It’s no secret that Asia is a dominant force within the blockchain industry. In part, this can be attributed to the area’s drive to adopt, support and expand on blockchain technology.
And while Asia is generally crypto-friendly, legislative policies and development can vary widely across the region. This article will detail the current state of crypto in China, Hong Kong, South Korea, and Thailand.
- China supports blockchain technology
- Regulation is needed to make the blockchain space more efficient
- Exchange regulation in South Korea is poor
- Central bank digital currencies have the potential to end cryptocurrencies
In September 2017, the Chinese government banned ICOs and stopped fiat to crypto transactions. More recently, they further extended the rules so that all Chinese citizens, when using blockchain services, must report their real names and national identification information.
As well as that, the new legislation requires blockchain companies to allow inspection of user data, and to be pro-active in censoring information considered a “threat” to national security.
China – Adapting to Tough Regulations
As a result of this, most crypto exchanges closed their operations in China and moved to overseas locations. And even after leaving China, to appease the Chinese government, some exchanges continued not to offer fiat and cryptocurrency trading pairs, and others decided to incorporate stable coins as a workaround.
Although it must be said, none of this has had the effect of reducing demand. As a result of the crackdown, peer-to-peer trading platforms have soared in popularity. And for investors wishing to buy on an exchange, the use of VPNs, to bypass the Great Firewall, has always been an option.
China – A Paradoxical Stance?
There is much speculation as to why China has taken this hardline approach. Some say it’s about reducing risk exposure within the financial markets; others believe it was a move to clamp down on money leaving the country. Either way, most assume the underlying reasons are motivated by anti-crypto sentiment.
But in reality, the Chinese government fully embrace blockchain technology. They often publicize key blockchain announcements, such as the People’s Bank of China’s (PBC) recent expansion of blockchain and digital currency research. Indeed, the Chinese authorities view blockchain as a way to modernize China’s infrastructure.
This seemingly ambiguous position is explained through the split of cryptocurrency speculation from blockchain technology.
China – Practical Use
The city of Loudi, Hunan province, has launched a blockchain-based platform for real estate data recording. It aims to reduce bureaucratic processing time for citizens by integrating the departments of land, tax and real estate.
Taking things a step further, Ping An Insurance Group, China’s largest insurer, has signed a strategic cooperation agreement to build a “Smart City” on Hainan Island, located south of the China mainland. The whitepaper details the use of blockchain, artificial intelligence, big data, and cloud computing to serve future residents. It will make use of Ping An’s leading innovative technologies across critical sectors including administration, insurance, security, transportation, finance, education, healthcare, real estate, and environmental protection.
Hong Kong is a hotbed for financial tech innovation and a global leader within the blockchain economy. As a special administrative region, it benefits from different legislative rules than Mainland China – which is reflected in their liberal approach to cryptocurrency.
Hong Kong – Finance
The region is already an international financial centre, occupying third spot in the Global Financial Centres Index (GFCI). With New York and London taking first and second places respectively. Even so, blockchain technology in Hong Kong does have its critics.
A recent report by Hong Kong Exchanges and Clearance (HKEX) criticized Bitcoin for its poor scalability. The slow confirmations and low throughput mean only one block can be generated every 10 minutes. And with a maximum capacity of just 24,000 transactions per hour, the network is wholly inadequate in meeting the demands of high-volume trading.
Additionally, HKEX also talks about problems with the open nature of Bitcoin. Where network transparency poses a threat to privacy and data leakage, making regulatory requirements an issue. In its current form, using Bitcoin within an institutional setting would require regulators to make concessions.
Hong Kong – Supply Chain
At present, the shipping industry relies on paper documentation, which is inefficient and susceptible to fraud. However, in a bid to revolutionize the space, Modern Terminals Limited (MTL) has become the sole Hong Kong participant of TradeLens – a blockchain platform developed by AP Moeller-Maersk Group, in conjunction with IBM.
TradeLens allows users to see the entire supply chain from a single interface. It integrates the work processes of shippers, freight forwarders, importers and terminal operators. And with an estimated 240 million customs releases, invoices and bills of lading flowing through the Maersk system each day, the benefits of this system are apparent.
Keen not to get left behind, Crimson Logic, a Singapore-based firm, in conjunction with PSA International, are working on creating a rival blockchain shipping system – the Global eTrade Services (GeTS) system.
However, this situation raises the question as to whether competing blockchains will nullify any gains through incompatibility. While an industry standard is the best solution from an end user perspective, it’s unlikely rival companies would cooperate without regulatory intervention.
The South Korean crypto market benefits from robust infrastructure due to close ties to conglomerate groups. However, South Korea operates under some of the strictest regulations in Asia, but that doesn’t stop it from being the third largest digital exchange market in the world.
South Korea – Appetite for Crypto
By the end of 2017, South Korea accounted for a third of worldwide Bitcoin trades. In fact, during the last bull-run, demand for Bitcoin was so high, South Korean investors were willing to pay above market value, a phenomenon dubbed “the kimchi premium.”
Fast-forward to the present, and this trend shows no signs of changing. Even during this bear market, Bitthumb, the largest crypto exchange in the country, regularly sees spikes in its daily trading volume of BTC-KRW, which is the world’s second most liquid pairing after BTC-USD.
But why is demand for cryptocurrency in South Korea so high?
South Korea – Economic Conditions
Even though South Korea is a relatively large and prosperous country, the South Korean economy suffers from youth unemployment, which stood at 9.8% last year. In an attempt to address this, the government launched an incentivized program to hire young workers.
