When it comes to cryptocurrency, North Korea tends to get most of the attention on the Korean Peninsula. Since 2017, North Korea has stolen $571 million from cryptocurrency exchanges and accounted for nearly 65 percent of all cryptocurrency stolen. Despite North Korea’s illicit activities in this burgeoning field, the recent acquisition of Europe’s largest cryptocurrency exchange by a South Korean investment firm is just the latest sign that South Korea is developing into a significant player on the licit side of cryptocurrency and its underlying blockchain technology.
In late October, NXMH, the Belgium-based subsidiary of the South Korean investment firm NXC, acquired Bitstamp, the largest cryptocurrency exchange in Europe by trading volume. The transaction will give NXC ownership of both Bitstamp and the smaller South Korean exchange Korbit. While Korbit and Bitstamp will operate separately, the two exchanges will share technology and resources for research and development.
NXC isn’t the only cryptocurrency player in South Korea looking to expand abroad. South Korea’s largest exchange, Bithumb, is partnering with Seriesone to establish a new exchange in the United States, while Coinone recently entered the European market with its Malta based exchange CGEX and Upibit is planning to launch a new exchange in Singapore.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
The expansion of South Korean cryptocurrency exchanges abroad has been powered by their expansion at home. One-in-three salaried South Koreans are estimated to have invested in coins, while the Korean won trails only the U.S. dollar in Bitcoin trading volume. Local exchanges Bithumb and Coinbit are currently two of the top three exchanges in the world by volume. Upbit is regularly in the top 20 exchanges as well. South Korea has also become the largest market for trade in Ethereum, the second most traded token, and at one point last year was trading at a 30 percent premium in South Korea.
The enthusiasm for cryptocurrencies and the underlying blockchain technology extends beyond ordinary South Koreans to the business sector as well. South Korea’s leading mobile tech company and the service behind popular messaging app, Kakao, has launched its own blockchain platform in Ground X and is behind the exchange Upbit. SK Telecom has also moved aggressively into blockchain technology. It was one of the first investors in Korbit and is moving to adopt the technology for payments and subscriptions, asset management, and to help connect blockchain startups with investment firms. South Korea’s leading tech company is also exploring the use of blockchain. Samsung is looking at blockchain technology for bank certifications and tracking shipments.
While South Korea’s conglomerates are exploring uses for the underlying blockchain technology, the cryptocurrency exchanges Upbit and Bithumb have taken steps to expand the use of cryptocurrency in retail payments.
If South Koreans and Korean firms are embracing blockchain technology, the process has not been without its challenges. With prices for Bitcoin and Ethereum rising in 2017, regulators became concerned that South Korea was facing unregulated speculation in cryptocurrency, along with the prospect that the technology was susceptible to fraud and illicit activity. At the same time, South Korea was experiencing a series of cyberattacks on its exchanges. That year alone South Korean exchanges faced five cyberattacks, two of which have been attributed to North Korea, and saw exchange Youbit close after two attacks in eight months.
To address speculation and potential illicit activity in the market, regulators placed a ban on foreigners owning accounts in South Korea, required accounts to be tied to verified bank accounts to eliminate anonymous accounts, and banned initial coin offerings (IOCs). South Korea has also taken steps to normalize the industry by announcing that exchanges will be regulated as financial institutions.
While regulation of the cryptocurrency exchanges was an important first step to reign in the excesses of 2017, South Korea will also need to take a long view on the technology. Regulations regarding IOCs and bans on foreigners trading on South Korean exchanges, for example, may need to be revised to ensure that South Korea remains a leading player in cryptocurrency and blockchain technology.