Blockchain and cryptocurrency seems gradually being separated. Blockchain technology is fostered under the leadership of government, but cryptocurrency is strictly excluded. As regulations and taxation measures are materialized, the industry is worried that the market will not contract further.
Recently, Korean government announced the New Deal policy. Blockchain technology was also discussed in the New Deal policy for the 4th industrial revolution such as 5G and AI. Blockchain will be introduced on areas with high public sentiment, such as prevention of duplicate benefits, online voting, and a real-time information sharing platform for port operations.
Under the initiative of the government, blockchain technology was grafted into real life, but cryptocurrency was excluded in a way cryptocurrency may not be used at all. Blockchain technology have not been implemented in areas where token economy can be realized. This is a glimpse into the government’s clear tone on cryptocurrency and blockchain.
The industry claims that blockchain technology without token economy cannot be viewed as true blockchain. Because without tokenization, a system controlled by a limited number of people, decentralization cannot be realized. An official from a blockchain project said, “The true value of blockchain is voluntary participation through decentralization and reward. Blockchain without decentralization cannot take true value and meaning.”
The core value of the decentralized blockchain is voluntary participation. And ‘reward’ is necessary for voluntary participation. Blockchain pays this in ‘cryptocurrency’. On the other hand, private blockchains are operated by the parties by participating in the blockchain. No token is required as a reward for participation.
Regulation on cryptocurrencies are being materialized by the policy of separating the usage of blockchain technology and cryptocurrencies. There are voices of concerning that cryptocurrency market may further shrink. Recent amendment on “Reporting and Utilization of Specific Financial Transaction Information Law” and taxation on cryptocurrency will eliminate the advantage of the cryptocurrency market.
FIU is in full swing in enacting the “Reporting and Utilization of Specific Financial Transaction Information Law” that recently passed the National Assembly in March. Considering the revision procedure of the Enforcement Decree, a draft Enforcement Decree should be issued in the third quarter of this year to be active in coming March. FIU said through seminars, etc., “There are continuous opinions being discussed for the industry. However, the business situations in the industry cannot be ignored that how it will actually be enacted is unknown.
The industry expects that many cryptocurrency exchanges will close when the Reporting and Utilization of Specific Financial Transaction Information Law is implemented next year. Exchanges that have been denied due to their inability to meet the reporting requirements or judged to be unsuitable by FIU will shut down. It is possible that only few large exchanges will remain. The place where investors roll their money is bound to shrink significantly. An official from an exchange said, “The Reporting and Utilization of Specific Financial Transaction Information Law is likely to constrict cryptocurrency industry. He also mentioned, “it is difficult to process the promotion law. Things can be more difficult in the future.”
Cryptocurrency tax law was included in the tax reform and it is also expected to shrink the market. On the 21st, Ministry of Economy and Finance’s 2020 tax law amendment was released. According to the amendment, the profit from exchanging cryptocurrency will be determined as other income, and the tax rate will be set 20% of the profit. Though profit less than 2.5 million won in one year will not be taxed. The revised tax law will take effect next year.
The stock market’s tax rate is also 20% of the profit. However, the non-taxable amount is 20 million won a year. There are clear difference in amount compared to the cryptocurrency market. An industry official said, “If this taxation scheme is applied, the cryptocurrency market is no longer an attractive investment destination. If the investment does not turn, the industry will have to stagnate. The reorganization of the tax system may kill the industry.”
Are the amendment, there was a national petition, raising the case of the stock market over the proposed revision of the tax law. The petition said, “We don’t understand what government thinks is the difference between the stock market and the virtual asset market. Comparing the standard assessment of stock market to that of virtual asset, it is unfair.”