Bitcoin Regulation Act
A bill to protect investors by subjecting virtual currencies such as Bitcoin to the regulatory system in Korea will be pursued by the political world. An amendment to the Electronic Financial Transactions Act was proposed. The amendment demands that an entity should receive approval from financial authorities when operating a virtual currency exchange such as Bitcoin and Ethereum or issuing, selling, brokering and managing virtual currencies.
In particular, the amendment mandates the deposit of investments or damage compensation insurance as a device to protect virtual currency investors who emerged as a target of cybercrimes. The amendment also includes a punishment provision for the prevention of market manipulation and money laundering through virtual currencies. The so-called "Bitcoin Regulation Act" will be reviewed and discussed at a regular session of the National Assembly this year.
According to the political world on July 1, Park Yong-jin, a lawmaker of the Minjoo Party proposed an amendment to the Electronic Financial Transaction Act that protects users of virtual currencies by stipulating the definition of virtual currency and duties to protect users and prohibited acts.
Bitcoin became a target of cybercrimes which demanded Bitcoin after hacking or ransomware infections targeting virtual currency exchanges such as Bithum, when its value skyrocketed from 1,216,000 won to 3,177,000 million won at the beginning of this year. Multi-level marketing scams through fake virtual currencies took place. However, virtual currencies have been in the blind spots of government regulations so investors have been forced to wait for police investigations or to file civil lawsuits on their own.
The amendment aims to license virtual currency traders and put them within the boundaries of law by defining a virtual currency as an "intermediate means of exchange" or "electronic storage value." This move is in the same context as an action to mandate the approval of virtual currency business operators taken by the New York State of the United States in June 2015.
First, the amendment proposes that virtual currency handlers are classified into "virtual currency traders", "virtual currency dealers", "virtual currency brokers", "virtual currency issuers", and "virtual currency managers". A virtual currency handler has to have 500 million won or more in capital and receive approval from the Financial Supervisory Commission. In addition, virtual currency exchanges such as Bithum put users’ virtual currency deposits in a separate depository institution or sign compulsory insurance contracts to cover damages to users.
The amendment also prohibits the sale and brokering of virtual currencies through door-to-door and multi-level salespeople. It also strictly prohibits illegal acts with virtual currencies such as such as manipulation of market prices and money laundering using virtual currencies. A violation of the above-mentioned items can carry a prison sentence of up to five years or a fine of up to 50 million won. The amendment also says that virtual currencies are different from real currencies.
The Bitcoin Regulation Act is scheduled for a regular session of the National Assembly in September with a growing debate foreseen. However, it is said that financial authorities should carefully consider effects on the market when they begin to regulate Bitcoin using blockchain technology as no country began to regulate virtual currencies except for Japan and the US.