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Brian Jeong recalls the frenzy that hit South Korea this time last year.
From the cafes to the fast food restaurants of the city of Seoul, a new obsession has apparently emerged out of nowhere.
"Last winter," recalled the analyst of BlockWater Capital, an investment company in digital assets, "you'll hear old people, like ladies and gentlemen, eat fried chicken and talk about bitcoins."
"And in every bar, at every table", added Erica Kang, a partner of the studio. "All of a sudden, it was just like something to throw away."
And what a hype it was.
Frustrated by the limited investment opportunities in a stagnant economy, irritated by hopeless and greed-pushed politics, millions of Koreans climbed aboard the cryptocurrency wagon as the bitcoin took off for its extraordinary run towards the end of 2017. The moment was such that at the end of December, according to a survey, three wage workers out of 10 in Korea had invested in cryptocurrencies.
Once a relative retrograde crypt, Korea has quickly emerged as one of the world's biggest markets for bitcoin and ethereum, as investors have got themselves caught up for a piece of the world. action. At its peak, the "Kimchi premium" – or the extra that the Koreans paid for cryptocurrencies compared to global price benchmarks – increased to 50%.
The party ended much more abruptly than it had begun, as the late Korean government rushed to suppress unbridled speculative frenzy. The collapse of cryptocurrency prices has further removed the wind from the market. The mania died quickly, painfully.
Yet, from the ashes of the crypto mania, a blockchain boom emerged. There are already ongoing projects, supported by important local companies, that could bring services built on blockchain platforms in the lives of almost all Koreans. In addition to the private sector, government agencies are also embracing distributed registries, including a blockchain-based voting system.
If successful, these projects would bring the blockchain into the mainstream in one of the world's most advanced economies. Even more considerably, all this takes place in a remarkable limbo of regulation.
Chaos
The Korean government has begun to come to terms with cryptocurrencies, as Park Sung-joon says, at the end of 2016, when the Korean Security and Internet Agency, part of the ministry of science, started to study the # 39; ecosystem.
"They started talking to experts," said Park, head of a blockchain research center at Dongguk University in Seoul. It was a period of extraordinary political turmoil in Korea, with the impeachment of President Park Geun-hye followed by the elections in the summer of 2017, which brought Moon Jae-in to power.
Disordered politics, along with a high youth unemployment and a stagnant economy, served as a catalyst to nurture interest in the crypts. "Everyone felt betrayed … there was only a lack of trust for corporations and the government," explained a Seoul lawyer, requesting anonymity. "They saw this cryptocurrency as more a messiah, this is the only way out of this misery."
"There was the FOMO effect and the South Korean public went crazy for this investment opportunity."
With few requirements of Know Your Customer (KYC) to be met, ordinary Koreans opened anonymous accounts on a dozen cryptocurrency exchanges and began to play on the market. "At the time, some of my friends in the United States were able to buy a few hundred dollars of cryptocurrency on Coinbase," said an important investor in the Korean blockchain, asking for anonymity, "but some of my friends in Korea, some even sold their homes to buy in cryptocurrency ".
So, starting in May 2017, during the period when the Moon administration took office, a series of initial coin offerings (ICOs) in the country has attracted investor interest, raising millions of people.
The news has spread to oil stain in a country where things can become viral very quickly. "C & # 39 was the FOMO [fear of missing out] effect and the public of South Korea went crazy for this investment opportunity, "said Kang of BlockWater Capital." It was like a national movement, basically. "
The crackdown
All of a sudden, in September 2017, the government banned the ICOs. "The government did not have much time to prepare a policy on blockchain and cryptocurrency," said Park of Dongguk University. "So they just committed themselves to banning ICOs because they thought they could protect investors."
To be clear, there was no legislation enacted or an explicit policy announced. "There is nothing to say that ICOs are banned, but there is a strong push against ICOs," said Daniel Lee, a lawyer at the Kobre & Kim law firm in Seoul, specializing in related issues to cryptocurrency.
In December, the position of the government became clearer. The Korean Ministry of Justice has considered the prohibition of bitcoins and other cryptocurrencies. Later that month, the government announced a tightening of the cryptocurrency rules, putting an end to anonymous trading accounts. The markets withdrew and the Koreans reacted by asking the authorities to proceed with ease, like this poetic request:
Koreans can dream of a happy dream that we have never been able to do in South Korea thanks to cryptocurrencies. I could be able to buy a house in a country where it is very difficult to buy a house. I could be able to live a life doing something I want to do. I could be able to catch my breath.
The new year has led to a tightening of regulation, with the entry into force of the anti-money laundering and anti-money laundering regulations. Police and tax authorities have tightened control of cryptocurrency trade, leading raids to investigate alleged tax evasion, amid a series of hackings. Even the Korean banks doing business with exchanges felt the heat.
The most effective damper, however, were the markets themselves, as prices began in a dramatic tilt in 2018. The ordinary Koreans who had paid money into the crypt trying to get a quick profit were left to remix.
"I think the government has played an important role in killing this bubble," said a consultant to the Korea Blockchain Association, an industrial entity, which demands anonymity. "They are really happy with this result because they actually expected something worse, like people jumping from a bridge".
The Financial Services Commission (FSC), the country's main financial regulator, and the Ministry of Science have declined the interviews requests. In a statement sent by email, the FSC stated:
Although the FSC has introduced a real account policy for cryptocurrency trading and money laundering guidelines using cryptocurrencies, measures are aimed at minimizing side effects such as money laundering and tax evasion. using cryptocurrencies, not intended for the FSC to directly regulate cryptocurrency exchanges as financial institutions.
