Kakao is going into blockchain

Kakao, operator of Korea’s largest chat-app KakaoTalk, is launching a subsidiary dedicated to the blockchain business, a spokesperson confirmed Tuesday.

The company has named Jason Han, co-founder and chief technology officer of local start-up accelerator FuturePlay, as founding head of the blockchain unit tentatively named Kakao Blockchain. The company, however, declined to reveal a detailed timeline or business plan for the new subsidiary yet.

Blockchain, a type of digital ledger that stores financial records on separate computers, has been emerging as a viable way to make authentications on apps easier. Blockchain is also a major technology behind cryptocurrencies.

Kakao has been using blockchain technology for identity verification in Kakao Pay, the company’s mobile payment subsidiary. The giant mobile service company also owns a roughly 22.8 percent share in local fintech start-up Dunamu, which runs one of Korea’s largest cryptocurrency exchanges, Upbit.

Industry insiders are wondering if Kakao will pursue an Initial Coin Offering (ICO) for the new subsidiary. An ICO, akin to an initial public offering for a more traditional company, is a process of raising capital that bypasses normal capital raising processes such as issuing stocks or obtaining seed money from venture capitalists. Companies involved in ICOs sell cryptocurrency to supporters who expect its value to rise.

The Korean government banned ICOs, citing the risk of fraudulent activities as well the overheating of cryptocurrency markets, but Kakao can still pursue an ICO by establishing the subsidiary overseas.

Last month, the global messenger app Telegram raised an initial $850 million through an ICO.

The Kakao spokesperson, however, said the cryptocurrency business is just one of the businesses being considered for the new subsidiary.

Kakao rival Naver was earlier in establishing a blockchain subsidiary through its chat app operator Line. Line established a subsidiary dubbed Line Financial in Japan to deal with cryptocurrency, insurance and lending businesses and applied for a license to operate a cryptocurrency exchange in Japan at the end of January.

Investors were excited at Kakao officially entering the blockchain business. Kakao shares on the Kospi bourse jumped 7.72 percent on Tuesday to close at 132,500 won ($123).

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]