Maybe it’s the language barrier, or the walls authorities have set up to prevent money from leaving the country. But whatever it is, South Korea has built its own unique corner of the cryptoverse that’s unlike anywhere else on the planet.
Doo Wan Nam, a MakerDAO delegate who co-founded the research and advisory firm StableNode, laughs as he describes how crazy the intense speculation and crypto gambling can get in South Korea. He says it’s a country where the price of stablecoins like Dai or USD Coin can sometimes trade sky-high because if the price starts to rise a little above the $1 peg for some reason, speculators will jump in on the momentum trade.
“They sometimes trade for $20 because they don’t know it’s a stablecoin,” he explains. “They go, ‘You know, it was trading at $10, I bought it because it was pumping… I don’t know, I didn’t read, I just bought.’”
“So, I think that kind of tells you whether people knew what Terra was.”
The spectacular $60-billion implosion of the Terra ecosystem, headed up by the charismatic but ultimately deluded Korean developer Do Kwon, casts a pall over the entire ecosystem.
Terra is also instructive about some of the unique characteristics of the crypto culture in Korea, which places less emphasis on decentralization and puts more trust in project leaders like Kwon.
Crypto is huge in this country obsessed with the latest and greatest technology. The capital city Seoul is a futuristic metropolis with massive high-res screens and blistering fast internet everywhere. Ten percent of the population owns cryptocurrency, and the government has unveiled an ambitious plan to transform it into the fifth-most metaverse-friendly country in the world.
South Korea technology
While English is taught in schools, few speak the language at a conversational level. This is true of many countries of course but helps explain why many Koreans aren’t plugged into the same information sources as crypto fans in the United States. Forget western social media and tech giants such as Reddit, Google, Twitter and Facebook — Google Maps barely works in the country and good luck getting an Uber.
Instead, South Koreans access the internet, chat, search, order food and call for rides using local giants Kakao and Naver.
“More than 90% of Koreans are using (social media app) KakaoTalk every day,” explains Sangmin Seo, who prefers to go by Sam. He’s the representative director of the Klaytn Foundation, Kakao’s blockchain and metaverse offshoot. “Naver is the most dominant search engine in South Korea. Google’s share is about 10%–20% and 70%–80% of the market share for search engines is Naver.”
Founded in 2011, Kakao is now the 15th-largest company in a country that’s dominated by around 40 mega-corporations. Samsung, LG, Hyundai and SK together account for half the local stock market’s value, while Samsung produces one-fifth of the country’s exports alone.
Zerocap analyst Nathan Lenga has researched the South Korean ecosystem in detail and explains there’s a whole other crypto world bubbling in the country. He cites blockchain-based video game and Roblox competitor Zepetto.
“People haven’t really heard about it, but it has 20 million users (a month), which is mindblowing,” he says.
“There’s this whole other side of crypto that we just don’t hear about that’s based on Asian culture. And that’s all originating in South Korea, and that’s why they’re such adopters — because they have their own versions.”
2017: South Korean crypto news
Seonik Jeon, CEO of Financial News and founder of Factblock, says that prior to 2017, the only time South Korea made international news was when North Korea was firing missiles.
“However, as the blockchain market began in Korea, around 2017 and 2018, the amount of searching for blockchain and Korea together increased significantly,” he explains.
Observers were fascinated by the speculative cryptomania that saw South Korea become the world’s third-largest crypto market in 2017. Bitcoin sometimes traded up to 20% higher in the country (also known as the famous “Kimchi premium”) due to capital controls introduced after the 2007–2008 global financial crisis to stop money from leaving the country.
Many tried and failed to exploit this mouth-watering arbitrage opportunity, including crypto’s current main character Sam Bankman-Fried — but a handful succeeded.
Cryptocurrency and gambling
Korea’s relationship with crypto is tied up in its complicated relationship with gambling, which is mostly outlawed for locals (except lotteries and horse racing). A study from the Korean Center on Gambling Problems suggests the average Korean is two to three times more likely to suffer from gambling addiction than other nationalities, and gambling is seen in a very negative light.
“Gambling itself is illegal in Korea, so a lot of people with gambling or a speculative [nature] then tend to go into stocks or crypto,” says Nam. “Crypto is very fast, high risk, high reward.”
Nam got into the space during the initial coin offering boom of 2017 after finishing his military service and joining a blockchain company.
“It was quite crazy. In Korea, it was very, very, highly speculative. Like, there were people literally — especially middle-aged or the elderly, who didn’t know much about blockchain — they just had money, and they go to different events and say, ‘I want to invest; how can I invest?’”
South Korean authorities banned ICOs toward the end of 2017, and news reports at the time claiming it was mulling a complete ban on crypto sent Bitcoin’s price plunging in January 2018 from a record high in December 2017.
Crypto bull run
The complete ban never happened, though, and there was a huge surge in adoption in 2021 due to skyrocketing prices that put the ICO boom to shame. According to Korea’s Financial Services Commision (FSC), at the beginning of 2021, just 1.9 million citizens owned cryptocurrency. By the end of the year, that number had grown by almost 200% to 5.58 million active traders across 15.25 million exchange accounts. Trading volume surged by 700%.
