[Exclusive] In the 'No Authority Situation' of Cryptocurrency... Over 100 Billion Won in Damages Occur Annually

Including ongoing investigations, damage scale nears 6 trillion won
Related laws not passed for 4 years... Persistent 'gray area' remains

Source=Getty Images Bank

[Asia Economy Reporters Minwoo Lee and Chaeun Koo] Since 2017, the amount of damages caused by cryptocurrency-related crimes has exceeded hundreds of billions of won annually. Recently, an astronomical fraud case involving nearly 4 trillion won has occurred. This is a side effect of the ongoing "gray zone" where there are no regulatory authorities or laws governing related businesses. This is why there are calls to rectify the ambiguous state between illegal and legal activities and incorporate it into the formal regulatory system.

According to data provided by the National Police Agency to Yoon Chang-hyun, a member of the People Power Party, the total amount of damages from cryptocurrency-related crimes from 2017 to last month was estimated at 1.7083 trillion won. In 2017, when the cryptocurrency investment boom was at its peak, the damage amounted to as much as 467.4 billion won. In the following year, 2018, as cryptocurrency prices plummeted entering a downturn, the damage decreased to 169.3 billion won. However, from 2019, as cryptocurrencies regained attention, the damages snowballed, reaching 763.8 billion won that year alone. Last year, it was recorded at 213.6 billion won. This year, with the cryptocurrency price surge resuming, the damage was estimated at 94.2 billion won as of last month. Adding the recent fraud case amounting to about 3.9 trillion won, the scale of cryptocurrency-related fraud approaches 6 trillion won.

(Source=Office of Yoon Chang-hyun, People Power Party and National Police Agency, excluding ongoing investigations)

No Related Laws Passed in 4 Years... 'Gray Zone' Continues

Since there are neither clear laws defining cryptocurrencies nor regulatory authorities overseeing the industry, such damages were predictable. According to the “Bills Proposed by Lawmakers Related to Cryptocurrency (Cryptocurrency)” published by the Ministry of Government Legislation, a total of 10 cryptocurrency-related bills were proposed from 2017 to 2019. However, none of these bills were passed. As a result, cryptocurrency exchanges lacked sufficient grounds to be penalized even if they failed to properly disclose information about traded coins or manipulated prices. Earlier in 2017, the government issued guidelines banning Initial Coin Offerings (ICOs) that issue new coins, but many companies continued issuing coins by setting up paper companies overseas, such as in Singapore.

This year, as the leading cryptocurrency Bitcoin drew attention by reaching an all-time high of 81.99 million won (based on Upbit, April 14), fraudulent companies have also proliferated. Numerous cryptocurrency issuance agencies appeared, promising to issue new coins for about 10 million won. Some companies even offered to create cryptocurrency exchanges for payments ranging from 50 million to 200 million won. These services are easily accessible simply through open chat rooms on KakaoTalk or portal searches on Google, Naver, and Daum.

Poor Victim Status Tracking... Urgent Need for Formal Regulation

Despite this, proper tracking of the victim status remains inadequate. Although an ICO survey was conducted in early 2019, more than half of the 22 targeted companies refused to respond. This situation has been repeating recently. Even the National Police Agency responded to Yoon’s office that "victims are unspecified many, and in many cases, victim representatives report during complaints or accusations, so during investigations, victim information is often not fully identified." The Financial Intelligence Unit (FIU) also replied to Yoon’s office’s request for estimated or suspicious accounts related to cryptocurrency exchanges (excluding the four major exchanges issuing real-name accounts: Bithumb, Upbit, Korbit, Coinone) that "we do not separately collect or hold such data." Yoon Chang-hyun criticized, "This should not be seen merely as reckless debt investment by people in their 20s and 30s," adding, "Even ordinary family heads are becoming victims due to the government’s lack of measures, irresponsibility, and unpreparedness while using information and communication services."

Therefore, there is a growing call to legally define the industry clearly and establish grounds to protect victims. Since countries like the United States and Japan have already incorporated and regulated cryptocurrencies within their formal systems, it is urged that South Korea expedite similar measures. The United States began issuing guidelines related to virtual assets in 2014 and has continuously revised them to incorporate cryptocurrencies into the regulatory framework. Coinbase, a U.S. cryptocurrency exchange, was listed on the Nasdaq market last month, recognizing its corporate value at about 100 trillion won. Japan also established virtual asset legislation starting in 2017, recognizing cryptocurrencies and other virtual assets as payment methods. The country has continuously supplemented laws to incorporate them into the formal system.

Park Sung-jun, director of the Blockchain Research Center at Dongguk University, pointed out, "The government’s perspective of not recognizing cryptocurrencies as assets must change," adding, "A fundamental change in perspective is needed to clearly define the related industry and cryptocurrencies through an ‘industry-specific law.’"

This content was produced with the assistance of AI translation services.