The government of South Korea passed today a legislative proposal which would exclude any firms in the cryptocurrency industry from being certified as venture firms. The passage of the proposal is a serious setback in a country that has found itself hostile to the cryptocurrency space in the past year, despite having some of its most thriving developments.
South Korea’s Ministry for Small and Medium Enterprises first proposed the bill in August. The proposal was supposed to be a revision the South Korea’s existing laws. Simply put, it demanded that the country’s native blockchain industry, including its exchanges, be taken off the government’s list of certified venture firms.
Currently, quite a few Korean-based exchanges are operating as certified venture firms, but it seems that their license is set to expire soon. These exchanges include giants such as Upbit and Bithumb, although neither have responded to the legal move since the story broke.
According to the bill put forward in August, all cryptocurrency startups and their exchange platforms would effectively lose the tax perks and the many financial incentives that currently exist for South Korea’s many startups and small businesses. Instead, these cryptocurrency would now be classified on par with the gambling, bar, and entertainment industry.
This is a massive blow for the industry legitimacy in a country where cryptocurrency was a craze just this year and where new platforms are emerging. However, it seems that government did not see it that way — or, more likely, failed to grasp its potential.
The relegation of the cryptocurrency industry to this realm also effectively makes any tax benefits null and void, since certified venture firms benefit from a 75% cut in acquisition taxes. These same startups and exchanges will also be unable to have any credit guarantees.
The Korea Blockchain Startup Association said that this proposal would effectively “discourage the industry as a whole” and was counterproductive.
Frankly, the future of the South Korean cryptocurrency industry looks bleak. Starting this month, any new crypto startup firms will not reap any of the benefits of being startups from the state. This is likely why some Korean-based firms are now moving their operations overseas to avoid the hassle of this new law. For example, UpBit has said they are expanding to Singapore with the intention of opening their doors there this month; coincidentally, this comes at the same time the proposal was passed.
Some Good News
Despite the recent passage of this proposal, there is some reason for celebration in South Korea. Min Byung-Doo, the chairman of Korea’s National Policy Committee, has encouraged the state to legalize ICOs.
Ultimately, his reasoning was based on the success of ICOs like Telegram and Block.One which raised $1.7 billion and $4 billion respectively. The growing interest in the country regarding ICOs, Byung-Doo says, cannot be dismissed and the country would benefit from a clear legal framework.
However, the country is still far off from establishing such a framework and some would argue that by the time it is established, many crypto startups and exchanges will simply move out of the country. For example, the FInancial Services Commission already has a record of stopping ICOs and their crypto-related funds. Just recently, the commission stopped Kakao, one of the largest internet conglomerates in South Korea, from conducting its own ICO. The ICO was supposed to be done through Bithumb.
In all, it seems that the situation of cryptocurrencies in South Korea is tenuous at best. The country may be looking at a year-long struggle for legal legitimacy for the space, in a country where these laws are still not fleshed out. To make matters worse, it seems that legislators are not too keen on the technology either and many of their discussions center on partisan lines.
As expected, it seems that the state of cryptocurrencies in South Korea will have to be put on hold to perhaps even the next generation. The current milieu in power seems far too hostile to the space to really give it the respect it desperately deserves.