The FSC put the country’s digital asset market cap at 55 trillion won (currently $40,719,445,990), making it the seventh-largest country in the world for crypto ownership by market capitalization. Lenga attributes the surge in adoption to the 2021 bull run and the successful presidential campaign of Yoon Suk-yeol, which was strongly pro-crypto and even released a nonfungible token collection for supporters. Yoon took office in May this year.
Jeon, however, believes that tech-loving millennials are behind the surge.
“I believe the popularity of crypto in Korea is largely due to the younger generation’s curiosity and willingness to try new technologies,” he explains.
“The millennial generation here is often called the mobile native generation due to their familiarity and acceptance of technology. They are enthusiastic and passionate and ready to quickly accept and adapt to changes and development in areas such as blockchain, Web3, NFTs and GameFi.”
Growth slowed the following financial year (to June 2022), adding just 13.2% more transactions.
South Korean crypto exchanges
The surge in adoption in 2021 was accompanied by new licensing laws brought in around September that effectively banned the vast majority of crypto exchanges in the country. Each provider was required to get approval from both the Korea Internet and Security Agency and the FSC, and the 63 exchanges operating in the country were cut down to just a handful, including Upbit, Bithumb, Coinone and Korbit.
“They have almost complete domination over the crypto industry,” says Lenga. “Once the new president starts to introduce more positive regulations and legislation in South Korea, I think that more diverse exchanges will come back. But most of them are just gone forever because they weren’t allowed to survive.”
Although viewed as overreach by many in the crypto community outside of Korea, inside, there was more acceptance of the need to clean up the industry, which Jeon said was fiercely competitive.
“In this small market, there was a competition for listing coins between exchanges, and all these scam coins were listed, which sometimes caused damage to investors,” he says.
“Many insolvent coins that did not have proper business feasibility were sorted out. And it was an opportunity for investors to invest in a safer environment.”
Nam puts the blame more on the banks than the government and points out that while 40 different exchanges were approved on the government’s side, “the ones that passed the bank’s side was only five,” he says. Exchanges needed a banking partner to get fiat in and out, and few banks were willing to do business.
Another much-discussed regulatory issue surrounds crypto taxes, with longstanding plans to charge an additional 20% tax on crypto capital gains. Originally due to be implemented in January this year, it’s been delayed to 2025 and may never happen.
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Jeon says the government is feverishly studying the industry to understand it properly and regulate it effectively. “Once they have these regulations ready, I think many companies are ready to jump into crypto,” he says.
With the collapse of FTX following so quickly after the fall of Terra, reports emerged this week that the FSC is looking at bringing in new regulations to keep customer deposits separate from exchange assets and to regulate exchange tokens more strictly.
Korean technology: Decentralization
Probably the biggest difference between the crypto community in South Korea and in the West is the lack of emphasis — and ideology — around the importance of decentralization.
Nam explains that while American conceptions of crypto are built around ideas of self-sovereignty and decentralization, “not your keys, not your coins,” those sorts of ideas are not widely embraced in Korea.
“We’ve done a lot of surveys and research, and most Koreans don’t really access crypto from, let’s say, MetaMask. Most of them just put it in the crypto exchanges, and they never withdraw to [a wallet]. In fact, we have some surveys and realize that a lot of them don’t even know [private cold wallets] exist.”
As a result, decentralized autonomous organizations are an alien concept to many, and decentralized finance (DeFi) adoption is not as widespread. This is common to the East Asian region according to recent data from Chainalysis, which shows that just 28% of transaction data is related to DeFi. That’s lower than any other region apart from Eastern Europe and miles behind North America’s 43.3%.
Nam explains that there’s a level of trust and faith in centralized projects with identifiable leaders that western crypto enthusiasts simply doesn’t share.
“They kind of believe in this having single leadership — we kind of saw with Terra as well. Despite the fact that they were very big, we saw that Do Kwon had a lot of power, and he was able to hold sway within this ecosystem, which, for more decentralized protocols, might be criticized but, at least within Korea, felt like it was very natural,” he says.
“It doesn’t really have this strong ideal of libertarianism; it’s seen more as a company or another form of cooperation. And second, there’s still a lot of faith in traditional institutions. Ironically, that was the reason Ripple became really popular in Korea,” Nam adds.
“From their side, they believe it’s better to trust a centralized entity than themselves.”
Sam, however, says that is starting to change — and he believes it must change to embrace the opportunity fully.
“Kakao and Koreans also care about decentralization, and we believe that our world will be more decentralized in the future, but we need time, and we need to educate people about the power of decentralization and how we lose from decentralization and what we get from decentralization,” he stated.
Keep an eye out for part 2 which will explore South Korea’s fascination with gaming, its blockchain game industry and ambitious plans to dominate the metaverse.
Update: Clarified there were 5.58 million crypto traders in 2021 and 15.25 million exchange accounts.