Since the investor boom in 2017, South Korea has been at the forefront of the encryption industry, and the country is gradually changing its view on the cryptocurrency. Although South Korean government officials announced the lifting of the ICO blanket ban last month, it has recently stated that it intends to lead the fourth industrial revolution driven by the blockchain.
A Brief History of South Korea’s Cryptocurrency Supervision
South Korea has been strictly monitoring the cryptocurrency industry. First, in July 2017, the government legalized the remittance of Bitcoin, allowing FinTech to process Bitcoin worth up to US$20,000 in value for users. Therefore, the local exchange platform is linked to the Financial Services Commission (FSC), the highest financial regulatory body in South Korea. The latter requires the retention of at least US$436,000 in capital, and KYC and AML provide data processing facilities to obtain regulatory agencies. Approval.
As a result, the Bitcoin industry continues to grow in South Korea – by July 2017, the local exchange market has processed more than 14% of the global Bitcoin transactions, second only to the United States and Japan, becoming the third largest market in the world. – But soon it suffered a similar ICO ban on China. But it was soon manipulated to completely ban this council, which was enacted by the FSC. The agency explained that the move stemmed from an increase in the risk of financial fraud, which triggered a sell-off in the market.
In addition, in December 2017, the Korean government made an anonymous transaction against the local exchange (in short, if your bank information does not match the information you provided on the exchange, then you cannot trade the cryptocurrency) The South Korean Prime Minister said that Bitcoin may lead young people to “illegal activities such as drug trafficking” – foreigners and minors are also prohibited from trading because of this policy; in March 2018, Korean government officials were banned from holding or trading The cryptocurrency, the market has responded to this news multiple times. The panic was further exacerbated when news that the Bitcoin exchange was to be completely banned – but shortly thereafter, the South Korean president’s administrative office and official residence Cheong Wa Dae dismissed the news.
According to Korea’s self-regulating blockchain industry association (KBA), the country had more than a dozen cryptocurrency exchanges at the time, including Bithumb, Korbit, and Coinone. The demand for cryptocurrency by the Korean people is so high that the price of cryptocurrencies is more than 30% higher than other countries. Shortly after the Anonymous Trading Ban was announced, CoinMarketCap removed several Korean exchanges from its exchange list on the grounds of excessive price differences, which led to a sharp drop in market prices. Ripple was particularly affected, and its market capital immediately shrank by $20 billion, and its value fell by nearly 30%.
On January 22, the South Korean government also announced that it imposed a large amount of tax on local cryptocurrency exchanges. Therefore, all cryptocurrency trading platforms in the country are required to pay 22% corporate tax and 2.2% local income tax.
On May 29, the Korean National Assembly formally proposed the legalization of domestic ICOs. Although the lifting of the comprehensive ban on ICOs began as early as December 2017, this proposal is not surprising because it seems to be in sync with the government’s tendency to support the blockchain. When the Democratic Party’s Representative Hong Eui-rak first announced that lawmakers are studying the bill to lift the ICO ban, he mentioned:
The primary goal of legislation is to help eliminate the uncertainties associated with blockchain-related businesses.
In fact, South Korea has been cultivating an ambitious plan for the blockchain and has recently begun to take action. On June 22, the Ministry of Science and Technology (MSIT) and the US State Department announced their cooperation in promoting the fourth industrial revolution at a press conference held in Seoul. The World Economic Forum (WEF) defined the fourth industrial revolution in 2016 and acknowledged that the blockchain was one of the main drivers of this revolution from the beginning.
Therefore, the Fourth Special Committee of the Industrial Revolution of the National Assembly of South Korea stated at its last meeting on May 28 that:
We need to form a working group that includes private experts to increase the transparency of cryptocurrency transactions and establish a healthy trade order. . . . . . We will also establish the legal basis for cryptocurrency transactions through the Standing Committee of the National Assembly, including licenses for ICOs.
At the same time, Korea’s interest in the blockchain was again confirmed on June 21. The Korean Ministry of Science and Technology announced an important blockchain technology development strategy with the goal of raising 230 billion won (about US$207 million) in funds by 2022. It is expected that this new initiative will train 10,000 blockchain industry professionals and 100 companies involved in real estate, online voting, shipping logistics, real estate, and international electronic document distribution, and expand the existing 6 with the support of the Ministry of Commerce. The home blockchain pilot project eventually made it profitable.
In May this year, even the Bank of Korea began to explore the idea of using cryptocurrencies and blockchains. In order to achieve the goal of a cashless society by 2020, Korean government agencies have turned to this technology. The main goal of the project is to provide convenience to customers and reduce the cost of producing physical currency.
Korean companies have also been implementing this technology. In April this year, South Korean telecom operator SK Telecom announced that it will launch an asset management service using blockchain technology and a platform to connect blockchain startups with investors. The executive vice president of the blockchain division of telecom operators stated:
The service will allow users to manage all bank accounts, credit cards, mileage credits and other non-financial assets (including cryptocurrencies) and make trust-based asset transactions possible.
