[Herald Interview] ‘Crypto crackdown to adapt to changing tides’

South Korea has for weeks ramped up pressure on the local cryptocurrency industry through a pangovernmental body that includes the Prime Minister’s Office, Justice Ministry, financial authorities and police, among others.

Following the move, Korea has imposed a ban on non-real-name transactions and trading by foreigners and minors. Last year, initial coin offerings were also forbidden. Moreover, financial watchdogs are inspecting commercial banks -- within their control -- for failing to properly act as gatekeepers for the financial industry by providing virtual accounts for cryptocurrency transactions. Furthermore, the government has hinted at shutting down exchanges and labeling them as illegal fundraisers.

Edwin Dearborn, chief marketing officer at decentralized messenger app operator e-Chat, said the government crackdown on the blockchain industry will not be able to reverse the trend in the market, and may push cryptocurrencies into the dark, in an email interview with The Korea Herald.

“Pressure will grow to adapt to the changing tides in business,” Dearborn said. “There is no denying the use of cryptocurrency, as people will always find a way around government sanctions and regulations.”

If the all-out ban on cryptocurrency happens, the only scenario will be the burgeoning local blockchain industry’s flight from the nation, which would leave the nation behind in the “fourth industrial revolution.”

“If Koreans are not allowed to legally conduct crypto-business in their own country, one can only assume that many will go outside their own country to invest and get involved in cryptocurrencies in some form or another,” he said.

Local cryptocurrency exchanges -- including Bithumb, Upbit, Coinone and Korbit -- have been targeted by the government’s cryptocurrency business clampdown.

For example, police on Tuesday reportedly began investigations of margin transactions that took place via Coinone, viewing them as gambling and a breach of the Capital Markets Act. Margin transactions are allowed in Korea’s equity market.

Exchanges have also taken heat from what is locally dubbed the “kimchi premium,” referring to the phenomenon where the bitcoin price in Korea is higher than the world average -- at some points by as much as 50 percent.

Such phenomenon resulted in crypto coin price tracker CoinMarketCap’s exclusion of prices from Korean exchanges from its estimates Tuesday.

To Dearborn, ups and downs of cryptocurrency prices have been inevitable in the transitional period.

“(Blockchain) is a new emerging technology with many new, excited speculators,” Dearborn said. “But as time marches on, lessons will be learned and markets will begin to see more stability.”

During a press conference Monday, Financial Services Commission Chairman Choi Jong-ku said views that clampdowns on cryptocurrency would hamper the growth of the blockchain industry and the “fourth industrial revolution” are not made on general consensus. Instead, such views merely originate from those involved in virtual currency business, according to Choi.

“Without question, this is a major concern governments have with cryptocurrencies,” Dearborn said, referring to the remark. “This is why more regulation will be adopted by them, as we have seen in the Patriot Act in the United States.”

Headquartered in Hong Kong, e-Chat allows users to exchange text messages and wire money encrypted on the decentralized blockchain technology. When asked about whether it would open an office in Korea, Dearborn said e-Chat would “continue to evaluate new opportunities.”

By Son Ji-hyoung 
(consnow@heraldcorp.com)