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The Bank of Korea (BoK), South Korea’s central bank, has launched a cryptocurrency task force to explore the technology’s effects on the financial system.
According to a report by local news agency Pulse News, the bank said that the task force will see participation from eight departments, including the financial stability and monetary policy units, to study on the impacts of digital currency.
The new group will be administered and assisted by BoK’s payment and settlement department and will be headed by Shin Ho-soon, deputy governor of central bank, the report adds. BoK is also seeking to explore a central bank-backed digital currency as part of the project. The announcement follows concerns raised in South Korea that the drastic growth in cryptocurrency prices could effect the traditional financial system.
Earlier this week, six unnamed banks in South Korea were scrutinized the Korean Financial Intelligence Unit and the Financial Supervisory Service for their relationship with the country’s bitcoin exchange ecosystem. The regulators indicated at the time that they were looking into whether the banks are complying with their anti-money laundering (AML) obligations when transacting with cryptocurrency exchanges.
The government already said last month that it would move to apply more scrutiny amid growing trade volume at the exchanges, including a possible ban on anonymous trading. New reports suggested that the government of South Korea is intensifying its moves against the country’s bitcoin exchanges.
The government of South Korea is preparing a bill which attempts to prohibit all transactions involving cryptocurrencies including bitcoin unless they take place through exchanges that meet six conditions
The South Korean government is preparing a bill to amend the Act on Regulation of Similar Reception to include provisions for cryptocurrency transactions. “The purpose of this Act is to protect good traders and to establish a sound financial order by regulating Similar Receiving Behaviors”, states Article 1 of the law.
In recognizing that crypto currency transactions are already taking place in high volume, the regulators have made provisions to allow crypto exchanges to operate legally. Six conditions have been named that must all be met and “a Presidential Decree will provide additional conditions”,
Cryptocurrency crackdown after Justice Minister Park Sang-Ki announced that the South Korean government was considering making cryptocurrency trading illegal, the broad crypto market suffered another steep sell off. Bitcoin and Ethereum both fell by 14% on the news.
“There are great concerns regarding virtual currencies and the justice ministry is basically preparing a bill to ban cryptocurrency trading through exchanges”, said Park during a news conference on Thursday, according to Reuters. The declaration may have been a bit premature. Officials at the Blue House — South Korea’s version of the White House — clarified later that there would be no trading ban just yet.
However, the government continues to tighten rules and oversight to quell the cryptocurrency craze. Understand which cryptos stand to lose in Korea’s crackdown. While bitcoin gets the lion’s share of attention in the U.S., that’s not necessarily the case in South Korea. For instance, three of the top five ethereum exchanges in the world — Bithumb, Coinone, and Korbit — are based in South Korea. And at one point last year, they accounted for more than 40% of all ethereum trading.
Meanwhile, among the major cryptos, Ripple has been trading at the highest premiums. On Friday afternoon, Ripple’s XRP token was trading for around $2.67 on Bithumb in Korea, but only $1.95 in the U.S, representing a 37% premium. The aggressive way that South Korean investors had been trading Ripple at the end of last year is believed to have helped XRP momentarily become the world’s second largest cryptocurrency.
But after Coinmarketcap.com began to exclude the South Korean exchanges from its pricing earlier this year, Ripple’s market value plunged by several billions of dollars. And Ripple today is a distant third in overall value, well behind ethereum and bitcoin. South Korea isn’t the first nation to go after cryptocurrency trading. The market recently went through a similar exercise in China when, in September, the government banned trading of cryptocurrencies and participation in initial coin offerings.
Bitcoin dropped 32% to under $3,000 at the time. Bitcoin didn’t stay down long, though, as it’s now nearly $14,000 a coin. Instead, China’s decision forced domestic investors to turn to different countries to process trades, making Japan the most active country in the crypto market.
“I think this move will have less impact than what we saw in September as people are learning that someone crying wolf does not mean there really is a wolf”, says David Johnson, CEO of Latium, creator of a tasking platform that only accepts cryptocurrencies.
New cryptocurrency exchanges are rushing to launch in South Korea despite regulatory uncertainty due to high demand and lucrative business models. Ten crypto platforms are expected to open for business in the first half of this year, including two run by Kosdaq-listed companies. Despite regulatory uncertainty, new entrants are hurrying to launch cryptocurrency exchanges in South Korea. “An increasing number of information technology (IT) companies, such as gaming and security, have declared to enter the cryptocurrency exchange market”, Business Korea reported on Monday.
Two Kosdaq-listed companies, in particular, are “accelerating the establishment of [their crypto] exchanges”, the publication noted. Nex G and Hanbit Soft are currently building security and anti-money laundering (AML) systems in order to run cryptocurrency exchanges. Both expect to launch their exchanges in March, the news outlet conveyed and quoted a Nex G official saying: We are planning to operate the exchange dubbed “Nex Coin” and we already established the corporation last week. We will set up all the systems provided by a normal financial institution such as anti-money laundering and security control systems.
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