In recent days, domestic cryptocurrency exchanges have been labeled as ‘fraud’ or ‘scam’ since they have lost faith from investors after a series of hacking and embezzlement cases. Meanwhile, it is estimated that the number of exchanges is over 100 while the government has been making slow progress in making legislations on registration, report, licensing of domestic exchange. The rise in number is quite dramatic considering that it was only 50 to 60 just a few month ago.
There are two main reasons the number of exchanges do not cease to grow even after a recent market crash. Firstly, business opportunity in crypto exchange was proven to be solid during a market boom from late last year to early 2018. Second is there are no specific requirements to establish an exchange.
Online sales registration is the only requirement to start a crytocurrency exchange in Korea, which made it possible for literally anyone to set up a new exchange service. One absurd example this environment has led to is that a newly issued cryptocurrency is listed on the crypto exchange that was made by same entity as cryptocurrency issuers. It takes less cost to found a new exchange and list its own coins on it than to make it go public on a few major crypto exchanges. Moreover, these projects promote Token Generation Event through the form of IEO (Initial Exchange Offering) on the cryptocurrency exchange of their own.
This movement is deemed highly relevant to increased number of exchanges in Korean market. Since in these cases existences of the exchanges mainly lie in trading its own cryptocurrency, it is hard to imagine those exchanges to manage operation and security for the investors with integrity. In fact, only 50% percent of whole domestic crypto exchanges have shown meaningful size of crypto trade.
There lie considerable risks in cryptocurrency trading exchanges built for distribution of their own coins. The centrality where the exchanges and crytocurrencies are managed by the same entity adds up possibilities of crimes such as market rigging or embezzlement. It is possible to establish exchange with little safeguard, collect money from investors and vanish one day. What makes it even worse is that there is no institutional measure yet to protect the investors from various kinds of crimes related to cryptocurrency.
Korean government is picking up the pace to set up legislation on cryptocurrency that was left uncertain for long. According to Hyehoon Lee, chairman of Special Committee on the 4th Industrial Revolution, legislation of regulations on cryptocurrency will be put into action from the middle of December and now the committee is collecting opinions from related parties. It seems highly urgent for government to set standard and regulation in order to protect investors affected by poorly operated crypto exchange in Korea.
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