FUD No More: South Korea Set to Adopt G20’s Unified Cryptocurrency Regulations

As the G20 works to create a set of “unified regulations” in regards to cryptocurrencies, the government of South Korea — the third largest cryptocurrency market in the world — reportedly plans on playing ball with whichever policies the international forum of governments and central bank governors put into place. ‘We Will Step up Efforts to Improve Things’ According to China Money Network, local media has also reported that Korean regulators have agreed to apply the Financial

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Cases Of Illegal Bitcoin And Cryptocurrency Mining: Chicken Farms And New York

Cryptocurrency miners in the US and South Korea disguised as protected businesses to mine bitcoin with unfairly cheap electricity rates.

In the US, China, and South Korea, many individual cryptocurrency miners and large-scale mining centers were cracked down for conducting illicit operations. For example, in April 2018, cryptocurrency miners in South Korea were arrested for illicitly utilizing cheap electricity to produce cryptos.

Chicken farm in South Korea

In South Korea, places such as chicken farms and factories in development restricted areas are provided with electricity at cheaper rates by the government to help struggling industries and support innovative technology-focused initiatives. The government is stricter with the usage of electricity in these areas and consistently monitors the inflow of energy into buildings, factories, farms, and houses near these specially approved districts.

On April 19, police in the Gyeong-ki province of South Korea, the second largest region behind Seoul, arrested operators of a mining center in Nam Yang city. An in-depth police investigation disclosed that five cryptocurrency miners, whose identities remain confidential as they are still in police custody, purposely rented out factories and chicken farms in the protected part of the city to receive electricity for substantially lower rates.

By disguising buildings as semi-conductor factories and several properties as chicken farms, the five individuals were able to mine cryptocurrencies like Bitcoin and Ethereum with virtually no cost apart from the ASIC miners they acquired and installed.

Image source: Northern Gyeonggi Provincial Police Agency via Hani

In the Paju restricted development area, the five individuals rented out a 859 square meter building and applied to the government as a semi-conductor factory. For 8 months, the group utilized the space to mine cryptocurrencies with more than 1580 ASIC miners. In the later months of their illegal venture, the group recruited more than 40 individuals and rented out their ASIC miners to produce even more cryptocurrencies.

The group generated more than $300,000 by accepting ASIC miners from individuals within months but the actual sum of cryptocurrencies the group was able to produce throughout the 8-month period remains unclear.

Preliminary investigations undertaken by the Gyeong-ki and Paju police has shown that the group produced at least 760 Ethereum, which is worth more than $500,000, and a large sum of Bitcoin. The local police is still investigating into the final sum of money the group generated throughout the past year. The police has also discovered that the group only paid 50 percent of the normal electricity rate and received significant discounts for renting out the farms and factories.

Currently South Korea has no laws or policies approved that can punish cryptocurrency miners in development restricted areas. Minor charges could be applied to the five individuals, for using the space intended to carry out other initiatives, but no major penalties can be imposed as of now. To prevent similar situations from occurring in the future, the local police has requested the Ministry of Land, Transport and Maritime Affairs to draft and approve laws that prohibit cryptocurrency miners from taking advantage of districts and areas with cheaper electricity rates.

First mining ban in New York

In the US on March 18, local authorities in the state of New York requested a cryptocurrency mining facility to halt their mining initiative after residents of Plattsburg, a small lakeside town in upstate New York, filed an official complaint to the police for the excessive usage of low-cost electricity by local miners.

The city of Plattsburg did not impose a permanent ban on Bitcoin mining however. Instead, local authorities and residents released a moratorium which states that the city will not consider applications for commercial cryptocurrency mining for at least a year and a half. Bloomberg reported that the city can charge more than $1,000 per day if miners decide to use low-cost electricity of the city to mine. The authorities of Plattsburg said:

“It is the purpose of this Local Law to facilitate the adoption of land use and zoning and/or municipal lighting department regulations to protect and enhance the City’s natural, historic, cultural and electrical resources.”

Another cryptocurrency mining facility was confronted by local authorities and a telecommunication powerhouse T-Mobile on Feb. 15 after it was revealed that ASIC miners from a mining facility based in Brooklyn interfered with the 700 MHz band of T-Mobile. The Federal Communications Commission (FCC) said:

“On November 30, 2017, in response to the complaint agents from the Enforcement Bureau’s New York Office confirmed by direction finding techniques that radio emissions in the 700 MHz band were emanating from your residence in Brooklyn, New York. When the interfering device was turned off the interference ceased. You identified the device as an Antminer s5 Bitcoin Miner. The device was generating spurious emissions on frequencies assigned to T-Mobile’s broadband network and causing harmful interference.”

At the time, the FCC gave the mining facility a 20-day notice to halt their operations and move elsewhere as the radio emissions released by the ASIC miners within the facility were negatively impacting local telecommunication networks.

Not illegal

Bitcoin and cryptocurrency mining is legal in most countries, even in China which banned the trading of cryptocurrencies like Bitcoin and Ethereum in Sep. 2017.

