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CoverControversial Issues
Government’s Regulation on Virtual Money: Fair or NotGovernment’s ICO Ban: On the Right Track
이현조 기자  |  alice3089@cau.ac.kr
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      South Korea’s Financial Services Commission officially announced its decision to ban all forms of “initial coin offerings” (ICOs) on September 29th. The current decision has thrown further fuel on the fire of controversy regarding virtual money. It started off from last year’s dispute over whether or not to accept virtual money as a currency. What is now at the center of controversy is ICO, which is one of the hottest block chain fund raising methods worldwide. ICO is a method that enables startups or established companies to raise money by issuing new digital currencies, similar to bitcoin. Based on the evaluation of prospective companies, investors purchase newly issued digital currencies by exchanging them with bitcoin, which can later be resold on the stock market for cash. The recent Korean government’s measure on prohibition is facing two opposing views. Let’s take a look at both sides.

 
Government’s ICO Ban: On the Right Track
It was little wonder that the government decided to ban all kinds of initial coin offerings (ICOs) as trading in virtual currencies. Even Charles Hoskinson, the co-founder of Ethereum, which is a computing platform that provides cryptocurrency tokens, pointed out ICOs are “time bombs”. The decision tracks a similar announcement that has been made before Korea in China, regulating ICOs as illegal. Russia also plans to withdraw investment on virtual money and strengthen its regulation on ICOs. What is more, other countries, including Japan, well known for its amicable stance towards virtual money, are expressing concerns over the matter. Among defensive actions taken towards ICO globally, the Korean government’s decision should be viewed as a rational choice to protect the public interests by curbing the runaway ICOs market.
First of all, the ICO ban can protect investors by eliminating the threat of fraud and speculation. The biggest problem with ICO funding is that it is not easy for investors to verify whether venture companies have enough technology to implement the block chain system, because ICOs deals in transactions at the conceptual phase. Likewise, some internet sites have been attracting investors with false claims like there are famous block chain technicians involved in their project, in order to raise funds from unspecified masses. In addition, financial pyramid selling is taking advantage of ICOs loophole by using virtual currency as a high profit bait to lure investors. The number of such reported cases reached a total of 44 times since 2015. On top of that, as virtual currencies tend to have extreme price fluctuations, the ICO market is highly likely to encourage speculation. The price value of virtual currency may surge, an earnest hope for investors. However, even if it did, it is too risky to be glad about since virtual currency can plunge in a matter of seconds. Thus, absolute regulation of ICOs would be the most effective way of preventing virtual currencies from acting as a trigger of frequent fraud and speculation.
Secondly, virtual currency can gain public confidence through the assurance of an official  regulatory authority. It is true that many people feel negatively and suspiciously about virtual currencies. Of course, the newly developed ones are like taking investment and have to admit that it is risky, yet it is not the same with already existing virtual currencies like bitcoin that are readily traded with. Rather, they are excellent in security because a new layer of block is formed every 10 minutes that guard the system, making it nearly impossible to hack. What matters here is the exchange market, namely by the ICOs. Instead of stealing the actual virtual currency directly, hackers steal by hacking personal information listed in the exchange market. As the government is going to take measures on this problem, experts expect the financial regulator’s more thorough supervision over the transaction process. It will work as a certificate, leading to the increase of public confidence.
Lastly, it is possible to solve the asymmetry of information by resetting fair and transparent rules for everyone participating in the virtual currency market. In the case of ICOs, the size of the investment target has been decided by their own judgment and the execution process has not been disclosed transparently. Therefore, companies tend not to provide accurate information to investors for the sake of their own interests. This lead to the suffering of serious losses by investors as there are no apt ways to verify the validity of the provided information. For instance, in August, there was an incident in Korea involving a gang that snatched 20 billion won by making a false claim to investors that they developed virtual currency for the Korean model. Since virtual currency is not real, it needs to be regulated to ensure fairness and no other body than the government would be appropriate to take the role. The act should be considered as a device to protect the whole society and the public interest.
The government's regulation, technically speaking, is about the abolition of highly volatile ICOs, not about virtual currency itself. As safety is the top priority concerning financial markets, it was an inevitable measure to ensure a safe exchange of still quite unreliable virtual currencies. It would be harder to find fault with the government’s action to minimize the apparent adverse effect of ICOs. As the decision further leads to the phase of discussing the extent and the scope of regulation, a more cautious approach should be taken, since it is related to handling a global market.
 
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