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Govt’s indifference proved self-defeating

Posted January. 13, 2018 07:56,   

Updated January. 13, 2018 08:07

한국어

Shinhan Bank, one of Korea’s major retail banks, has decided not to introduce a real-name verification service designed to allow transactions of cryptocurrencies from real-name virtual accounts. The bank’s decision came in a situation where the cryptocurrency craze has become a serious social issue and the Korean government is rushing to come up with regulatory measures. Given that the government said last year that it would allow the trading of virtual currency only from real-name bank accounts. If major retail banks of the country choose not to introduce the real-name verification service, it would mean that digital tokens could no longer be traded on domestic exchanges. Still, government policies seem to be far from being aligned. On Thursday, the Ministry of Justice abruptly announced that it was preparing a bill to ban trading of the virtual currency on domestic exchanges, throwing the virtual coin market into turmoil and drawing comments of Finance Minister Kim Dong-yeon the next day that such a proposal may be excessive.

Cryptocurrencies have traded at a significant premium in Korea, higher than the global average by 30 to 50 percent, thus sometimes called “the kimchi premium.” And there are complex reasons behind the trend. One would be the country’s investment culture in which people blindly rush to take part, without fully understanding possible risks. On top of that, the worst youth unemployment crisis is further pushing young Koreans in their 20s and 30s to bet all they have on cryptocurrency.

However, the government cannot simply solve the problem with an all-out ban. Justice Minister Park Sang-ki’s saying that “virtual money is nothing more than a mass of stone with no value” clearly reveals the government’s ignorance about new technology. Even if domestic exchanges are shut down, investors could still use overseas exchanges and continue to trade through peer-to-peer (P2P) exchange. Thus, closing exchanges altogether because of side effects is a short-sighted idea only aimed at reducing administrative burden.

Blockchain technology, which makes it possible for virtual money to be securely traded, has been already adopted by domestic industries. Last year, Hyundai Merchant Marine introduced a blockchain-based system that enhances transparency in shipping transactions by delivering logistics related documents to all parties including shippers, carriers, customs authorities and banks, and by preventing any alteration or forgery of documents. Some may argue that blockchain technology can be used without the permission of virtual currency trading, but pundits say with one voice that blockchain itself is useful for various fields. This is why the United States allowed the trading of Bitcoin futures on the Chicago Board Options Exchange last year. Also, major economies, including the United States, the United Kingdom, Australia and Germany, have levied tax on capital gains and income from cryptocurrencies, saving the embers of promising blockchain technology.

The Korean government and lawmakers have been merely sitting idle while Bitcoin, one of major virtual currencies, has emerged and rapidly grown over the past 10 years. The financial authorities have also paid nearly no attention to virtual money, dismissing its value even though the amount of daily trade stretches to trillions of won. Lawmaker Park Yong-jin of the Democratic Party of Korea submitted the “Bitcoin Regulation Act” in July last year, but the National Policy Committee of the National Assembly has not held deliberation for the bill. In the late 1990s, the dot-com bubble brought with itself not a few adverse effects, but served as an opportunity for Korea to make a leap forward as an IT powerhouse. Though belated, the government should make sure that cryptocurrency can be properly and securely traded, and team up with related industries to make the most of the latest technology.