The government of South Korea and local financial authorities are planning to pass the country’s first crypto and blockchain legislation as early as possible, to legitimize and strictly oversee the local cryptocurrency industry.
The newly drafted regulatory framework which covers a wide range of businesses and ventures from blockchain projects to crypto exchanges is expected to fuel the development and deployment of decentralized applications (dApps), and facilitate the rapid growth of cryptocurrency exchanges in the local market.
Hong Seong-ki, the head of virtual currency response team at the country’s main financial agency Financial Services Commission (FSC), said in an interview with Bloomberg that cryptocurrency exchanges in South Korea are not ready to store and manage billions of dollars in crypto assets such as bitcoin and ether, due to their substandard security measures.
In June alone, two major South Korean crypto exchanges Bithumb and Coinrail were hacked, each losing more than $40 million in user funds. Fortunately, both trading platforms had enough capital to cover the amount stolen by hackers whose identities still remain unknown. But, the two security breaches were sufficient to convince local financial regulators that a regulatory framework to protect investors is in desperate need to protect investors.
“While crypto markets have seen rapid growth, such trading platforms don’t seem to be well-enough prepared in terms of security. We’re trying to legislate the most urgent and important things first, aiming for money-laundering prevention and investor protection. The bill should be passed as soon as possible,” said Hong.
Throughout the past two years, the government of South Korea has contemplated the potential outcome of regulating cryptocurrency businesses and the blockchain sector and refused to pass a proper policy to regulate the cryptocurrency market because it feared that investors in South Korea would consider it as an act of endorsement and acknowledgment of cryptocurrencies.
Hong emphasized in his interview that the bill itself is not targeted at growing crypto exchanges and digital asset trading in general, but protecting investors and implementing robust internal management systems to prevent large-scale hacking attacks.
Potential Outcome of Crypto Legislation Approval
In December of last year, the cryptocurrency market in South Korea saw its peak, as major digital assets were being traded with a 30 to 40 percent premium. As the price of bitcoin reached its all-time high at $19,500 in the US and Japan, the value of Bitcoin surpassed $25,000 in South Korea, due to a massive increase in volume met with limited supply.
At the time, investors in the local cryptocurrency exchange market invested substantial amounts of money in a market that was not recognized by the government, equipped with poor security measures and internal management systems.
Analysts, including local mainstream media outlets, have reported that the imposition of a new regulatory framework to oversee cryptocurrency exchanges and blockchain projects will enable “smart money” to be injected into the market, and steer away speculators, money launders, hackers, and fraudulent operations.