SINGAPORE _ Korea's financial regulators face growing calls for more effective measures to regulate illegal activities surrounding virtual currencies such as Bitcoin, after many investors suffered massive losses in the wake of a server shutdown of Bithumb, Korea's largest cryptocurrency exchange.
With the exchange losing trust, experts suggest Korea's financial regulator, the Financial Services Commission, consider introducing guidelines for transactions of digital currencies because there are no means to protect investors from cyberattacks on virtual currency exchanges.
"Financial regulators should introduce guidelines for traders who self-regulate themselves and protection of investors," said an executive from a Korean IT company, declining to be named.
How to prevent the side effects of virtual currencies is now emerging as the biggest headache among financial regulators around the world.
Cryptocurrency was one of the hot issues at the 2017 Singapore FinTech Festival held Nov. 13 to 17. The week-long global event attracted more than 25,000 participants, including regulators, policymakers and industry experts.
At an opening speech, Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), said the city state welcomes virtual currencies as an innovation that can reduce the cost of financial transactions.
He said that MAS does not regulate cryptocurrencies themselves but controls the activities that surround virtual currencies if those activities pose specific risks.
"First, virtual currency transactions could potentially be exploited for money laundering or terrorism financing due to the anonymous nature of the transactions," he said.
So he said intermediaries in virtual currency services will be subject to anti-money laundering requirements.
"Second, virtual currencies can go beyond being a means of payment to representing ownership of assets, as we see in many Initial Coin Offerings or ICOs."
He believes this makes them look very much like a share or bond certificate. "So, if the digital token is structured like a security, then the ICO must meet the requirements of the Securities and Futures Act. This is to protect investors."
Experts are split over how to treat cryptocurrencies but they share the view they are more of a commodity than a currency.
In the U.S., virtual currencies are treated as commodities and subject to relevant regulations. Bitcoin applicants that meet the regulatory and statutory requirements will be granted licenses under the U.S. Futures Exchange.
At the Singapore conference, Chris Giancarlo, chairman of the U.S. Commodity Futures Trading Commission (CFTC), said markets should be durable rather than stable because stability may not be as paramount as durability in enabling the evolution of markets.
Addressing Bitcoin, Giancarlo called for market players to treat it like any other emerging technology and have regulators consider it in a technology-neutral fashion.
Standardized protocol
Joi Ito, director of MIT's Media Lab, said Bitcoin will see "standardized protocol" in the near future.
Ito's concern is that the rate of technology advancement is not keeping up with the rate of investment.
"We are currently building on top of a stack which is not firmed up from a protocol perspective," he said.
"We need to think about how to make the underlying system better, instead of simply handing the system to entrepreneurs to build and scale."
Experts say now is time to start regulatory discussions about blockchain, a public ledger of all cryptocurrency transactions. Blockchain technology powers Bitcoin and other virtual currencies.
V. Laxmikanth, managing director of Broadridge Financial Solutions, said most of the regulatory discussions today still revolve around cryptocurrencies and have not yet covered the other enterprise applications of blockchain.
He said, "Countries which are ahead of the regulatory curves will have an edge."
To this end, Korea's financial policymakers and regulators are advised to study initiatives such as the Global Blockchain Business Council, the Blockchain Alliance and the Global Blockchain Summit.