Digital currencies: Worries of a crackdown have abated
Enthusiastic investors are trading as they await further news about regulations
South Korea adopted high speed internet and associated technologies early, making it a perfect fit for cryptocurrency. By some estimates, three out of 10 workers have invested in cryptocurrencies. Kim Kyoung-soo, head of Ether Lab, a leading blockchain research centre in South Korea, says the country is the perfect testing ground for digital currencies.
“It’s no wonder that cryptocurrency is so popular in South Korea,” he says. “The market is more information-sensitive than any other market. And South Korea is the world’s largest IT powerhouse, the flow of information is faster than anywhere else in the world.”
The digital currency has gained so much traction that the term “Bitcoin Zombie” is the phrase of the day, with reference to investors who enthusiastically trade notoriously volatile cryptocurrencies and hardly get any sleep. “Korean young people are enthusiastic about cryptocurrencies because of fast access of information such as internet news,” says Kim Kyoung-soo. Korea’s Bithumb ranks among the world’s top 10 cryptocurrency exchanges.
Signs that an overheating market would lead to a cryptocurrency crackdown were brewing in late 2017, when Prime Minister Lee Nak-yeon related speculation about cryptocurrencies to crime and pyramid schemes, a concern shared by many countries including China, which has moved towards a complete ban.
South Korean Strategy and Finance Minister Kim Dong-yeon said in late January there would be no such ban, despite noises from other officials. “There was little preparation and research to study such a rapid growth of blockchain technology and cryptocurrency, and the drastic changes affected the stock market, the current stable economic system, and international remittances,” says blockchain expert Kim Kyoung-soo.
The government has moved to prevent the use of anonymous bank accounts to trade cryptocurrencies, and South Korean cryptocurrency exchanges are implementing “know-your-customer” (KYC) procedures. “It is worrying that Ponzi schemes or other pyramid swindlers have caused many investors to suffer. The South Korean government and regulators are expected to draw up appropriate and effective regulations to protect the interests of investors,” Kim Kyoung-soo says.
Despite the risks, new users are moving in. Some analysts have placed the Korean won as the third most traded national currency for bitcoin, and the popularity shows no sign of abating, in spite of high profile hacks on digital token exchanges.
Japanese exchange Coincheck had US$530 million worth of digital tokens siphoned from its accounts, affecting an estimated 260,000 customers. This followed news that in December 2017 a South Korean cryptocurrency exchange Youbit lost 17 per cent of its total digital assets in a hack, with parent Yapian filing for bankruptcy.
Nevertheless, Kim Kyoung-soo is bullish about the future of cryptocurrencies in Korea. “A recent survey of 2,000 young Americans found that more than 30 per cent prefer to invest in Bitcoin to gold or stock investments,” he says. “As can be seen from these surveys, the popularity of cryptocurrencies will continue to grow. Large public blockchains, such as Bitcoin, Ethereum and Bitcoin Cash, will lead to the influx of funds on issues such as ETF listings.”
Reports say the country is considering a system based on New York’s BitLicense model, which only allows exchanges that have applied for a licence to trade cryptocurrencies. This entails more reporting requirements, an increase in minimum capital expenditure, and institutional frameworks. The uncertainty over these developments may hold the cryptocurrency model in Korea back for the present as many in the global cryptocurrency community see the model as expensive, overbearing and infringing upon privacy.
“About 3 million people in South Korea, or 6.5 per cent of the total population, have invested in cryptocurrency,” says Kim Kyoung-soo. “The government is heading toward regulating the cryptocurrency market, but it is not providing precise guidelines.”
“The exchanges are not closed or restricted to purchases,” Kim Kyoung-soo says. “Existing investors are continuing to invest in blockchain technologies and the cryptocurrency market, and I think the barriers will gradually fall apart.”