South Korea is known for its “Kimchi premium” on crypto mainly because of the popularity of crypto trading in the country. In fact, 30% of the total crypto trading volume worldwide comes from South Korea. It is also true that 30% of working South Koreans invest in crypto.
As for the South Korean government, it has played a major role in legitimizing the crypto market as an industry. The government has recently allocated $888 million for developing the blockchain industry for next year. It is part of the $4.4 billion package that was intended to bring economic growth via tech innovations. In addition to this, it also has a number of regulations in reaction to the rampant hacking incidents and ICO scams.
High Standards for Crypto Exchanges
For Lee Seok-wu who is the CEO of Dunamu which is the parent company of Upbit, South Korea’s biggest crypto exchange, the CEO believes that regulations are important in order to establish industry standards. Upbit was known to be doing well a few months back despite a bearish market.
Congress along with the Financial Services Commission (FSC) had a meeting with five of the biggest crypto exchanges in South Korea including Upbit, Bithumb, Gopax, Korbit, and Coinone. During the meeting, Lee said that “The role cryptocurrency exchanges play in the cryptocurrency and blockchain ecosystem is crucial and the industry with the government have to establish regulatory guidelines to ensure that the local market is operated by exchanges that meet high standards”.
For Lee, there are a number of areas that need to be addressed by the government and it can be summed up into three things. One, there is low standards of security that are being used by small exchanges which had led to hacking attacks. Next is the poor KYC/AML policies that have allowed criminals to take advantage of crypto exchanges. And lastly, the regulatory guidelines should be strengthened in order to ensure that all platforms are on the same page.
Insecure and Risky Market
Lee explained that the crypto market is both insecure and risky as he was speaking to high profile officials. Lee believes that unless there is an intervention on the part of the government to establish an industry standard, small crypto exchanges will only prioritize maximization of profit which could give the crypto market a bad reputation in the end. This could lead to hacking incidents and even the criminals using crypto for illicit activities.
Approval from KISA
Last month, Upbit became the first crypto exchange to have an approval from Korea Internet and Security Agency (KISA) for its security measures and protocols. And with the information security management system (ISMS) license, Upbit is now a corporation that is approved by the government.
However, there is a lot of work that has to be done considering the number of hacking incidents in the crypto industry. Lee said that “Due to the lack of regulatory guidelines on cryptocurrency exchange development, small businesses are aggressively launching exchanges that do not have adequate internal management systems and security protocols in place, negatively affecting the public image of the local cryptocurrency market”.
What Lee is trying to say is that the government should be strict when it comes to smaller cryptocurrency exchanges from opening. This could help lessen the chances of hacking attacks since smaller exchanges typically don’t have the funds to raise their level of security.