As cryptocurrencies grow in popularity, South Korea has become one of the frontrunners in the cryptocurrency community. Many South Koreans have decided to invest their earnings in digital assets after witnessing the wealth others had gained. Towards the end of 2017, the Korean Won accounted for more than 10% of trades in Bitcoin. Additionally, the Korean Won was the No. 1 currency used for Ethereum transactions. From younger citizens to older citizens, cryptocurrencies have earned popularity and many have seen the success they could bring.
However, the popularity of cryptocurrencies has faced some controversy and backlash from the Korean government. In September 2017, the government imposed a blanket ban on Initial Coin Offerings (ICOs). From there, the government contemplated over how to deal with the rise of cryptocurrencies because they wanted to prevent problems such as money laundering, tax evasion, and excessive speculation. Prime Minister Lee Nak-yeon even stated that cryptocurrencies might corrupt the nation’s youth. Ideas ranging from shutting down local cryptocurrency exchanges to allowing them to operate under stricter supervision were options the government considered but they ultimately took precaution by prohibiting deposits that went into anonymous virtual accounts at banks. Additionally, the government advised lenders to report suspicious transactions. For example, if a trader were to deposit or withdraw 10 million won from cryptocurrency venues, the government would consider this to be reportable.
As a result of all the regulatory controversy, cryptocurrencies, such as bitcoin, dropped in value. The trading in Korean Won declined as regulators cracked down on cryptocurrency exchanges. But, even though the government proposed limiting the presence of cryptocurrencies, citizens would still manage to find ways to purchase cryptocurrencies elsewhere.
After a $33 million hack aimed at Coinrail, a South Korean cryptocurrency exchange, the government decided to take steps to implement policies such as Know Your Customer and Anti-Money Laundering. However, the Korean Free Trade Commission still did not possess the authority to access or monitor cryptocurrency exchanges.
Then, in July 2018, the Korean Financial Intelligence Unit officially recognized cryptocurrency exchanges as large-scale financial institutions, which legitimized the existence of cryptocurrencies in the Korean economy. Their official recognition subjected them to the same regulation that the government imposes on commercial banks and stock markets. In other words, any rules, regulations, and requirements that government-recognized financial institutions face, can now be applied to cryptocurrency exchanges. Official recognition also removed any limitations the government faced in their attempts to control and prevent the possibility of money laundering. The South Korean government were slow on regulations, but due to the large risks, they now understand the need to regulate the exchanges.
In addition to the other regulations, Rep. Park Yong-Jin, of the Democratic Party of Korea, introduced three revisions in July as part of the government’s aim to set regulations for digital currencies. The bill will attempt to revise the Electronic Financial Transactions Act. Originally, the act aimed to secure the security and reliability of electronic financial transactions. New regulations will now require any entities involved with cryptocurrency exchanges to receive regulatory approval from the Financial Services Commissions.
As the government continues to regulate cryptocurrency transactions by imposing regulations and requirements, cryptocurrencies can continue to solidify and maintain their position in the Korean economy.