SK Telecom’s new platform, Token Exchange Hub, will support start-up ICOs by providing “technical and financial advisors.” In addition, the South Korean General Administration of Customs signed a memorandum of understanding (MoU) with the South Korean operator Malltail (the main consumer package forwarding service) to develop a blockchain-based customs platform for the e-commerce industry, while a group of Korean commercial banks will In July 2018, a blockchain-based customer ID verification platform was launched.
At the same time, on June 20 this year, electronic equipment giant Samsung released a new block-driven logistics platform called Cello 3.0 through Samsung’s IT department SDS. The company also announced in early June this year a blockchain platform called Nexfinance, which aims to enhance the competitiveness of financial services. Samsung’s competitor LG also recently launched its own blockchain-driven service through a subsidiary focused on information technology services. This new platform is called Monachain and it aims to achieve blockchain-based logistics services in the financial, manufacturing and communications sectors.
More stringent for cryptocurrencies
Another reason for revoking the ICO ban was the Korean government’s brakes on the local cryptocurrency industry. When Jung-geun, chairman of the Korea ICT Financial Integration Association, revealed plans to build a blockchain center in Busan after the encryption valley in Switzerland, he emphasized that due to government bans, many Korean companies are now forced to hold overseas international security and development directors. Yes, this deprived the country of a large amount of commercial taxes. Compared with the government’s attitude towards the blockchain, South Korea’s attitude toward cryptocurrency has also been criticized by Park Sung-joon, chief researcher at Donggu University’s blockchain research center, who believes the Korean government’s blockchain and cryptocurrency There are potential dangers caused by different methods:
In the digital asset trading market, virtual currencies and blockchains cannot be separated because they require appropriate payment methods.
An obvious example is that Kakao plans to put their ICO abroad. Kakao is the main Internet company in Korea and is also the service provider of KakaoTalk, the main mobile communication application in Korea. As previously reported by Cointelegraph, Kakao’s applications have a market penetration of over 90% in their respective markets, including fintech, taxi services, messaging, and social media. The company also focuses on integrating cryptocurrencies for 12,000 merchants and more than 100 million users.
In March this year, the company announced plans to open a blockchain platform for the broader Asian market. According to reports, the company is seeking to establish an ICO, which may prompt local legislators to relax the current rules in order to leave Kakao’s business in the country.
Despite this, the Korean Financial Services Committee is still skeptical. Soon after the news that the ICO ban was lifted, the chairman of the Financial Services Committee expressed his concerns about domestic ICOs. He said that investors in the cryptocurrency market faced high risks and called it the Ponzi scheme. The Financial Services Authority also commented on Kakao’s ICO and reminded the current restrictions:
Even if there is no ban on cryptocurrency or digital asset transactions, it (Kakao’s ICO) may be regarded as fraudulent or multi-level sales depending on the mode of distribution. As the risk of investor protection is very high, the government’s attitude toward ICO is negative.
This is not surprising, because the Financial Services Commission – and other regulators – has been monitoring local exchanges in a clear and tough manner. For example, after the local exchange UPbit was suddenly investigated by financial regulators on May 11 for fraud allegations, the platform conducted an internal audit and refuted these allegations. Interestingly, Upbit is operated by a subsidiary of Kakao.
Similarly, in April of this year, the co-founder and chief executive officer of e CoinNest, the main cryptocurrency exchange in South Korea, was arrested on the alleged misappropriation of public funds and fraud. He allegedly transferred the “billions of won” customer’s digital assets to In their personal accounts, 12 cryptocurrency exchanges were required to improve customer protection in their contracts.
In addition, the Financial Services Commission joined the investigation of the Korean cryptocurrency exchange in May, which was originally initiated by the Korea Financial Supervisory Authority (FSS). At the request of the FSS, the Financial Services Commission will examine the bank accounts of the Korea Key Exchange to find out if they meet the AML standard and other fraud prevention measures.
According to the original report of the Korea Times, the main target for expanding the scope of the audit will be Bithumb, the country’s largest cryptocurrency exchange, which will promote the use of cryptocurrencies. However, the fact that the government-regulated Bithumb has recently been hacked makes the situation even more complicated. According to reports, the Korean Internet and Security Agency (KISA) has dispatched their officials to the Bithumb office in Seoul to collect data and records of the company’s computers.
Despite this, the newly appointed chairman of the Financial Supervisory Authority recently announced that he has seen “some positive aspects” of the cryptocurrency. He also mentioned that the FSS will work with other regulatory agencies to study the regulatory “problems” of encryption technology.
Future regulations will show that the government follows its plan to use positive policies to nurture the local crypto industry. In March this year, the representative of the Korean Ministry of Strategy and Finance mentioned that they will release a tax framework for cryptocurrency by the end of June. Although the agency has not yet issued any official announcements, the local news media Korea Daily reported on June 22 that the relevant agencies will introduce a 10% capital gains tax within one to two years. However, this quickly received a retort from the Ministry of Strategy and Finance.