No Participation from Upbit... If Partnership Fails, Remittance Between Upbit and Other Four Major Exchanges Becomes Difficult
Trading with 'Binance,' Which Does Not Adopt Travel Rule, Also Challenging
On the 8th, CODE, a joint venture for the Travel Rule by Bithumb, Coinone, and Korbit, held a press conference at the Korea Press Center in Jung-gu, Seoul, announcing the status of its proprietary solution integration and its vision. (Provided by Bithumb)
[Asia Economy Reporter Gong Byung-sun] The Travel Rule created by CODE, a joint venture of the four major domestic cryptocurrency exchanges Bithumb, Coinone, and Korbit excluding Upbit, is about to be introduced. However, due to different Travel Rule systems among domestic exchanges and varying regulatory adoption statuses by country, domestic investors are expected to experience inconvenience.
According to the industry on the 9th, Cha Myung-hoon, CEO of CODE, Bang Jun-ho, Vice President of Bithumb, and Jin Chang-hwan, Compliance Officer of Korbit, attended a press conference the day before to disclose the current status and roadmap of Travel Rule-related solution development. CODE plans to complete the final Travel Rule test in December and implement it in January next year.
What is the Travel Rule?
The Travel Rule is a system that mandates virtual asset service providers to verify the identity of traders and share related information with other service providers involved in the transaction to prevent money laundering. When the Financial Action Task Force (FATF) announced regulatory recommendations related to cryptocurrencies in June 2019, the Travel Rule was introduced domestically as well.
The Travel Rule, which will be fully enforced from March 25 next year, imposes obligations on virtual asset service providers, so investors do not have any special tasks to perform. However, when trading cryptocurrencies through exchanges, investors should be aware that exchanges store their identity and wallet address information. Additionally, if withdrawing more than 1 million KRW to another exchange, the investor's personal information will be provided to the other exchange. However, peer-to-peer (P2P) transactions are not subject to the Travel Rule as they do not go through virtual asset service providers, i.e., exchanges.
Where is Upbit?
When CODE was first established, Upbit was also scheduled to co-design the Travel Rule. However, in July, Upbit decided not to participate, citing concerns that the alliance of some service providers could be perceived as a joint action. It is presumed that since Upbit already held a high market share, it judged that it did not need to bear the risks associated with the joint venture.
Currently, Upbit operates a Travel Rule system called ‘VerifyVAST’ developed by Lambda256, a blockchain service subsidiary of Dunamu. This system currently has over 20 domestic and international member companies, and domestic exchanges such as Hanbitco and Aprobit are also using it.
What issues should investors pay attention to?
The relationship between Upbit and Bithumb, Coinone, and Korbit is expected to become a key issue going forward. While the difference in systems is a problem, the core of the Travel Rule is that customer information must be shared. If there is no willingness to share information, investors will find it difficult to send or receive cryptocurrencies between Upbit and the other four major exchanges. Investors are thus facing inconvenience amid the discord among exchanges that began in July.
It is also pointed out as a problem that trading with overseas exchanges will become difficult. According to the Enforcement Decree of the Specific Financial Information Act, domestic virtual asset service providers cannot transact with virtual asset service providers that have not implemented the Travel Rule. However, the overseas exchange most favored by domestic investors, Binance, has not adopted the Travel Rule. Earlier in September, Binance gave up on registration ahead of the virtual asset service provider registration deadline. Since the degree of FATF compliance varies by country, domestic investors are expected to experience inconvenience when remitting to overseas exchanges.
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