Cryptocurrency exchanges in South Korea have gained official recognition as banks to boost their standing in the country.
Financial regulators will grant licences to set up exchanges as financial institutions, which will put them on the same standing as regulated banks.
South Korea’s government has taken the lead in protecting consumers while encouraging the cryptocurrency sector in recent years.
A slew of regulations and policies are in place with the aim of stopping regular exchange security breaches that put user data at risk and while cracking down on flaws that lead to hacking.
Already this year, exchanges Bithumb and Coinrail have seen losses running into tens of millions of dollars after falling victim to online heists.
Sting in the tail for winning recognition
The government was concerned that regulating the sector would be legitimising exchanges in the eyes of consumers, but the hacks triggered action to protect consumers.
Although the exchanges have won the recognition they have campaigned for, the move comes with a downside.
Now, exchanges must implement strict know-your-customer, anti-money laundering and other rules that govern banks as well.
Cryptocurrency exchanges will also have to beef up internal processes and security.
Exchanges will have to apply for banking licences, which are a lot more expensive than the $20 cryptocurrency exchange applications.
Decentralisation means cryptocurrencies are not regulated by a specific government and controls are fragmented and vary greatly between countries.
Governments crack down on exchanges
Japan treats cryptocurrencies as legal tender, but is alone among leading currency nations to do so.
China has a ban on cryptocurrency trading, while the US, UK and most European governments treat dealing in digital coins and tokens as investments.
The future of cryptocurrencies in the Eurozone is interesting to follow, as the EU will not allow any members of the single currency to introduce any competing legal tender.
Most governments are seeking to regulate exchanges as their preferred method of controlling digital currencies, rather than the cryptocurrencies directly.
Venezuela has introduced the petro– a cryptocurrency backed by the nation’s hard petrochemical reserves. However, the coin is boycotted by most investors as the government developed the petro as a sanction-busting tool against the US and other western countries.