In looking to follow the legal frameworks set by the United States and Japan, Korea is set to become one of the few countries to regulate Bitcoin and its use.
The country’s financial regulator, The Financial Services Commission, said on Thursday Nov. 17 that it would introduce regulatory guidelines for digital currency exchanges by the first quarter of 2017, in response to the growing popularity of Bitcoin and other digital currencies traded online in Korea.
The Commission notes that the average monthly transactions in 2016 increased by six percent compared to last year, and the top three Bitcoin exchanges in the country processed around 1.5 trillion won - $1.3 bln - between January 2015 and October 2016.
Since the Ministry of Science, ICT and Future Planning, who currently oversees the registration of Bitcoin operators within the country, does not offer financial regulatory guidelines, the Commission has launched a task force that will discuss the regulatory status of digital currencies and seek to create licensing rules for exchanges.
This announcement coincides with the launch of a Blockchain-powered platform for startup companies to trade equity shares on the open market through the country’s securities exchange operator, the Korea Exchange (KRX). The platform, entitled CoinStack and developed by Korean startup Blocko, will focus on document and identity authentication - both in cloud and on location environments - and support all protocols and applications built on the Bitcoin Blockchain.
A regional publication, Trade Arabia, has also reported a similar regulatory move by the Supreme Legislation Committee (SLC) of Dubai. It says that the most populous city within the UAE is holding a workshop on Nov. 20 to discuss the present and future legislative policies and legal frameworks for Bitcoin.
The SLC Secretary General, Ahmad bin Meshar Al Muhairi, says that considering Bitcoins various differences from traditional currencies, including the lack of a central regulatory authority, there is an urgent need to spread awareness about it so as to focus on the highest level of security and privacy within the virtual world.
Dubai is one of the seven emirates that make up the UAE and one of the only two emirates - the other being Abu Dhabi - to hold veto power over critical matters of national importance in the country's legislature.
Importance of regulation
Aside from helping prevent illegal use of digital currency exchanges, which the Korean commission says is “often used for money laundering, drug trafficking and tax-related crimes,” regulation could bode well for the growth of Bitcoin as it will help gain legitimacy in the public eye.
Regulations will help win public trust and encourage the onboarding of new users, as is the case in Japan where, within a six-month month period, there was a sharp rise in the amount traded across Bitcoin exchanges in the country, after a bill was passed to regulate it in May. The introduction of regulatory measures seems to have played a crucial role in the recovery process from the Mt. Gox scandal, which had given Bitcoin a bad name in Japan. As a result, Japan has risen to become the second largest Bitcoin market in the world after China, toppling the United States.
Introducing a regulatory framework also gives room for initiatives that could adopt the use of Bitcoin for various purposes to thrive. The Swiss parliament moved to regulate on Bitcoin and Blockchain-based startups in June. Earlier, the Swiss town of Zug began to accept Bitcoin payments for certain city services. Today, Switzerland now allows its use for buying train tickets and it is also sold in kiosks across the country.