The justice minister, Park Sang-ki, said this week that the government was preparing legislation to halt the trading of Bitcoin, Monero and other virtual money.
Trading is a popular pastime in South Korea, the world’s most wired country. Its young, tech-savvy populace has seized on virtual currency as a way to earn cash amid an economy that offers dwindling job prospects for millennials, despite its relative wealth as a nation. With Bitcoin pricing exploding over the last few months, many people have earned quite a bit. About a third of the 941 office workers surveyed in December by Saramin, a South Korea-based job portal, have traded virtual currency; out of those, more than 80% made money from it, and about 20% made a whopping average return of 425% on their investment, according to the survey.
The average Korean investor owns around 5.66 million won ($5,260) in virtual currencies.
“Tax it as much as you want but don’t shut it down. My life depends on it,” one petitioner wrote on the president’s website, according to Reuters. The petition there has drawn more than 120,000 signatures against a ban, as of Friday.
Regulators are concerned that the casino-like, speculative nature of the virtual marketplace has resulted in a bubble that is destined to burst, and they worry that economic catastrophe for whole swaths of the population could follow.
“On one hand, there is a growing part of their population who has adopted cryptocurrencies and are using them to great success both for investment purposes and for direct business uses as well,” Nathan Wenzler, chief security strategist at AsTech, told Infosecurity. “These advocates are becoming more reliant on cryptocurrencies and typically support their use as being an inevitable trend that will only become more heavily adopted as time goes on. However, there are those that claim it’s too risky and too volatile, and should the cryptocurrency market collapse, the government of South Korea would have to pick up the slack for the economic damage that would cause.”
There’s another dimension as well, according to Joseph Carson, chief security scientist at Thycotic, a Washington, D.C., based provider of privileged account management (PAM) solutions, having to do with cryptocurrency mining and taxation.
“China announcing they are going to clamp down on bitcoin mining…impacts China’s energy consumption and we could see a ripple effect around the world,” he said via email. “With the end of many countries’ tax years looming, the expectation is that many will dump Bitcoin to ensure they do not get hit with a huge capital gains tax bill. This could be seen as the wall at the end of the tunnel.”
He added, “I’m sure South Korea does not want to see their economy crash and significant GDP wiped overnight in value. The world is watching with huge anticipation.”
Then there are the cybersecurity concerns: For one thing, illicit mining of cryptocurrency by cybercriminals is skyrocketing and is responsible in many ways for the exploding value of currencies like Monero. Also, hacks on exchanges are not infrequent. In July, personal details on 30,000 people were stolen from South Korea-based crypto-currency exchange Bithumb, leading to the theft of funds from their Bitcoin and Ethereum accounts. The company, one of the largest exchanges for virtual currencies in the world, said the data theft happened after an employee’s PC was hacked. From there, the hackers used the information to text and call users to con them out of their authentication codes, which were then used to steal funds from the accounts.
Another South Korean Bitcoin exchange, YoBit, was forced to close in December after suffering two major cyber-attacks in one year. It claimed it was “very sorry” but filed for bankruptcy after it suffered the December attack, less than eight months after the first.
In any event, South Korea has much to consider.
“By entertaining the notion of a ban on cryptocurrency trading, South Korea is evaluating whether or not the government can successfully manage the risk of what would happen if those cryptocurrencies collapsed while also promoting what they state is less immoral behaviors due to their view that cryptocurrency trading is akin to gambling and may lead to even worse offenses,” said Wenzler. “This ban, though, would impact a growing number of citizens and could cause a huge backlash against the government, both immediately and in any voting situation. At this point, it may be too early to guess at what a ban on cryptocurrency trading would do to South Korea, either economically or politically, but as the number of South Koreans who use cryptocurrencies increases, this issue will become more challenging to address at a national level.”