[Economy Pulse] Memories of the Cityphone and the Future of Digital Finance

If you are a reader over 40, you may remember the "Cityphone" that emerged around 1997. Watching people take out their Cityphones to make calls next to lines at public phone booths was considered a symbol of cutting-edge technology at the time. However, this half-baked service—allowing you to make calls only in designated areas and not receive them—quickly disappeared from the market within just a few years, as bidirectional mobile phones capable of both making and receiving calls rapidly became popular. In retrospect, it's hard to understand why such a product was created, but at the time, Korea Telecom, which was practically a public institution, promoted it as a promising business. This is a classic example of how painful it can be to miss the tide of technological progress.

Recently, when observing Korea's digital financial policies, one cannot help but feel a strong sense of deja vu reminiscent of the Cityphone. The current global financial ecosystem is rapidly restructuring itself around stablecoins and real-world asset (RWA) tokenization. The essence of blockchain technology is that, through encryption, it allows the "Internet network" to function as a "financial network" for value transfer. As a result, for the first time, the exclusive moat enjoyed by Visa or SWIFT—who built closed networks worldwide at astronomical cost to handle payments and remittances—is facing a structural challenge.

This tectonic shift is already evident in the numbers. The global stablecoin market has surpassed 320 billion dollars and has established itself as the core settlement medium for cross-border payments and on-chain finance. The tokenized U.S. Treasury market has also expanded to around 10 billion dollars. Global asset managers such as BlackRock and Franklin Templeton are managing funds ranging from hundreds of millions to several billion dollars on public blockchains. Even the U.S. Depository Trust & Clearing Corporation (DTCC), which safeguards more than 114 trillion dollars in assets, is working with global financial firms to accelerate the transition to tokenization infrastructure.

In contrast, Korea's reality remains far removed from these global trends. The Bank of Korea is focusing on experiments centered on public infrastructure, such as central bank digital currency (CBDC) and deposit tokens. However, the institutionalization of a won-based stablecoin, which would directly connect to global liquidity, has stalled. This is not to say that the experiments with CBDC and deposit tokens are altogether unnecessary. The problem arises when these become an excuse to delay the on-chain transformation of finance.

The Digital Asset Basic Act, which the ruling party and financial authorities had pledged to enact by the first quarter of this year, continues to be delayed indefinitely. Security Token Offerings (STO) are also awaiting the implementation of amendments to the Capital Markets Act, but actual business remains limited to fractional investments in non-standard assets like real estate and artworks, conducted on closed distributed ledgers dominated by domestic financial institutions. While we overlook the essence of blockchain and build yet another "closed intranet," overseas exchanges are rapidly absorbing global liquidity by launching tokenized products such as shares of Samsung Electronics and SK hynix, as well as ETFs that include them, supporting 24-hour trading. As we lose our leadership, the fruits of innovation are flowing straight to foreign operators.

Major advanced countries switched to a "two-track" strategy early on. The United States, instead of pursuing a retail CBDC at the federal level, institutionalized dollar-based stablecoins, making private sector innovation the cornerstone of national competitiveness. Japan has allowed stablecoin issuance since June 2023, and the European Union has integrated stablecoins into the regulatory framework with the "MiCA" law from 2024. Notably, the Monetary Authority of Singapore (MAS) led the way by successfully tokenizing government bonds on a public blockchain—not a closed network—in real transactions with global banks such as JPMorgan and DBS as early as 2022 through "Project Guardian." While central banks may take responsibility for public payment infrastructure, securing global liquidity and fostering private sector financial innovation are clearly left to transparently regulated open ecosystems and market choice—a clear division of roles.

Of course, borderless on-chain finance carries risks such as anti-money laundering (AML) and the challenges of foreign exchange control, so careful consideration is necessary. However, excessively delaying innovation simply because it is hard to control is not a strategy. The authorities' role is to manage risks through sophisticated regulation, including 100% reserve proof, real-time disclosure, external audits, and redemption rights. As history proves, when new technologies emerge, it is an open attitude that respects market choice rather than hastily shaping the future that determines national competitiveness.

The global financial industry is now being restructured on-chain, based on blockchain technology. If Korea’s digital finance wastes precious time building "yet another Cityphone" within our own closed networks, what will happen? The lessons of the Cityphone and WiBro are clear: a national standard ignored by the market can never become the future. If we miss this golden opportunity, we may never find Korea’s place on the global digital finance map, even if we arrive late in the future.

Seo Byeongyun, Co-CEO of DSRV Labs

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