But under a highly competitive jobs market and a hierarchical societal structure, this has yet to prove successful. For young Koreans, who are disenfranchised with the system, cryptocurrency represents a rare chance at prosperity, which is a sentiment echoed across all sections of society — even the employed, who suffer low wages, despite the relative affluence of the country.
The country’s minimum wage currently stands at 8,350KRW per hour, which is equivalent to US$7.37. And inflation remains steady at around 2%. But, there was a time when inflation ran as high as 33%, and for those who remain cautious, cryptocurrency is seen as a way to hedge against the current system.
South Korea – Gaming Culture
Playing video games is a popular social activity in South Korea. Professional competitions with substantial prize money are often televised. And sales of games have averaged a 15% growth year on year since 2008. It’s clear that South Koreans see gaming as more than a leisure activity. With this in mind, the concept of using micropayments and digital tokens in gaming is already familiar to many. As such, the idea of buying and selling digital assets is merely a logical extension of this.
South Korea – Legislation
Legislation remains a significant point of contention in South Korea. In the recent past, the authorities have been widely criticized for their half-baked responses to national scandals. During this period, proposals failed to make it to legislature, and recommendations were not enforced by the National Assembly.
However, since the start of 2018, in a bid to address this, The Financial Services Commission (FSC) introduced its first concrete administrative measures. They announced bans on anonymous trading on domestic exchanges, as well as for foreigners and minors trading. And similar to the Chinese, they also set out requirements for bank account names to match exchange account names, and for exchanges to share users’ transactional data with banks.
South Korea – Scams
Before the authorities clamped down, rampant misconduct in the crypto-industry was rife. This led to some high-profile scams, including the Mining Max Ponzi scheme, which saw 18,000 investors swindled out of US$250million. There have also been multiple issues with exchanges, such as Coinnest embezzling millions of US Dollars from customers’ accounts.
This is further compounded by continual exchange hacks. During 2017, Youbit was hacked twice, resulting in the loss of 4,000 Bitcoins during the first attack, and bankruptcy following the second attack. And in June 2018, both Coinrail and Bithumb fell victim to hackers.
An industry-wide investigation showed the majority of exchanges were operating without adequate security measures. That being so, it’s a wonder how any investor can place trust in Korean exchanges.
South Korea – Exchanges
Confidence in exchanges remains low. Right now, around 100 exchanges are operating in South Korea. And despite more stringent crypto legislation, critics are calling for the government to speed up their legislative reforms on exchanges. The new proposals include the need to register, suitable financial reporting, and a licensing system.
At present, other than an online sales registration, there are no specific requirements to set up an exchange. Under this system, scammers have embezzled funds and rigged the market by creating fake cryptocurrencies for trading on their own exchange. Investors deserve better protection.
When thinking about blockchain in Asia, Thailand is not a country that immediately springs to mind. But since 2018, the Thai government has become increasingly warm to blockchain technology.
While U.S regulators continue to drag their feet, thinking about how best to deal with cryptocurrency, in just a few months, the Thai authorities have made significant headway in setting up cryptocurrency company licenses for exchanges and even ICOs. This position has seen a glut of foreign companies flocking to the region, including South Korea’s largest exchange, Bithumb. And IBM has also announced a deepening of their existing partnership with Thai bank Krungsri.
Thailand – Regulatory Cooperation
In the case of Thailand, the burgeoning crypto market is benefiting from a strategy of close cooperation with the authorities. This attitude stems from an approach by government officials to want to engage with the crypto-space. So much so, during blockchain meetups, it’s common to see senior Thai officials taking part in the proceedings.
Although Thailand has a way to go before it can be considered a crypto powerhouse, the signs for significant development are there. During the summer of 2018, the government legalized seven cryptocurrencies, those being: Bitcoin, Ethereum, Bitcoin Cash, Ethereum Classic, Litecoin, Ripple, and Stellar. While inviting additional projects to file for legal status. At the same time, it opened tender for cryptocurrency exchanges and brokers to apply for operating licenses.
Thailand – Stepping Up
As a sign of things to come, the Bank of Thailand also announced plans for a central bank digital currency (CBDC). They detail cooperation between eight participating banks, who are tasked with building out the infrastructure. The first phase will involve the development and testing of crucial payment features, including a liquidity-saving mechanism, as well as risk management protocols. This phase is scheduled for completion by early 2019.
The move for Thailand to implement a CBDC was unexpected. Although the concept itself isn’t new, few could have predicted that Thailand, a relatively undeveloped market, would attempt such a progressive move.
In fact, in recognition of the inherently crisis-prone banking system, the world’s central banks have already begun debating whether CBDCs should be implemented worldwide. But what might this mean for cryptocurrencies in general?
Thailand – The Beginning of the End?
The use of cash has steadily declined in favour of digital payment systems. Most digital payment services are still connected with traditional banking, and none depend on blockchain technologies. With that in mind, CBDCs are also unlikely to be combined with existing blockchain projects.
Under the present system, central banks rely on commercial banks to act as an intermediary. However, a CBDC system allows individuals and companies direct access to the central bank. This would effectively do away with the need for bank accounts, digital payment services, and cash. And with a monopoly position, this may also mean cryptocurrencies become irrelevant.
As a whole, the Asian crypto scene represents a diverse market at different stages of development. As the blockchain space develops, regulators across the board are implementing increasingly rigorous requirements in an attempt to legitimize the industry.
In terms of development, it’s clear that blockchain technology embodies the new wave of industrial development, to which all forward-thinking nations are keen to be a part of. While this article only covered a small sample of use cases, the truth is, blockchain technology is relevant to all aspects of modern society.
How things will pan out is unknown. But the crypto space is certainly stimulating debate as to what is best from a commercial and humanitarian standpoint whether this plays out as real positive change is yet to be seen.