Bitcoin exchanges set own regulations

An association of Korean cryptocurrency exchanges unveiled a set of self-regulating measures on Friday to combat growing reports of scams, identity theft and hacking.

The Korea Blockchain Association will require minimum capital of at least 2 billion won ($1.8 million) for any newcomer trying to set up a cryptocurrency exchange and restrict all investors to one bank account for trading cryptocurrencies.

The non-binding restrictions will only apply to member companies of the association starting in January, but the decision is expected to have a substantial impact since the country’s largest exchanges - Bithumb, Korbit and Coinone - belong to the group.

“The association doesn’t have any authority to restrict exchanges that don’t register with us,” said Kim Jin-hwa, co-head of the Korea Blockchain Association, “but the proposed regulation was made in cooperation with the banking sector so exchanges not registered with the association will be denied crypto accounts by banks.”

Banks offer crypto accounts for investors to cash out their cryptocurrencies. But since the wild price fluctuations of bitcoin last week, Woori Bank, Shinhan Bank, Korea Development Bank and the Industrial Bank of Korea have stopped issuing new accounts to beef up their security against money laundering and attempts to use fake names.

Other rules proposed by the association include keeping at least 70 percent of users’ cryptocurrencies in “cold storage,” a virtual wallet that is not connected to the internet and considered less vulnerable to hacking.

Cryptocurrency exchanges will also need to open physical customer service centers to address users’ complaints. Investors have often criticized the exchanges for not properly dealing with damage caused by heavy web traffic and technical glitches.

The Korea Blockchain Association said in a statement that member exchanges would focus on stabilizing the bitcoin market rather than luring new investors.

“We will stop ads and marketing that might trigger speculative investment sentiment,” the statement read. “We will also suspend the launch of new cryptocurrencies.”

The move follows a government push to monitor and regulate the cryptocurrency market in the face of unprecedented bitcoin frenzy.

The Korean government said Wednesday that it would prohibit minors and foreigners from trading cryptocurrencies in Korea and ban financial institutions from trading and investing in them.

Financial authorities will also only recognize exchanges after they meet certain conditions, such as sending initial cash deposits to other financial institutions and establishing systems to confirm the real names of account holders to avoid money laundering.

The Ministry of Justice, in charge of policing the cryptocurrency market, was supposed to hold another meeting to announce more detailed rules on Friday, but the meeting was delayed. “We don’t know when it will be held again,” a source at the ministry said.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]