Cryptocurrency mining is legal in most regions because it is beneficial for electricity grid operators to provide excess energy that they can no longer supply to households and businesses. As such, although local governments have tried to ban cryptocurrency mining in the past as demonstrated in CNLedger’s report below, cryptocurrency mining remains unbanned in most countries.

It is also not illegal to mine Bitcoin or any other cryptocurrency using electricity that is low cost. However, it is illegal to disguise cryptocurrency mining initiatives as a protected business in a development restricted area to take advantage of cheap electricity that is only provided to approved organizations and institutions. This is why South Korean authorities are currently drafting regulations to prevent mining facilities from taking advantage of cities with cheaper electricity.

THE COST TO MINE 1 BITCOIN

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Subsidiary of Korean Search Giant Naver Launches Blockchain Venture For Decentralized Apps

Line Plus has announced a partnership with crypto, blockchain platform ICON to develop dApps and Line’s blockchain mainnet.

Line Plus, the mobile platform subsidiary of Japan’s most popular messaging app Line, has launched a joint blockchain initiative – Unchain – with crypto platform ICON, Cointelegraph Japan reports today, May 16.

In the beginning of April, Line Plus had also released its blockchain affiliate Unblock in South Korea, in order to integrate blockchain tech into Line’s cross-market system. Line is itself a subsidiary of South Korean search engine giant Naver, but is based in Tokyo to avoid competition from Kakao.

Line’s press release notes that Unchain will work with Unblock to bring Line’s blockchain mainnet and its DApps closer together by using ICON’s blockchain technology. ICON’s Hong-kyu Lee, who will be Unchain’s CEO, said in in the press release that they “expect to promote an array of blockchain-based dApp services for daily use”:

“The rise of these services is expected to catalyze the growth of LINE and the ICON blockchain ecosystem.”

ICON is currently ranked 19th on Coinmarketcap, trading for around $3.87 and down about 10 percent by press time.

At the end of March, Line competitor Kakao officially announced their own blockchain subsidiary as part of their Kakao 3.0 business plan.

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S. Korea’s Largest Exchange UPbit Runs ‘Internal Audit’, Dispels Fraud Allegations

UPbit, the South Korean exchange which investigators searched last Friday, says it has conducted an internal audit and cleared itself of fraud.

South Korea‘s largest cryptocurrency exchange UPbit said it has conducted an internal audit that disproves suspicions of fraud, local media reported Tuesday, May 15.

UPbit, which saw a sudden visit from financial regulators on Friday, May 11, on suspicion officials had faked balance sheets, has yet to publish the audit data, which it claims demonstrates its coin holdings are real.

Quoting the exchange’s CEO, local news outlet Naver now reports UPbit’s ledgers are “100%” in step with their wallets.

Claims that a “misunderstanding” between government inspectors over multiple wallets caused the suspicions also appear valid, social media commentators added Tuesday.

Friday’s original inspection caused panic on markets and coincided with Mt. Gox trustees apparently selling a further chunk of client liquidation funds, resulting in several days of price drops.

While the matter is not officially settled, responses note, UPbit’s reports about the audit would appear counterproductive if made at a time when no concrete information existed at all.

“We will see how the story unfolds, but I find it highly unlikely that UPbit would spin a narrative of innocence if they were under investigation where proof was easily seen through blockchain transactions,” a Twitter-based Korean cryptocurrency news commentator wrote.

UPbit, owned by a subsidiary of South Korean communications giant Kakao, is the world’s fifth largest crypto exchange by 24-hour trade volume, seeing about $910 mln in trades on the day to press time.

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Despite Ongoing Probes, ICO Legalization in the Cards in South Korea

South Korean regulators are investigating a number of exchanges in the country while lawmakers are working on legislation to legalize initial coin offerings.

South Korea has long been a big player in the cryptocurrency world, but recent government crackdowns have stymied the growth of local blockchain-based firms.

Despite probes into exchanges as recent as last week, there are concerted efforts to re-legalize initial coin offerings in the country. South Korean lawmakers are working on legislation that aims to lift existing bans on ICOs.

According to The Korea Times, a group of lawmakers is hoping to overturn the government’s ban on local ICOs that was enforced in September 2017.

Helping legitimate ICOs get on their feet

The cryptocurrency boom in the last two years has led to the launch of numerous ICOs around the world. Some have been revolutionary while others have been outright scams. As a result, it is becoming necessary for government and regulatory bodies to ensure firms developing blockchain-based solutions and products are operating in good faith.

A number of scams worldwide have left a bad afterglow, so any move to legalize ICOs needs to be done with care. Leading the charge is Hong Eui-rak, a member of the ruling Democratic Party of Korea. Addressing a forum on blockchain and ICOs at the National Assembly on May 2, Hong expressed hope that the bill would garner support and be passed this year:

“The primary goal (of the legislation) is helping remove uncertainties facing blockchain-related businesses.”

The bill will foster ICOs launched by public organizations and research centers that are developing legitimate products to further the evolution of blockchain. These ICOs will be closely scrutinized by the Korean Financial Services Commission and the Ministry of Science and ICT.

National Assembly speaker Chung Sye-kyun stressed the importance of the bill and its potential to alleviate political uncertainty that has hindered the adoption of blockchain technology and cryptocurrencies in the country:

“Blockchain and cryptos can be used in various public sectors for good causes. Given their potential, we need to work to help reduce political uncertainties they face.”