Later
Simon Kim studied computer engineering and engineering at the University of Science and Technology of Pohang – the Korean equivalent of Caltech – before finding his feet as an angel investor and entrepreneur. In 2017, the 34-year-old convinced six friends, some of them fellow engineers and entrepreneurs, to put together $ 700,000 of their money to support blockchain projects.
hash
In just 18 months, the project accelerator and investment fund they called Hashed built an investment portfolio worth $ 250 million. Kim, in an interview at the beginning of this year, refused to disclose the size of the current portfolio, confirming only that "We are one of the largest cryptographic funds in Asia".
Hashed's holdings include ICON, backed by a subsidiary of Korean fintech giant Dayli Financial Group, which describes itself as one of the world's largest blockchain networks. The project is trying to build a decentralized network that allows independent blockchains to negotiate with each other without intermediaries.
ICON cut its teeth by opening the world's first blockchain-based authentication service for the financial sector. Launched in October 2017, it was built for the Korea Financial Investment Association, a self-regulatory body, which serves branches of major Korean financial institutions. In its early days, the project also created similar private blockchain services for the insurance, health and education sectors of Korea.
Yet it is the latest partnerships that reveal the potential scope of the ICON platform. In May, ICON announced that it was building a blockchain ecosystem, complete with token, for Japan's LINE Corporation, which operates a messaging app with about 200 million users. LINE is owned by Naver Corporation, an internet company that runs Korea's largest search engine.
Subsequently, in September, ICON inaugurated a partnership with SK Group, one of the largest Korean conglomerates, to bring blockchain technology to OK Cashbag, a loyalty program that reaches about 37 million Koreans, about 70% of the country's population.
Just a year ago, attention was elsewhere. "Nobody cared about the blockchain, everyone focused on cryptocurrency and ICOs," said Henry Lee, head of global ICON business. This craze has helped to create awareness on a large scale that, in part, has led Korean companies to queue up to try out blockchain projects.
Kakao, a $ 7 billion Internet company that runs South Korea's biggest messaging app, is among those with a new interest in blockchain technology. In March, he founded GroundX, a subsidiary based in Tokyo, to develop Klaytn. This platform is aimed at companies with services that could be supported by blockchains but lack the necessary skills.
"I see different ways of using blockchain," said Lee Jong-gun, a member of the GroundX executive team, "replacing the whole business or taking some components to replace them, or if they just want to keep the business as usually, and then put further elements on blockchain. "
Klaytn, which is expected to be released early next year, has already partnered with at least nine companies, ranging from healthcare and gaming to digital advertising and finance. The goal is to create a mass-market blockchain service that will, at some point, also be used by the 50 million Kakao users, who are mostly in Korea.
"When they add a crypto wallet on top of Kakao Talk [Kakao’s messaging app] this means that every single South Korean will have cryptocurrency, "said Kim of Hashed." This will be the turning point of the game. "
The complications
Both GroundX and ICON have attracted interest from the Korean government, in a positive sense.
In June, GroundX claimed to work with a Seoul metropolitan government agency to jointly develop blockchain projects for the public sector. A few months later, the mayor of Seoul, Park Won, soon unveiled a five-year plan, including investments of over $ 150 million, to transform the Korean capital into a blockchain center.
ICON is also collaborating with government institutions on several initiatives. At the end of October, he presented a project that allows users to create an identity card, use it to vote on their smartphone and be rewarded in cryptocurrency, all powered by blockchain, of course. The voting system was built under the supervision of the National Electoral Commission, which has been working with ICON since July to use the blockchain to improve the registration of candidates, the vote and the counting of votes.
But for all corporate investment and public-private goodwill around the blockchain, the Korean government maintains its dislike of cryptocurrency. This complicates things for blockchain projects that rely on tokens to run, even if they are meant to facilitate transactions rather than being used for full-fledged speculation. There is little clarity on the official position for other crucial issues, including the definitive rules on ICOs and taxation.
Part of the problem is the disagreements within the government. "The ministry of planning and finance supports cryptography to get taxes, and even the ministry of science and technology supports cryptography," the blockchain chief investor said. "But the Ministry of Justice and some government departments are very conservative".
"You know Kakao and Naver, they are not going blindfolded, they know exactly how things are forming".
This dissonance could have something to do with the random manipulation of cryptography during the boom. At the end of 2017, the government initially allocated the FSC to cool markets and kill the kimchi prize, explained Park Jong-baek, partner of the BKL law firm in Seoul. "But later, they moved to the Ministry of Justice, and then, they moved into the Prime Minister's office," Park added. "In the course of this there was no logic or organized policy".
Individual legislators have shown some interest in clarifying the issue, but none of their draft laws have started in parliament. The recent slippage of cryptocurrency prices has also taken away a sense of urgency. This regulatory uncertainty is creating discomfort, especially with regard to ICOs, that some big blockchain projects are eager to undertake.
It is hard to say how things will develop from here. Now that the retail markets have cooled down, the Moon administration has big headaches to deal with. The economy, unemployment and the peace process with North Korea, to name just a few. But with a lot of money and big names come in blockchain, some expect that there will be clarity before then.
"You know Kakao and Naver, they are not blindfolded," the Seoul lawyer said, citing their connections with the Korean bureaucracy. "They know exactly how things are forming".
The rest of us will have to wait and see.
