Financial Services Commission drawing up regulations for cryptocurrency exchanges

Posted on : 2017-11-28 17:29 KST Modified on : 2019-10-19 20:29 KST
The exchanges will be allowed to operate provided they adhere to government standards
Bitcoin (Clipart Korea)
Bitcoin (Clipart Korea)

Bitcoin, which was developed in 2009 by someone using the pseudonym “Satoshi Nakamoto,” is the world’s first cryptocurrency. Unlike previous financial products, bitcoin transactions are not centrally regulated but are based on a technology known as blockchain. This is a decentralized digital bookkeeping technology in which information about transactions between individuals are shared on the network of all participants instead of being stored on a central server. The technology is also drawing attention in terms of security, since the decentralization of recordkeeping makes it harder to hack.

Unlike standard forms of currency, governments and central banks do not guarantee the value or payment of bitcoin and other cryptocurrencies. The total number of bitcoins to be issued is capped at 21 million. Bitcoins can be produced (or “mined,” as it is called) by solving complicated encryption problems, and experts believe that the final bitcoins will not be issued until around the year 2150. While bitcoins can be mined directly, they can also be traded on cryptocurrency exchanges. Since these trades are decentralized and anonymous, they are also used for illegal purposes, such as money laundering and tax evasion.

Even though daily trading of cryptocurrency in South Korea exceeds trading on the KOSDAQ, government financial regulators are holding to their position that the government does not officially endorse cryptocurrencies nor recommend that people trade them. The Financial Services Commission (FSC) is putting the final touches on proposed regulations for unauthorized fundraising that would treat the operation of cryptocurrency exchanges (such as Bithumb, Coinone and Korbit) as unauthorized fundraising. At the moment, cryptocurrency exchanges fall under the Act on Consumer Protection in Electronic Commerce Transactions, which means they can be operated as an e-commerce website by anyone who registers as an online vendor.

While the FSC regards cryptocurrencies not as a financial instrument but as unauthorized fundraising, it recognizes that they are already being traded around the world. As such, it is planning to allow such exchanges to be operated, provided that the operators take certain measures. “Cryptocurrency exchanges will be required to maintain standards for consumer protection, such as having separate deposits for customers’ assets, and for increasing transparency, such as having a procedure for confirming customers’ identity. The authorities will also be empowered to prosecute exchanges that break these rules,” said an official from the FSC.

In August, Democratic Party lawmaker Park Yong-jin sponsored a proposed revision to the Electronic Financial Transactions Act stating that “individuals who wish to engage in the virtual currency handling industry [operating an exchange] must receive a permit from the Financial Services Committee.” The FSC is not in favor of this revision, however, arguing that if the financial authorities are going to grant permits, they must be able to regulate the industry as well.

Amid these developments, the value of bitcoins has been setting new records left and right, recently crashing through the 10 million won (US$ 9,204) barrier. As the cryptocurrency moves closer and closer to the mainstream – it is now listed in futures markets – its price is being boosted by expectations that new demand will flood into the market. As of the afternoon of Nov. 27, Bitcoin was trading for around 11 million won (US$1012) on Bithumb, a South Korean cryptocurrency exchange site. The price of one bitcoin had crossed the 10 million won threshold for the first time the previous afternoon, meaning that the currency jumped 1 million won in a single day. Bitcoin prices around the world have been rallying as well. According to figures posted on CoinDesk, a website specializing in cryptocurrency information, Bitcoin set a new record on Nov. 26, closing at US$9,326.50. On Nov. 27, it continued to rise to US$9,634.90 – a 1,220% increase in the space of a single year.

 

By Park Su-ji, staff reporter

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