SEOUL, Sept. 11 (Korea Bizwire) – By announcing a set of regulatory guidelines dealing with the peripherals of the virtual currency market, the South Korean government has made one thing very clear: virtual currency is here to stay.
Virtual currency’s proliferation has been rapid since its conception by programmer Satoshi Nakamoto in 2009. His creation, Bitcoin, would soon draw a crowd, and with that crowd came imitations and money.
Currently, there are 850 types of virtual currencies in existence. Within South Korea alone, the country’s biggest virtual currency exchange Bithumb hosted trades amounting to 2.6 trillion won on August 19, an amount which exceeded trades on the KOSDAQ, the Korean equivalent of the NASDAQ.
Such phenomena have served as the impetus for the government to prop up safeguards against criminal activity. On September 3, the Financial Services Commission publicly stated that it will beef up personal identification measures for bank-issued virtual accounts by December. The account holder’s name, bank account no. and virtual account no. must be provided, and only when funds are directly drawn from the provided accounts will any transactions be approved.
Furthermore, suspicious activity between the bank accounts of two persons, such as irregular remittances of large sums or remittances divided up and sent into many different accounts will be held under scrutiny. In addition, small-scale currency traders sending funds abroad in virtual currency will be required to submit a daily report on their dealings to the Bank of Korea.
What officials are really concerned about are the nasty side effects that have arisen from the trading of virtual currencies like Bitcoins and Ethereum. Voice phishing, fraud and money laundering cases tied to virtual currencies have been increasing in number.
In two separate cases, the police apprehended a criminal organization that was involved in the drug trade, and a proprietor of a pornographic website.
The connection between the two? Both had required payment in Bitcoins, with the latter amassing a small fortune with 216 of them. At the time, that would have netted 290 million won on the market.
Voice phishing crimes where the perpetrator requested payment in Bitcoins and the emergence of virtual currency exchanges selling fake currencies like “Hickscoins” and “Unionplus” show the kinds of roles virtual currencies play in criminal activity.
In light of such transgressions, the government’s decision to regulate is a justifiable one; indeed, a touch of regulation may be necessary in the “lawless”, in the very literal sense of the word, world of virtual currency.
However, what is the bane of law enforcement is the pride of the founders of virtual currencies, who list the lack of a paper or digital trail, a money market truly unencumbered by national borders, and complete security (though security breaches have been recorded at virtual currency exchanges like Bithumb) as their advantages. In a word, their advantages can be summarized as anonymity.
Anonymity gives proprietors of pornographic websites and drug-dealing criminals the advantage of operating in the dark. It also gives buyers and sellers of currencies a simple, straightforward way of making money in a frontier unpolluted by regulatory intrusions. The volatility of the markets is simply the risk one takes when getting into the game.
The point is that governments, in their well-meaning attempts to protect future victims of crimes, must tread lightly so that they do not sap the spirit of a burgeoning entity. But regulation of an endeavor means tracking. It means identification. It most likely means taxation in some form. And most importantly, it means that the core value of anonymity will be challenged, at least some of the time.
Again, this flies in the face of what virtual currencies were founded upon. Losing 100 percent anonymity may not destroy them; on the contrary, it may even nurture them. It can be argued that any new endeavor that spawns a new industry must eventually be domesticated, not to prevent growth but rather to maximize it. With the world facing an increased digitalized future, the walls between the material and the digital have never seemed so permeable – perhaps those with authority must create a safe pathway.
The Financial Services Commission’s approach may be considered “building a pathway”, but China’s may be more akin to complete destruction or absolute barricading. China banned ICOs (initial coin offerings) on September 4 and followed up by issuing a work stoppage on all virtual currency exchanges on September 8.
Such heavy-handed measures may never be realistic or even desirable for the South Korean government, which does not hold the same level of autocratic powers that Communist Party in China can wield. Instead, perhaps it may look to the U.S. and Japan for inspiration. In April, Japan officially recognized Bitcoins as a legitimate method of payment, while in New York State, interested traders can apply for a BitLicense.
All four modes of regulation may still be off the mark, either being too restrictive or too lax. What appears likely is that in either situation, more regulation is sure to follow. In 2009, virtual currencies or cryptocurrencies were a programmer’s dream. In 2017, governments hold meetings on how to regulate them. Virtual currency is here to stay.