Cryptocurrency group imposes regulations

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Cryptocurrency group imposes regulations

A group that represents cryptocurrency exchanges and blockchain companies in Korea has decided to impose self-regulatory measures, a move to assuage criticism from the government that the industry is prone to criminal activities.

The Korea Blockchain Industry Promotion Association announced on Wednesday that starting from January next year, cryptocurrency traders in Korea will only be able to deposit and withdraw money to buy and sell tokens from one account. The account has to be registered under their name and must be approved by the authorities in advance. The self-regulatory measure is intended to prevent cryptocurrency from being used in money laundering and other criminal activities and will go into effect starting on Jan. 1.

The association represents some 30 players in the Korean cryptocurrency community, including major trading platforms such as Bithumb, Korbit and Coinone. It was launched on Nov. 19, organized by the companies themselves in an attempt to better cope with the continuous changes that the industry is facing as cryptocurrency fever in Korea refuses to die down.

Korea, despite its small size, has grown to become the third largest cryptocurrency market in the world after the United States and Japan. According to CoinMarketCap, a cryptocurrency data provider, Bithumb, which is the top cryptocurrency exchange in Korea, was the second-largest exchange in the world for bitcoin by trading volume as of noon on Wednesday and the top platform for some alternative coins such as Bitcoin Cash (a derivative of bitcoin), Monero, Ethereum Classic and Ripple.

Right now, a temporary or a virtual account is created when a potential trader joins one of the exchanges in Korea. He or she can then transfer money from any bank account they have access to, even if the accounts are not under their names, to purchase and sell the tokens. This made cryptocurrency trading vulnerable to a number of criminal activities. For instance, due to the anonymity guaranteed in trading in the current system, it is possible for criminals to transfer money out of Korea by exchanging it into tokens and selling those tokens on platforms outside of Korea for foreign currency. Aside from money laundering, there was a case where drug dealers used cryptocurrency to sell marijuana.

Through the self-regulatory measure, traders will be obliged to only conduct trading through a single, verified account, which the association thinks will lower the possibility of a number of criminal activities.

Without identity verification, traders will be limited in their activities on the exchanges, including the ceiling on the daily amount that can be withdrawn.

The association is also mulling over a measure that will require local exchanges to store a certain portion of the assets they handle in external storage known as “cold storage,” which refers to storing cryptocurrency in a device that is completely cut off from the internet.

The announcement comes just days after authorities in Korea took a step toward regulating cryptocurrencies and their trading in the local market.

On Monday this week, the government transferred the oversight of cryptocurrency from the Financial Services Commission to the Ministry of Justice, which said through a statement that it does not deem virtual tokens as legitimate currencies or financial investment products. The following day Han Sung-hee, the commissioner of the National Tax Service, said in a forum that the agency is working on a set of tax codes for token transactions.

During the forum, Kim Byeong-il, a professor of taxation at Kangnam University, explained that while it is possible to impose corporate tax and income tax under the current law, the tax agency cannot slap value-added tax since cryptocurrencies are not categorized as commodities by the government.

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