Since the boom of investors into the cryptocurrency market in 2017, South Korea has been in the forefront and the views of the country concerning cryptocurrency are steadily changing as well. Last month, the country announced that it will be lifting its ICO ban. There has also been a number of statements pertaining to South Korea’s intention of using blockchain initiative to power the fourth industrial uprising.
Evolution Of Cryptocurrency Regulation In South Korea
The crypto market in South Korea is regulated as shown by the government’s legalization of Bitcoin as a remittance method in July 2017. This legalization helped fintech companies process large sums of money in Bitcoin for users which resulted in collaboration between the Financial Services Commission and local exchange platforms. Before approval was given, there were certain requirements as a result of this collaboration such as retainment of at least $436,000 in the capital, know your customer (KYC) processing facilities and Anti-Money Laundering purposes.
The South Korean Bitcoin industry grew continuously until it was the third largest market in the world but the industry took a nosedive when there was a ban on ICO’s. This ban was established by the FSC as a way of reducing the risk of fraudulent financial activities. In December 2017, the government also banned anonymous trading using local exchanges as there was a rise in drug trading activities online. In March 2018, the government banned government officials from trading or holding cryptocurrency and the crypto market reacted. There was intense panic in the market when a rumor surfaced on the ban of Bitcoin trading but the Blue House dismissed the claim.
There were a number of established crypto exchanges already in South Korea at that time such as Korbit, Coinone, and Bithumb according to KBA which is the self-regulatory Blockchain Industry Association for the country. There was a high demand for crypto that the prices it was traded for were a lot higher than it was in other countries. There was a severe dip in the crypto market when CoinMarketCap removed some South Korean exchanges as a result of the huge differences in prices. The South Korean government announced on January 22 that there will be a tax levied for local crop exchanges meaning they are to pay 22% corporate tax and 2.2% local income tax.
South Korea’s Blockchain Plans
There was an official proposal given by the National Assembly on May 29 for the legalization of domestic ICO’s. As at December of last year, plans have already been put in place for the lifting of the ICO ban so this news hardly comes as a surprise due to the fact that it matches the government’s blockchain plans. The representative of Korea’s ruling Democratic party, Hong Eui-rak announced first that the lifting of the ban was in the works.
On June 21, South Korea’s Ministry of Science and Technology announced a Blockchain Strategy that aims to raise over $200 million by 2022. The initiative is intended to aid 10,000 blockchain professionals and 100 companies in the various area such as online voting, real estate and shopping estate to increase and monetize the existing blockchain pilots. The Ministry of Science and Technology, South Korea, and the U.S. State Department announced also on June 22 at a press conference in Seoul that they will be collaborating for the advancement of the fourth industrial revolution. The World Economic forum recognizes blockchain as a primary mover of the fourth industrial revolution.
The central bank of South Korea is also open to the use of cryptocurrency and blockchain technology as the government is trying to make use of technology to implement their 2020 goal of a cashless society. Businesses in South Korea have also been making use of this technology as proven by SK Telecom which is the telecommunications operator of South Korea announcing the release of a blockchain technology backed asset management service. SK Telecom has a new platform called the Token Exchange Hub which will help startup ICO’s by providing consultation on tech and financing. By July 2018, a number of commercial banks in South Korea are launching a customer ID verification platform powered by blockchain.
Samsung revealed on June 20 their new logistic platform powered by blockchain called Cello 3.0. The company also announced Nexfinance, a blockchain platform for finance companies. LG, which is a rival company also launched its power service called Monachain which uses blockchain technology recently.
South Korea’s Cryptocurrency Position
The crypto industry suffered greatly during the ICO ban as a number of South Korean companies were forced to do their ICO in other countries which inevitably deprived the country of huge business taxes. Park Sung-joon who is the head researcher of the Dongguk University Blockchain Research Center believed that the country’s approach poses danger. Kakao which is one of the major internet companies in South Korea held their ICO abroad as a result of the ban.
The FSC is not completely convinced as there are huge risks of scams and Ponzi schemes which will pose a huge threat to investors. FSC’s skepticism can be seen by the rigorous regulations on local exchanges. For example, co-founder of CoinNest was arrested for embezzlement and fraud back In April. Upbit also received allegations on May 11 which forced a term to conduct an internal audit that supposedly disproved the claims. Bithumb’s plans to popularize crypto use is one of the major topics according to reports from Korea Times. This exchange platform was also recently hacked while it was under scrutiny from the authorities.
Only the future will show if the government will go through with its plans of putting policies in place for the growth of the crypto industry. The Ministry of Strategy and finance in March said that there will be a release of cryptocurrency taxation framework by June ending. No official announcements have been made however except to diffuse the report made by local news Chosun on June 22 on the introduction of 10% capital gain tax.
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