Assessing the
E-Peso Bill of 2014

Last week, Philippine Congresswoman Kimi Cojuangco caused a stir within the crypto community by proposing the country’s first digital currency, the E-Peso.

I was initially very encouraged to see a bill proposing a digital currency making its way through the Philippine House of Representatives, especially one that mandated the Philippine Central Bank to “study the technology of Bitcoin and post-Bitcoin cryptocurrencies.” It seemed like a great step forward for cryptocurrencies to be recognized at this level.

As currently written, however, the bill needs a few adjustments to make it both (1) financially feasible and (2) genuinely beneficial to the technology that it mentions so prominently. (The complete bill is viewable here.)

Introducing the E-Peso

The E-Peso is for all intents and purposes a digitized version of the regular Philippine Peso. Its buying power, therefore, will rise and fall along with that of the regular peso, thus avoiding the relatively more volatile Bitcoin exchange rate.

Let’s step back and think about why digital currencies are good for society, and specifically, Filipinos.

We live in a country composed of 7,107 islands, and have thousands of towns and villages that are barely within reach of a functioning GSM cellsite, let alone any financial services. Digital currencies allow us to move money from place to place without having to take a trip of several hours to, say, pick up your salary from the only bank in a hundred kilometer radius. In more urban areas, they allow us to transact online at participating providers without credit cards. The crypto-powered versions of digital currencies also disintermediate the ACH, the SWIFT network, and a whole clown car’s worth of remittance providers, and make international money transfer truly affordable, but more on that later.

Introducing the “Log Chain”

The E-Peso will be secured by a public ledger to assure its authenticity. For some reason, this bill has opted to refer to its solution as a “log chain,” which for all intents and purposes, seems to be analogous in its intent to the regular blockchain.

Given that there are roughly 3/4 of a trillion pesos in circulation, the maximum E-Pesos that will be pre-mined during the first few years of this act’s effectivity would be about 7 Billion. The press about this proposal have repeatedly stated that only 1 Billion will be initially released however.

Exclusivity and Standardization

Given that only the E-Peso will be “recognized as the electronic legal tender,” it’s easy to misinterpret this section as “outlawing cryptocurrencies.” That isn’t what it’s actually saying however.

It states that the E-Peso is the only electronic “legal tender” in the Philippines, in the same way that the regular Philippine peso is the only physical “legal tender.” Remember that the US Dollar isn’t recognized as legal tender in the Philippines either, which is why forex businesses are necessary.

In the case of Bitcoin or other crypto, we would be in exactly the same place we currently are, i.e., an unofficial digital asset that free individuals have chosen to use as a currency and/or payment platform.

But what’s troubling about this section is that, from a standpoint of optics, it makes it that much harder for crypto businesses to convince potential customers to try out Bitcoin, because we would then also have to explain how the government really doesn’t consider Bitcoin illegal.

When coupled with the following section, it becomes clear that the bill does in fact want to make the E-Peso the exclusive electronic currency.

The section above explicitly prohibits “official” electronic payments from occurring in any other currency. We could argue all day about what constitutes “official,” but there’s a distinct possibilty that this will drive Bitcoin underground in the Philippines. People will continue to use Bitcoin even if they can’t use it for “official” electronic payments, but with this bill in effect they may end up transacting in ways that circumvent policy and, potentially, taxation.

A Node at Every Bank

This section describes a centralized peer-to-peer transaction system composed of nodes that confirm each transaction as they happen. As part of the program, the responsibility of operating the nodes will fall on each branch of every bank operating within the country. To comply with the bill, they must purchase at least 1 dedicated machine for every branch in their respective networks.

There are a few reasons why this strategy would be very challenging to implement, not the least of which being that you are imposing new responsibilities on private corporations with no stated incentives for compliance.

But the broader reason is this: building a pre-mined, peso-backed version of Bitcoin and the blockchain in this manner is immensely challenging. Without coinbase rewards, earnings from transaction fees would never be enough to cover the costs of all these nodes.

Assessing E-Peso Feasibility

Let’s assume that the 10 largest Philippine banks, with about 5,000 branches between them, each spend the sum of PhP100,000 (US$2,250) to purchase a single government-approved machine for each of their branches. Now add on an annual electricity cost of say PhP10,000 (US$225) per machine to keep them running 24/7/365. Finally, let’s say that the machines operate in tip-top shape for the next 3 years without needing replacement, repair, or maintenance. Let’s also assume zero training costs, zero marketing costs, and zero customer support costs, just to keep things simple.

This adds up to a minimum investment of about PhP650MM (US$14.5M) from the banks in order to comply with the bill over a 3 year period.

Now let’s assume that the E-Peso is a resounding success, and enjoys an average of 4,000 transactions per day (5% of the global daily averages that Bitcoin currently sees). This translates to about 4,380,000 E-Peso transactions over a 3-year period.

At 4.3M E-Peso transactions, this implies an average confirmation cost of PhP148.00 (US$3.00) per transaction.

By comparison, the Bitcoin network currently charges about PhP2.00 or US$0.04 per transaction, which is only about 2% of the estimated costs of the E-Peso.

Since the E-Peso doesn’t have “miners,” the bill has sought to place the responsibility of network security on the banks instead — an idea that needs to be adjusted if we want this strategy to be viable. Currently, it shifts the economic burden without also shifting the incentives, and the end result is that the transactions will simply be too expensive to be useable.


Overall, the E-Peso bill in its current form is an economic vehicle heading in the correct direction, but perhaps using the wrong set of tires. We need cryptocurrencies in this country, because it opens up opportunities that too many of us have been locked out of for too long. Fundamental things like personal savings, credits and loans, micro-entrepreneurship, and affordable money transfers are super-charged by cryptocurrency in ways that are simply not possible using traditional instruments.

But in order for a digital currency to make any of those things possible, it needs to be cheap to use and cheap to deploy. The strategy outlined in the E-Peso bill needs to be adjusted if it wants to meet those two requirements.

Additionally, the sections that disallow official business transactions unless denominated in E-Peso should be reworded so as not to inadvertently stifle the ongoing local innovation in the crypto space. If I had a chance to contribute to the bill, I would reword them thus:

Section 9. Exclusivity of E-Peso — Only the E-Peso shall be recognized as the electronic legal tender in the Philippines. This should not be construed as disallowing other forms of digital currencies such as Bitcoin.

Section 11. Requirement on Business Establishment — Business establishments may accept all forms of digital currencies as electronic payment or money transfer provided that their earnings as such are reported in E-Peso denominations.

A simpler alternative to the E-Peso would be to use the Bitcoin network itself as simply a payment rails for digital transactions, and exchange it for good old Philippine Peso on both ends. We could even accomplish this purely through SMS, without internet connectivity. The technology for it is already available, and the businesses that are equipped to provide it are already in existence.

This private-sector approach might not be the most elegant solution, but it has the additional benefit of creating new business partnerships and new jobs, and can be deployed with far less institutional friction.

There is no argument that the Philippines benefits from cryptocurrencies; we can already see that based on the extremely competitive rates it allows for in the remittance realm. We just need to work on solutions that leverage existing resources like the blockchain and SMS, without trying to create new ones from scratch. In my mind, that is the fastest path to providing the much-needed financial services that digital money can enable.

#StartupPH Chronicles

Stories from the Philippine Startup Community

    Luis Buenaventura {bloomX}

    Written by

    On startups, technology, and the coming financial revolution. For more about the author, visit

    #StartupPH Chronicles

    Stories from the Philippine Startup Community

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