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Let’s write some rules

Apr 20,2018
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Jung Kyung-min

*The author is a senior editor of business and industry news at the JoongAng Ilbo.

Encrypted chat app Telegram pulled in $1.7 billion from two private sales ahead of a public initial coin offering (ICO) to fund its own blockchain and cryptocurrency token Gram with an ambition to groom it as a formidable alternative to the already-established Bitcoin. The messaging platform offering greater privacy has earned a spotlight in the Korean media recently as the communication tool used between a partisan blogger called Druking accused of orchestrating an online opinion rigging campaign and a heavyweight politician in the ruling party. If Telegram launches an ICO vis-à-vis the public, it is expected to attract even more money from investors.

Telegram is not the only sensation among cryptoenthusiasts. According to CoinDesk.com, which is devoted to blockchain news, the number of ICOs surged from seven in 2015 — valued at $9 million — to 343 worth $5.5 billion last year. In just the first two months of this year, 92 offerings drew $3.1 billion around the world. At the current rate, ICOs will likely top the $7.5 billion initial public offerings (IPO) of Korean stocks that were the world’s eighth largest last year. Money and jobs are pouring into the ICO market.

Whereas a company goes public through an IPO, an ICO is a debut of a newborn cryptocurrency token. A company generating profit from a business can attempt an IPO, which requires it to undergo the scrutiny of government authorities, whose job is to protect the investing public. But ICOs can attract investors with nothing more than a business plan. Regulation is almost non-existent. Ether, second most sought digital currency after Bitcoin, was created by 19-year-old Russian-Canadian programmer Vitalik Buterin in 2013.

But with convenience and speed comes risk — big risk. The faddishness of cryptocurrencies invites scams and shady businessmen. The Seoul government last September banned any form of ICOs in Korea. But the ban has no legal grounds. It fell short of explaining who is in charge of regulating ICOs. That’s not all. Although its public offerings were prohibited, the government did not say anything about investments by individuals and enterprises.

This is why Korean individuals and enterprises take their coins to Switzerland or Singapore for exchange. Swiss authorities have acted fast to come up with ICO-specific regulations to support their bid to be centers for cryptocurrencies. The United States, Japan, Hong Kong and Singapore followed suit. They eased regulations as much as possible, except applying strict regulations to securities-type ICOs.

Ideas are percolating over how to fine tune the fundraising method for new-generation blockchain technology and its digital offspring. Ethereum founder Buterin came up with a new crowdfunding model dubbed Daico by incorporating the benefits of the Decentralized Autonomous Organization, such as openness and democracy, while minimizing the complexity and risk associated with ICOs.

The new open platform would keep watch on the developer so that it goes through with the project and does not hurt the integrity of the investment. The idea of the model is to place more power and authority in the hands of the crowdfunding contributors by allowing them to discuss how much funding is necessary for development periodically.

Blockchain and their crypto-output have become a global trend that no government can stop. Group of 20 economies have decided to come up with monitoring and regulatory guidelines for cryptoassets by July. The fever of the fad last year may have scared the Korean government, but speculation has fizzled out. Much of the hyped premiums over cyptocurrency tokens exchanged in Korea have been removed.

The time has come for authorities to build a framework for a cryptoenvironment for Korean start-ups. The work should not be left to bureaucrats who have as little knowledge about the digital coin mechanism as the general public, but rather include an advisory body of experts from home and abroad.