S Korea makes another step to establish legal framework for virtual currencies

South Korea is making its first steps towards the establishment of a legal framework for cryptocurrencies. About two weeks after Park Yong-jin of the Democratic Party of Korea unveiled plans to revise certain laws that will affect the cryptocurrency industry, a public hearing was held on the proposed legislative changes.

According to a report by the Korea Herald, seven panelists, including lawyers, professors, an official from the Financial Services Commission (FSC), as well as a victim of a cryptocurrency-related scam, took part in the discussion on the necessary changes.

All of the panelists agreed that swift action is needed to protect virtual currency traders. They pointed out that traders sometimes fall victim to illegal fundraising involving Ponzi schemes or door-to-door sales.

An interesting remark was made by Lee Dae-ki, a researcher at the Korea Institute of Finance, who noted that “The activity of trading and brokering digital currency should be regulated prior to the currency itself,” as crimes stem from these activities and not from the currency itself.

A point of disagreement was whether cryptocurrencies should be treated as currencies or assets, leading to a question on whether to impose tax on them. This matter has already found its solution in Australia, whereas Russia has yet to make its decision on it.

Kim Yeon-june, representing the FSC, said the government had yet to decide whether a cryptocurrency should be included in the scope of financial regulations. The public hearing also indicated the Electronic Financial Transactions Act is the only law to be revised, while revisions on income tax and corporate tax laws are not envisaged.

Last month, the Korea Asset Management Corporation (KAMCO) announced it would be auctioning 216 bitcoins, confiscated from the owner of an “obscene website”. KAMCO is following the example of the US Marshals Service which has regularly conducted such auctions – for instance, it has been auctioning bitcoins confiscated as a result of the closure of Silk Road and the arrest of its mastermind Ross Ulbricht.

South Korea is one of the hotspots for Bitcoin trading. The high demand, however, is accompanied by a growing number of fraud and cyber problems.

In April, South Korean cryptocurrency exchange Yapizon announced that it was the victim of a hacker attack and claimed the loss of BTC 3,831 in customer funds as a result – back then, that equalled about $5 million. The customers of the Exchange had to pay for the loss from their own account balances.