Financial regulator warming up as well

While lawmakers push for their bill to be cleared by the National Assembly, the South Korean Financial Supervisory Service is reportedly set to ease up on cryptocurrency regulations.

Recently appointed FSS governor Yoon Suk-heun was quoted by The Korea Times saying there were “some positive aspects” to cryptocurrencies. While he was reluctant to divulge regulatory details pertaining to cryptocurrency exchanges operating in the country, Yoon suggested that things were slowly being ironed out:

“There are a lot of issues that need to be addressed and reviewed. We can figure them out, but gradually.”

Regulations have a role to play

In an interview with Forbes in April, the CEO of South Korean exchange Coinone Cha Myunghun explained the need for government guidelines and regulations in the industry. Having founded the exchange from the ground up, Cha has seen his company grow along with the popularity of cryptocurrencies, which came to a head in 2017.

As the Kimchi premium had traders in a frenzy, government regulators were forced to take a stance on the industry. That led to calls for trading bans which were later rebuked, while the banks servicing Coinone and other exchanges faced inspection by government officials.

While there was talk of an all-out ban against cryptocurrency exchanges, it never came to fruition. Cha told Forbes that would have been a foolish decision:

“It’s inevitable for the government to be concerned with cryptocurrency. But extreme measures such as the shutdown of exchanges would be going too far against the global trends.”

However, Cha believes regulations should focus on illicit activities within the market. In the past, his exchange noticed suspicious activities but had no avenue to report concerns.

The Coinone owner and other influential cryptocurrency figures in the country have been actively working with government officials to educate and inform them of the benefits of blockchain technology.

Furthermore, in-country exchanges have worked to meet new national requirements — namely KYC procedures for traders, which effectively ruled out anonymous cryptocurrency trading.

A Bithumb official painted a less positive picture, explaining that the expected market reaction didn’t occur since banks weren’t actively inviting new traders to register as per the new government mandate:

“Markets expected the introduction of the real-name registration system would have been helpful to revive trading, but these efforts failed as local banks were reluctant to invite more crypto traders.”

That hasn’t stopped the likes of Bithumb from pushing for further adoption of cryptocurrencies.

The exchange operator has been actively deploying ATMs and kiosks that accept cryptocurrency at fast food companies and malls around the country. This follows in the footsteps of Coinplug, which had previously set up Bitcoin ATMs at two locations in Seoul, according to Huffpost Korea.

One of them was at popular cafe Sedona, based in the city’s biggest mall. The presence of the  ATM at the cafe led to crypto enthusiasts frequenting the location, which led to Bitcoin meetings and conferences being hosted at the cafe. This was back in 2014 when Bitcoin was still relatively unknown by mainstream society; Coinplug has since stopped creating and operating these ATMs.

Given the surge in popularity of trading in South Korea, Bithumb is breathing new life into the cryptoATM industry.

Move to foster blockchain development in South Korea

As Cointelegraph reported in March, the South Korean government will likely move swiftly to provide regulations that will foster the growth of blockchain technology while protecting consumers from ICO scams and fraud.

Talk of South Korean internet conglomerate Kakao’s plans to launch an ICO outside of the country may have forced the hand of in-country regulators. A positive stance towards cryptocurrencies and ICOs could encourage large firms to continue their projects inside the country.

Given the voracious appetite for cryptocurrency trading in South Korea, the government seems to be taking baby steps towards a stance that will benefit all parties involved.

Much like U.S. regulators are working towards positive regulatory measures, South Korea’s government and financial regulators seem to be warming to the idea of a healthy blockchain sector in the country.

Further statements from these various players will confirm this stance, but at this stage the outlook is now far more positive than it had been in the early months of 2018.

Regulators still probing

With that being said, the FSC is still keeping close tabs on local cryptocurrency exchanges, which have been subject to probes over the past week.

Local news outlet Chosun reported that UPbit, the country’s fourth largest exchange by 24 hour trade volume, is being investigated for alleged fraud. The FSC is looking into the bank accounts of a number of exchanges, including Bithumb, to investigate allegations of money laundering and fraud through cryptocurrency exchanges.

Chosun quoted an FSC official who laid out some of the allegations against UPbit:

“The FSC is collaborating with authorities in other countries. Our latest findings show that the domestic exchange faked its balance sheets and deceived investors. The FSC is checking UPbit’s computer system with prosecutors and the FSS to audit the exchange’s virtual currency holdings.”

The latest move comes at a juncture where there are calls for greater collaboration between regulatory bodies around the world. Nevertheless, FSC Vice Chairman Kim Yong-beom says regulators still see massive potential in cryptocurrencies, as reported by The Korea Times:

“Regarding the unique nature of cryptocurrencies, each country has its own assessment. That means an international discussion and cooperation among regulators to come up with policies on crypto-assets is necessary. We are seeing a steady development of blockchain technology thanks to its greater accessibility and efficiency. Because this technology has the potential to shake up today’s regulations on securities, regulators have to respond to such a looming challenge.”

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