Prior to this year, most political discussions involving cryptocurrency came from East Asia, with China being the most ‘vocal’ on the subject for some time. Next, Japan made headlines. They took the lead in the Pacific as Bitcoin backers, passing positive regulatory legislation in April this year, recognising Bitcoin as legal tender in Japan, and sending demand for the cryptocurrency skyhigh.
It did not take other forwarding thinking nations too long to follow suit and make strategic economical announcements about cryptocurrency regulation in their own countries. In recent months, we have covered Australia’s move to eliminate double taxation on cryptocurrency transactions, outlined the revolution of finance in India and touched on the fact that Russia have expressed interest in ‘finding a place’ for blockchain technology within its financial system.
Comparatively speaking, South Korea, have until now remained mostly quiet on their official stance, despite a boom in the number of Bitcoin-orientated startups being formed driving an influx of interest and demand for the ‘digital gold’.
In the last 30 days, the South Korean Won has accounted for around 6% of all Bitcoin trading volumes, with the Chinese Yuan at 11% and the US Dollar at 42%. Furthermore, the price for a bitcoin in South Korea is trading at a premium of around $100-$150 when compared to USD based exchanges. A premium trading value almost always indicates a dramatic demand at a national level.
Unfortunately, with increased demand and trades taking place, comes the heightened risk of cybercrime as exchanges become prime honeypots for hackers. This is precisely what happened to BitHumb, Korea’s largest Bitcoin exchange, responsible for around 75% of all Korean bitcoin trades and approximately 13,000 bitcoins traded on a daily basis. On the 4th of July, a security breach resulted in an estimated 1.2 billion Korean Won (slightly over US$1m) being stolen from accounts. The exchange have announced that they will reimburse up to 100,000 Won to each individual affected by the hack, but the lesson to be learned is still a difficult one.
Exchanges, unlike the Bitcoin network itself, are not impenetrable and most especially when they are experiencing a surge in transactional activity and funds transfer, you can be sure that they are being earmarked by would-be cyber criminals for attack. For this reason, we implore cryptocurrency investors to be cognisant of the security risks involved when dealing with third parties, and for them to take actions to secure their precious investments. The safest way to do so is to hold coins offline (known as deep cold storage), like we do for all our Bitstocks clients and personal accounts.
A report published in the Korea Herald this week highlighted that lawmaker and democratic party member, Park Yong-Jin, is currently in the process of drawing up revisions to existing legislation to form regulatory framework for cryptocurrencies.
The new legislation will look at reforming the existing Electronic Financial Transactions Act to include cryptocurrencies, thus providing regulatory approval for cryptocurrency transactions in South Korea.
Initially, this appears to be a measure to prevent tax evasion, allowing income and corporate tax laws enforceable by South Korea’s tax authorities, hence making cryptocurrency transactions taxable. So while this move provides some level of surety for individuals and companies transacting in cryptocurrencies, it also means that they will now be under the scope of the Government.
The bill did raise some concerns though, as Park Yong-Jin had previously compared cryptocurrencies to the ‘tulip bubble’ of the 17th century. In the legislative proposal he points out that there is a “void of state-led protection that guarantees the value of digital currencies” and describes the possibility that a “digital currency bubble burst” could spark economic “havoc”.
This is a somewhat different opinion than of Korean Financial Services Commission Chairman, Yim Jong-Yong. Late last year, CryptoCoinsNews reported on an interview where Jong-Yong publically announced a task force was being created in order to introduce regulations for cryptocurrencies, stating that the Korean Government will “push for the systemisation of digital currencies on a full scale, tandem with the global trend in the US, Japan and other countries”.
Despite these divergent outlooks, it is clear that Japan have knocked over the first domino for the wide scale legitimisation of cryptocurrencies like Bitcoin, and as Korea move closer to cryptocurrency regulation, we can be sure of more countries looking to take legal stances in the near future.