|There is a stock exchange with a screen displaying the market price of virtual currency on the main street of Jongno. The passengers are getting information of the changing value in a real time.|
|/Photograph by Kim Min-ji|
Recently, virtual currency has been receiving a lot of attention and many people started to invest in it. The statistics released by the biggest virtual currency information website, Coinmarketcap, shows that the market capitalization of the virtual currency, in total, holds about 563 billion won. Nowadays, with the boom of virtual currency, its fluctuating monetary value has become one of the biggest issues in the world. However, as some problems have surfaced, many countries are restricting mining and dealing in virtual currencies, although detailed regulations differ country to country.
Virtual currency has advantages in efficiency and security
Virtual currency is a kind of electronic money transacted only through cyber space remaining in the form of information. This currency system utilizes the principle of block chain, which is a technology to record digital currency transactions by accumuating each record to existing ones. Virtual currency was first invented in 2009 and now, five hundreds of them are available on the market and Bitcoin and Ethereum are the most popular ones.
Virtual currency has several advantages. First, production cost can be eliminated and transaction cost for withdrawal be reduced. To be sepcific, virtual currency miners receive coin-formed commission to maintain the currency system. Second, using virtual currency does not take storage cost since the money is saved in a computer hard disk. Moreover, it can ensure the security thanks to the complicated verification model, which is applied every time when each transaction occurs.
Problems of virtual currency influence on Korean policy
While virtual currency has made a boom in Korea especially from the second half of 2017, several problems have risen to the surface. One of the defects is that virtual currency enables illegal acts. Since it is confidential for the money holders to deal with virtual currency, the money can be misused for drug deals, gambling, money laundering, and tax evasion. Jun Joo-yong, a professor of the Department of Economics, mentioned, “One of the biggest problems of virtual currency is ‘money laundering’ and ‘overseas remittance.’ Using virtual currency, it becomes cheaper to send money to other countries so that it makes loophole on controlling foreign exchange.”
To cope with the problem, on January 30th, the government implemented the “Real-name Transaction System” to virtual currency. The policy regulates the members of the stock exchange by making them deal only through certain banks. In this way, it is expected that the investment made by disqualified people, such as the minors and foreigners not living in Korea, is prohibited and illegal dealings are regulated.
Another problem of the Korean virtual currency system is that the stock exchanges are usually vulnerable in terms of security. Although the block chain technology has strength in its security, many exchanges do not use it in order to save commission and time that block chain costs. This happened because once someone wants to establish an stock exchange, they can easily make it under loose restrictions. For this reason, many of the exchanges are fragile to attacks from hackers.
With such a problematic situation, since last month, a controversy on whether existing stock exchanges would be closed has been a big issue among the currency holders. The confusion rose after the announcement by the Ministry of Justice that it was preparing a bill to ban virtual currency transactions through the stock exchanges. Also, the Ministry announced their plan to close the exchanges, too. With the policy, people are not able to spend their virtual currency and move it to another country. Professor Jun said, “It is certain that the government will make their policy to prevent money laundering by applying real-name system to virtual currency. In this regard, I think it is quite necessary to monitor the transaction of virtual currency, but overall prohibition is not reasonable.” He added, “I think it would be better to make hierarchy to the system by differentiating each components’ required qualification.”
Park Sung-o (53), a virtual currency holder, said, “The government should admit virtual currency as an investment goods by establishing laws to control its transfer or use appropriately.” He additionally commented, “Other countries such as the U.S., Japan, and North Europe are already implementing regulation policies. I am just rejecting the government’s approach because it is made without enough knowledge about the currency system in Korea.”
China restricts mining and transactions of virtual currency
Like Korea, other countries are implementing strict regulation polices regarding virtual currencies. Many Asian countries such as China and Indonesia have begun regulating virtual currencies. Among them, China especially prohibits not only transacting virtual currency but also mining it. Since China frequently checks if the virtual currency mines run, existing mining companies in China are gradually moving to other countries like Switzerland, where their policies are relatively loose. In addition, not only prohibits the act of mining virtual currency, China also bans every single bit of the transaction which includes both moving and using it. Moreover, China recently expanded the range of restriction to online and mobile systems. It is prohibited to deal with virtual currency as well.
Especially nowadays, as the number of people who move to the exchanges in other countries increases, the Chinese government pointed out possible risks such as illegal issues and fraud. It warned of not joining such illegal things by announcing the “Notice Regarding Token Publication Loan” on February 4th. The Chinese government stated that it will present regulatory measures. Additionally, the government set its policy to close the emerging stock exchanges and gave stronger restrictions as the situation develops. Jun Joo-yong, commented, “In terms of some Asian countries like China, it is reasonable to ban not only transacting but also mining virtual currency. It is because those countries do not have adequate banking infrastructure, which can cause unexpected problems.”
Wan Yahui (Senior, Department of International Trade) from China commented, “I think restriction policy in China is desirable because virtual currency in my country cannot be maintained for a long period. This is because the Chinese government does not believe the digital money contributes to the real economy, and are worried about market risk that could be caused by the collapse of virtual currency.”
United States is strengthening the management system
Influenced by the countries taking a hardline stance like China, some countries such as the U.S. and Japan, which had been more relaxed to virtual currency, have been making their policies stricter. Especially, the United States seems to show the most distinctive change in their position. At first, before recent global movement towards restriction, the U.S. had admitted virtual currency as a kind of financial product. This can be proved by the fact that Wyeth, one of the credit-rating agencies in the United States, appraised 74 virtual currencies. As this example shows, the U.S. had accepted the using of virtual currency before.
However, while the number of people who acknowldege its worth is constantly decreasing, the government is changing its policy to a stricter one. For instance, the U.S. started to apply permit system to the handling of virtual currency, which is a kind of the report system designed to control transactions more effectively. Moreover, on January 30th, the Securities and Exchange Commission (SEC) was requested to freeze the assets for the first time. It was a reaction to the fact that Arise Bank in Texas disseminated false information during ICO, which means initial coin offering, and made many victims. In addition, the three largest banks in the U.S., City Group, J.P. Morgan Chase & Co., and Bank of America, decided their policy that their credit cards cannot be used to buy virtual currency.
Kaofang Ratanapapat (21), who is living in the United States, said, “I am in the neutral position about the virtual currency regulation policy of the U.S. In other words, it can be both smart and taking advantage from other countries. I think they are trying to keep money circulating within the country and export to bring more into the country.
Global policy trend of regulating virtual currency is expanding
Although the strictness level varies from country to country, in common, they are continuing or increasing restrictions on virtual currency transactions. By extension, on a global scale, a conference is going to be formed this month. Regarding the conference of the Ministers and the Governors of G20 that will be held from March 19th to 20th, Germany and France showed their will to bring up the problem of virtual currency system. This is a part of efforts to unite each country’s regulation system aiming to effectively control the system. Following this event, the discussion regarding the regulation of virtual currency will proceed.
|Value of virtual currency fluctuates in real time, which is influenced by the government policy dealing with the currency system changes.|
|/Photograph by Kim Min-ji|
As the government policy dealing with the currency system changes, the value of virtual currency does so. Consequently, close relationship between the two influences on the prospective flow of the currency. Therefore, in order to exclude possible problems of the system, the governments in the world should keep it by monitoring its actual usages carefully.
Professor Jun said, “Virtual currency has its own worth since it can reduce expenses required to transact and be confirmed. Therefore, it is not meaningful to restrict it by taking only a block chain technology without virtual currency. As virtual currency has characteristics as a stock, it is required to circulate the currency with appropriate regulation policies that can be applied well to the stocks.”
Kim Min-ji firstname.lastname@example.org
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