Cryptocurrency and a tale of two Koreas
So much of life in North and South Korea is so different that the people who live on the Korean peninsula hardly look like a single culture divided by political ideology. Things can be so dire north of the demilitarized zone while prosperity is the order of the day to the south. It is hard to believe these two separate countries were at one time a single nation.
The differences that divide the two Koreas are easily observed in every area of life. Take cryptocurrency. The concept of cryptocurrency for the average person is alive and well in South Korea despite numerous regulations that prevent crypto from being as prolific there as it is in other parts of the world. To the north though, cryptocurrency is anathema to all but the government. It is a strange thing to behold.
The one thing both Koreas have in common is that their governments fully understand that cryptocurrency is not just a passing fad. Both governments have come to terms with the fact that crypto is here to stay. How they deal with that reality is what separates them.
Local government coins in the South
South Korea seems to have a love-hate relationship with cryptocurrency. On the one hand, initial coin offerings (ICOs) and direct investments in cryptocurrency platforms are illegal. The South Korean government has made it clear that they do not think much of crypto platforms as investments. They would rather South Korean citizens who want to invest put their money into more traditional securities.
On the other hand, they are not opposed to either blockchain or the concept of digital tokens. So here's the question: if you cannot put your money into something like Bitcoin or Litecoin, how can you take advantage of the benefits of digital tokens? By purchasing government-backed tokens instead. That is where South Koreans currently are.
Blockchain is something the South Korean government believes could be an integral part of its future economy. As such, they are trying to promote its development. Understanding that blockchain is most quickly developed when there are digital assets involved, government officials have given the green light to local municipalities developing their own stablecoins.
The idea behind a local stablecoin is to create a digital currency that consumers can use to pay for their day-to-day necessities. All of the 65 municipalities that now have their own coins have linked them to the Korean won in terms of value. They are also backed by the won as well.
A digital replacement
In essence, what you have in those 65 municipalities is a digital replacement for fiat. Citizens can use won to purchase their local stablecoins the same way they would purchase foreign currency. Any stablecoins they buy can be used to purchase goods and services from participating merchants. And lest you think there are only a few of them, that is not the case. A considerable number of merchants in those municipalities are more than happy to accept the coins.
Promoting their use has been fairly easy thanks to South Korea's younger generation and the government's willingness to offer discounts of up to 10% on initial purchases. While older people still prefer cash, South Korea's younger consumers have grown up with the internet and mobile pay systems. They are embracing digital tokens with open arms.
Overwhelmed by the response
Local stablecoins have now been in circulation in South Korea for about a year. Municipal authorities are reporting an overwhelmingly positive response thus far. One particular municipality says the response has been so dramatic that it plans to increase the number of digital tokens in circulation in the near future.
The municipality had originally decided to issue the equivalent of US$9.25 million in tokens but has since doubled that. The need to increase supply became apparent when they hit their half-year target for 2019 way ahead of schedule.
Another municipality just outside of Seoul issued a token in 2018 along with a marketing campaign aimed at getting merchants on board. Thus far, merchants have responded quite well. Their crypto sales to date are already in excess of US$5.9 million.
It comes down to the fact that the tokens are easy to get and inexpensive to use. Younger people are inseparable from their smartphones anyway, so getting them involved in local stablecoins projects just makes it easier for them to pay for things. They love it, merchants love it, and local governments enjoy the benefits of encouraging commerce by generating their own tokens.
Limited cryptocurrency in North Korea
With all of the lively crypto enterprise being undertaken in South Korea, one would think that North Korea would attempt to follow suit. But this is rarely the way things go north of the demilitarized zone. If anything, North Korea's government clamps down ever more tightly at the slightest hint of influence from the rest of the world. Cryptocurrency in North Korea is only for a select few.
It is worth noting that there are no official laws on the books in North Korea banning cryptocurrency or blockchain. But one doesn't necessarily need a law to keep crypto of the hands of citizens. In North Korea, there are several things that do the trick organically.
First and foremost, the average North Korean doesn't even know cryptocurrency exists because the government tightly controls the flow of information. Those who do know of its existence are knowledgeable only because relatives from the South send them money via crypto networks.
Second, North Korea is such a poor country that people do not have the income to purchase digital tokens. Local commerce is more likely to be based more on bartering and trading rather than actually earning money and spending it. What little cash is in circulation is prized.
Finally, cryptocurrency is of no value without computing power and network access. Consumers in North Korea do not have access to the internet as freely as their South Korean counterparts. Moreover, your typical North Korean citizen is not laden with electronic devices. So the mechanism to get involved in crypto just isn't there.
Sanction cryptocurrency hacking
North Korea is not without cryptocurrency assets despite the fact that the majority of its citizens know nothing of crypto. Indeed, cryptocurrency assets are alive and well within government circles. In fact, it has been estimated that North Korea has stolen billions of dollars worth of tokens through sanctioned hacking.
According to a recent 142-page report from the UN Security Council, North Korean government hackers have been hard at work in recent years attacking exchanges and other crypto related businesses. The UN estimates they have stolen as much as $2 billion worth of crypto to date.
For a country with such a poor economy, North Korea seems to be doing very well on the computer espionage front. Pyongyang has apparently orchestrated some 35 successful attacks on cryptocurrency exchanges and financial institutions in as many as 17 countries.
It is believed that the attacks are being conducted by a group of individuals under the control of the North Korean military. The UN suspects that military intelligence is being used to help the attackers do what they do. And unfortunately, all of that crypto is not being used to help North Korean citizens. Instead, it is being put into Pyongyang's military apparatus.
North Korea's government is trying to put on a friendly face where cryptocurrency is concerned. They hosted an international crypto and blockchain conference earlier this year to put forth the idea that they were fully behind development of both. But when you see the stark differences between government use of crypto and North Korea's economy in general, it's clear what they are really after is crypto and/or blockchain to further the cause of the government.
Two governments, two visions
It could not be any more clear that the governments of North and South Korea view cryptocurrency through different lenses. It is all about empowering the government and building a military apparatus in the North. In the South, cryptocurrency is being used to further develop the economy by giving people more access to better ways of paying for things.
If there is anything negative about the cryptocurrency environment in the South, it is the fact that the government seems to favor stablecoins issued by local municipalities over private enterprise. So in that sense, those municipalities dealing in stablecoins are not really part of the pure cryptocurrency community. But at least consumers in the South are being encouraged to use digital tokens as a fiat replacement.
There are clearly two governments with two separate versions on the Korean Peninsula. In the south you have a government that is wary of cryptocurrency projects as investments. They are worried about volatility and market disruption. But under the supervision of local municipalities and their stablecoin projects, South Korea's government is generally in favor of crypto.
In the north you have a government that does not want its people economically empowered in any way. However, they do see the potential of exploiting blockchain and cryptocurrency for their own purposes. They have no problem hacking and stealing if that is what it takes to advance their agenda.