Bitcoin’s inception roughly 14 years ago, we’ve seen a wave of development in the Distributed Ledger Technology (DLT) space. This includes revolutionary Layer 1 solutions like Ethereum, Cardano, Solana, and Aptos, which have reshaped the cryptocurrency landscape. More governments are starting to seriously consider the adoption of cryptocurrency, and we can expect a societal paradigm shift within the coming years or decades. Indonesia has emerged as a pioneer in Central Bank Digital Currency (CBDC) experimentation in Asia, showcasing its commitment to stay ahead in the digital arena. While the ultimate impact of CBDCs and cryptocurrency recognition remains uncertain, it’s clear that Web3 and cryptocurrency are moving in the right direction. As the crypto industry develops in Indonesia, it’s likely to create more job opportunities and attract more developers, especially if the country’s tax policy is favorable. This could provide a significant boost to Indonesia’s economy. However, there may be conflicts of interest between different parties. Decentralization, a key feature of DeFi, could diminish the power of centralized authorities, making it challenging for DeFi to fit into a regulatory framework for cryptocurrency recognition.

Verticals to be targeted for Future Investment

Security:

With the increasing complexity of the cryptocurrency landscape, security becomes an essential component of the industry. We think of it as the skeleton of the future crypto industry. For instance, the mechanism design and system of Digital Rupiah have to be impeccable and financially infeasible to attack. Any tiny flaws in the CBDC system could result in catastrophic consequences for the entire digital monetary system, which could cost Bank Indonesia a lifelong reputation. In this case, auditing as a service, represented by companies like Trail of Bits, Quantstamp, Certik and BlockSec, is crucial for establishing trust and credibility in projects. Moreover, infrastructure projects such as ZKP (Zero-Knowledge Proof) protocols provide privacy and scalability, which are essential for the continued development of Web3 and DeFi platforms. With Indonesia’s growing focus on CBDCs, securing these digital assets becomes even more critical. Investing in companies or projects that focus on improving the security of the cryptocurrency ecosystem is likely to pay off in the long term, especially as more transactions and interactions are moved onto blockchain platforms.

Data Analytics +AI:

The widespread use of privacy-centric projects, with features like asset shuffling by Tornado Cash, pose challenges as it disconnects the link between senders and receivers. Private transactions make it harder for governments and regulators to conduct investigations. AI and Data analytics tools can act as a sub-frontline defense against malicious actors, functioning like “Digital Cops” to identify and counter cyber threats. When paired with AI, data analytics platforms can provide real-time tracking and combat against cybercriminals. An ideal platform that combines AI with solid data analytics in this context is still lacking, presenting an investment opportunity with high potential returns, especially in countries like Indonesia, which are actively adopting digital currencies.

Compliant L1s:

DLT solutions that prioritize compliance with regulatory standards are akin to “Digital Courts”, offering a mechanism to track back and take action against malicious actors within the crypto space. These compliant L1s are essential for bridging the gap between traditional finance and the crypto world. As more governments and central banks, including Indonesia’s, explore the use of CBDCs, compliant L1s can provide the infrastructure needed for these projects, ensuring that all transactions are carried out within the bounds of established regulations. With their role in upholding and enforcing the rules of the digital finance ecosystem, investing in such projects could prove lucrative, as the demand for compliant L1 solutions is likely to rise in the coming years.

Insurance:

The insurance sector in the crypto world holds immense potential as it addresses a critical need for risk mitigation in the volatile crypto space. Despite its importance, the current insurance offerings in the crypto space are underperforming and fail to address the diverse needs of users, leaving a significant gap in the market. The development of crypto infrastructure, such as oracles, can provide the necessary foundation for the growth of insurance solutions tailored to the crypto world. Indonesia’s progressive crypto policies and focus on CBDCs might position it favorably to foster the development of crypto insurance, offering added security and peace of mind to users.

SocialFi and GameFi:

Both represent the integration of finance with social and gaming platforms, and while not as urgent as security or AI, hold great growth potential, especially among younger users. Indonesia, with its strong Web3 communities and tech-savvy population, provides an ideal environment for these innovations. The country’s active online communities and growing interest in cryptocurrency create a fertile ground for the rise of SocialFi and GameFi. Investing in projects that cater to the Indonesian market within these sectors could be profitable, as the nation’s rapid Web3 development could significantly boost their success.

Over the next decade, Indonesia’s cryptocurrency landscape is set to grow significantly. With a likely more receptive regulatory environment, we can expect broader acceptance of crypto assets, spurring domestic blockchain innovation. The progress in Central Bank Digital Currency experimentation may lead to true Digital Rupiah implementation, fostering financial inclusion and enhancing digital infrastructure. Government incentives for blockchain startups and private investments in areas like Security, AI, and compliant L1 solutions will further fuel this growth. As fintech firms adopt blockchain and DeFi, cryptocurrency will become increasingly mainstream in Indonesia. This combination of factors positions the country as a future regional leader in crypto development and adoption, driving economic growth and digital innovation.

About Jsquare

Jsquare is a research and tech-driven investment firm focused on facilitating blockchain mass adoption, and empowering future Alpha in Web3. Currently we are self-funded with AUM over $150M. Our team has deep expertise in the industry and close partnerships with top tier exchanges, launchpads, VCs, guilds, KOLs, etc. We attach great importance to post-investment service and leverage our Web2 & Web3 resources to empower our investment portfolio.