Cryptocurrency making the headlines in South Korea
As cryptocurrency continues its slow and steady growth worldwide, it is fascinating to see how it plays out from one country to the next. Crypto is very much mainstream and wide-open in some countries, yet also severely restricted in others. That is the nature of the game. In South Korea, it is a mixed bag. The good news is that cryptocurrency is making headlines in that country for all the right reasons.
Two recent stories out of South Korea show promise for the crypto industry. One story involves a bipartisan group of lawmakers calling on the current administration to loosen its restrictions on the cryptocurrency industry. The other story details how authorities in South Korea have successfully used artificial intelligence to uncover and bring down a crypto-based Ponzi scheme.
You may be among those cryptocurrency owners who appreciate being able to do something as simple as playing Mega Moolah online with a deposit of bitcoins or litecoins, but things are not so easy in some other countries. That's why the news out of South Korea is so welcome. It shows that the South Korean government is really starting to take crypto more seriously.
Cryptocurrency in South Korea
It has been suggested by some that South Korea is the world's third most lucrative market for cryptocurrency activity, behind only the U.S. and Japan. Much of the country's reputation stems from widespread speculative activity that took place there through much of 2017 and into a good portion of 2018. At that time, it was believed that some 80% of all South Korean investors had made money in cryptocurrency.
Unfortunately, regulators began worrying about so much speculation over what they perceive to be a digital commodity with no real value. In order to prevent the crypto equivalent of the great stock market crash of 1929, regulators banned all ICO activity in 2018.
The government did allow the use of cryptocurrency as a payment system similar to credit cards and electronic payment systems like PayPal. While that is a good thing, it has created a somewhat strange market in South Korea. Consumers can purchase a variety of digital tokens and use them to pay for goods and services with vendors willing to accept the tokens. But new crypto platforms cannot be released because ICOs are banned.
Another problem in South Korea is how exchanges operate. At one time, banks were more than willing to provide exchanges with virtual bank accounts that allowed them to facilitate crypto exchanges. These virtual bank accounts would accept digital tokens of all sorts so that the exchanges could freely complete transactions with separate storage.
Once again, South Korea's government became concerned that this practice would allow for money-laundering. So they clamped down. It is now harder than ever for exchanges to do business in South Korea if they want access to traditional bank accounts.
Deregulating the cryptocurrency space
As you can see, cryptocurrency expansion in South Korea is being hampered by government regulation. As such, it is very difficult to promote innovation and development in South Korea's cryptocurrency and blockchain communities. People just do not want to put the time and effort into it with the understanding that the government may step in and interfere.
This has a bipartisan group of South Korean legislators calling on the Moon Jae-in administration to loosen up a bit. The lawmakers say that the administration's policy of removing regulatory barriers to business throughout South Korea is a good thing, but questions why cryptocurrency is not included in such policies.
The lawmakers believe it's high time for the cryptocurrency industry to be treated equally. They say that eliminating regulations would encourage growth and expansion among current industry players as well as encouraging new players to get into the South Korean market. The lawmakers are convinced South Korea needs to better compete or they will be left behind.
Blockchain and cryptocurrency
A big concern among South Korean lawmakers is what they believe to be an intrinsic link between blockchain and cryptocurrency. These lawmakers believe, and rightly so, that blockchain and crypto are inseparable. If the South Korean crypto industry is ever to develop blockchain to its fullest potential, it has to be allowed to do so within the cryptocurrency arena.
The link between crypto blockchain is hard to argue against. After all, blockchain development began with the original white paper that introduced Bitcoin to the world a decade ago. There would be no blockchain had Bitcoin not been released. So in a historical sense, blockchain and cryptocurrency are inextricably linked. But do they have to continue to be linked in order for blockchain to evolve?
Some would argue that the two no longer have to go hand-in-hand. They cite Ethereum as a perfect example. Ethereum is not cryptocurrency in the same vein as the Bitcoin and Bitcoin Cash. Rather, Ethereum is a blockchain platform created for the purposes of offering a better way to design and build applications.
Ethereum itself exists outside of the cryptocurrency space. The coin associated with it, known as Ether (ETH), enjoys relative popularity and stability among both investors and consumers. But even if the coin disappeared overnight, the Ethereum platform would continue on without it. Developers all over the world are using Ethereum to build a variety of different applications.
Those who believe that cryptocurrency and blockchain development cannot be separated successfully do make a solid case. Theirs is not one of the technologies being inseparable, but rather the motivation behind them. In other words, it is the profit potential of cryptocurrency that drives blockchain development. If you separate the two you remove the incentive for developing blockchain further. In that regard, the two definitely are inseparable.
So, we will see if South Korea's administration heeds the calls from lawmakers to loosen up. In the meantime, those tasked with enforcing the law are going after cryptocurrency fraudsters.
Bringing down a Ponzi scheme
Years of cryptocurrency speculation in South Korea have led to all sorts of fraudulent activity. One type of activity that has had the attention of South Korean authorities is the age-old Ponzi scheme. The schemes target mostly older consumers looking to pad their limited income to carry them through their retirement years.
Like any other kind of Ponzi scheme, a crypto scheme generally starts by recruiting as many first level investors as possible by promising them huge returns. Once those investors are on board, scheme perpetrators then begin working on a second round of investors for the purposes of raising enough capital to pay off any of the first round investors who ultimately decide to pull out.
Every new layer of investors puts money into the system that scheme perpetrators use to pay off others. Meanwhile, they pocket as much of the investment money as they can without critically destabilizing the scheme. They hold on for as long as they can, but once the scheme gets too top heavy, they take the money and run.
So how do you catch Ponzi scheme perpetrators? In this particular case, authorities developed a software system using artificial intelligence. They trained the system with some common vocabulary found in the cryptocurrency space. They then set the system to start monitoring online sales of digital tokens.
It eventually identified a scheme that stole the equivalent of USD $18.3 million during a six-month period of 2018. South Korea's Seoul Special Judicial Police Bureau for Public Safety eventually caught up with the two founders of the fake company and brought them to justice.
Fraud will always be a thing
When you look at the two stories out of South Korea it is easy to understand why regulators are so fearful of certain things. They are fearful of cryptocurrency because they know full well how easy it is to pull off a Ponzi scheme. They are equally afraid of fraudulent ICOs built around the 'pump and dump' strategy already commonplace in stocks and commodities. But the one thing they are failing to publicly recognize is that fraud will always be a thing.
It really doesn't matter how many regulations are put in place to control cryptocurrency. There will always be a small group of people who use it to their own advantage by perpetrating fraud on others. Clamping down on cryptocurrency to eliminate such fraud will not really accomplish anything.
Like every other country on the planet, South Korea already deals with enough fraud surrounding its fiat. Yet you do not see regulators trying to eliminate fiat as a payment system. Regulators are not restricting who can possess it, who can spend it, and who can recruit investors to back a new business idea. They have come to accept the fact that fiat comes with a certain level of fraud, and they go after fraudsters within the scope of the law.
Common sense dictates that the same policy should govern the cryptocurrency space. Let the innovators innovate. Let the investors invest. Let consumers buy and sell with crypto freely. Where fraud does exist, go after the fraudsters themselves. That is the message among a group of lawmakers calling on South Korea's administration to loosen up crypto regulations. Whether or not the administration will listen is anyone's guess.