[New Wave] How Cryptocurrency Policies Should Be Properly Established

"Priority Must Be Given to User Protection"

[Asia Economy] During the past cryptocurrency boom, I once posted the following on social networking services (SNS).

"Satoshi Nakamoto, who had the best Jjajangmyeon recipe (blockchain technology), issued coupons (Bitcoin) to attract customers. At first, customers came for the coupons but were impressed by the taste of the Jjajangmyeon and became regulars. As a result, those customers gradually obtained more coupons, creating a virtuous cycle that helped the Chinese restaurant thrive. When Satoshi's Chinese restaurant became a so-called 'big hit,' other restaurants could not help but be stimulated. Each of them devoted themselves to developing their own recipes (better blockchain technologies) and created new coupons (different types of cryptocurrencies) to sell them.

However, suddenly rumors spread that the coupons were worth a huge amount of money, and people began hoarding them. Nobody cared which Chinese restaurant the coupons were from or how the Jjajangmyeon tasted. People caught up in the frenzy were obsessed with buying and selling coupons at a premium rather than eating Jjajangmyeon and collecting coupons. Consequently, even restaurants without special recipes started printing coupons recklessly. When the government belatedly realized the seriousness of the situation and tried to regulate the coupons, it was not the restaurants with good recipes but the coupon exchanges that complained, saying, 'Coupons and Jjajangmyeon are inseparable, so regulating coupons would make it difficult to develop Jjajangmyeon recipes.'

The situation has not changed much even now. According to a survey conducted in February by a U.S. data collection and analysis company targeting 750 cryptocurrency investors, 33.5% said they had 'no knowledge or were beginners' in cryptocurrency, and only 16.9% of investors responded that they 'fully understood its value.'

Due to abundant liquidity and the emergence of DeFi (Decentralized Finance) and NFTs (Non-Fungible Tokens), the current cryptocurrency market clearly has stronger momentum and fundamentals than during the previous boom. However, even so, the price increase is too steep compared to the intrinsic value, and it is also true that victims of cryptocurrency investment fraud are increasing. Therefore, I would like to make the following requests to the government and related industries.

First, since issues like cryptocurrency involve complex interests among stakeholders, it is very difficult to consider all current issues simultaneously, so prioritization is necessary. At this time, the top priority should be user protection rather than industry activation.

Second, since the market always knows the answer, policies should be based on negative regulation, that is, private self-regulation. However, since responsibility always accompanies autonomy, measures to impose strong liability for damages in case of accidents should also be implemented simultaneously.

Third, related associations and civic groups should not blindly represent the interests of related companies but should strive to explain various pros and cons, foreign trends, and other information objectively and from an expert perspective to help the market develop self-regulation capabilities and explain them at the level of ordinary citizens.

Finally, if the government wants to take a more active role in presenting related guidelines, the related industry must show a willingness to accept them even if the guidelines are somewhat strict. Selective acceptance, only embracing what is favorable, is not acceptable.

Cryptocurrency and blockchain are undoubtedly seeds that can bloom into splendid flowers. However, that does not mean they should grow by feeding on people's tears. It is urgent to establish cryptocurrency policies centered on user protection.

Professor Kim Seung-joo (Chair, Department of Cyber Defense, Korea University)