It is known for kimchi and taekwondo, for giant conglomerates and for a wave of pop culture that has flooded markets around Asia – but South Korea may soon gain a new sobriquet.
Korea is “the holy land of crypto,” said Simon Kim, chief executive of Hashed. “The global audience is watching this industry and talking about the mainstreaming of crypto – but it really is part of the mainstream in Korea.”
To back up his contention, he noted that the volume of transactions last autumn actually outpaced stock-market transaction volumes. Such volumes are way beyond those seen in other markets.
“Korea has the highest transaction volume per capita – four times the US, 30 times that of China – and that led to the ‘kimchi premium’ for Ethereum,” added Lee Sin-hae, a partner in Block72. “Right now, liquidity globally has gone down a lot, but Korea will remain as a top trading country, with about 20% of transaction volume.”
The take-up of cryptos, and their underlying technology, blockchains – decentralized, open digital ledgers – is driven by on-ground conditions. South Korea boasts a best-of-breed high-tech infrastructure, sky-high penetration rates of high technologies, a faddish, early-adopter culture and a fistful of leading global brands.
Even so, those attending the Beyond Blocks conference, held in Seoul’s Hotel Shilla this week, learned that Korea’s crypto and blockchain sector is not all milk and honey.
It is home to a top-heavy economy and a risk–averse entrepreneurial culture, while its speculative approach toward the sector has made the country heavy on the liquidity side, but light on engineering innovation and commercial development.
Getting off the ground
Kim suggested the key factor that got the sector off the ground was the impeachment of (now jailed) president Park Geun-hye after a corruption and influence-peddling scandal. With the scandal breaking out in autumn 2016 and the next president being elected in spring 2017, there was half a year of political paralysis that engendered a regulatory vacuum.
“That is why Korea was not able to implement strict regulations, so we followed the market,” Kim said. “Back then, my friends in the US said it was not possible to buy a large sum of cryptocurrencies in the US – but it was possible in Korea due to the lack of regulation.”
Unleashing the flood of cash into the sector were the restrictive borders around traditional investment destinations, and the gambling-style approach some Korean investors take.
“Korea is one of the top futures and options trading markets in the world, but lots of investments in Korea focus on real estate and domestic securities, and these markets are getting squeezed,” Block72’s Lee said. “Most gambling is not legal in Korea, so people who have a high risk tolerance want some quick bucks” – hence the soaring investment in cryptos last year.
Another cultural issue is the speed of fad dissemination. “Forty percent of the population live around the Greater Seoul area, so when a new trend is introduced, the permeation rate is so much quicker than in other countries,” Kim said.
Koreans have been leaders in the mass adoption of a number of digital trends: digitization of music, peer-to-peer music sharing, MMORPGs (mass multi-player online role-playing games), online gaming leagues, monetization of game content, and social-media virtual goods such as avatars. “Korea is very future-oriented,” Kim said. “Many digital trends were proved by Korea.”
These trends rest on a solid foundation of infrastructure. South Korea boasts some of the fastest Internet speeds on Earth and some of the highest smartphone penetration rates. “Korean people do not hesitate to buy digital content, it is part of life,” Kim said. “In terms of app-store revenues, Korea is the fourth-largest in the world, though we are the 12th-largest economy.”
Even so, while South Korea has often led the world in digital behavior, it has often lacked the marketing nous to develop world-leading platforms beyond Korea/the Korean language space. Jon Choi of the Ethereum Foundation noted that Cyworld preceded Facebook, but then disappeared, while Korean gaming firms also lost their early global crown to foreign rivals.
Driving adoption: business and government
And even in Korea, there is virtually no experience of adding the flesh of the nascent technology onto the bones of existing businesses. “Samsung and LG were quite skeptical – ‘Is there a usage case?’ ‘Will it make a difference?’” said Ericka Kang, CEO and founder of KryptoSeoul. “But the perspective is changing: They are interested in learning about new projects.”
That did not stop the country’s major conglomerates from being conspicuously absent at the Beyond Blocks conference. But significant Tier 2 Korean companies did appear and present.
One was Kakao, which runs South Korea’s leading mobile messenger, Kakao Talk. For smart Korean companies, swift adoption of blockchain could springboard them beyond local borders and into the global sphere.
“We want to create a new blockchain platform and create new services to mount on the platform,” said Jason Han, CEO of Kakao’s blockchain subsidiary, Ground X. “We don’t want to do it just in Korea, we want to do it on the global stage.”
Kakao offers messenger services to some 96% of Korean smartphone users, and has beefed up its offerings with music service Spotify, taxi-hailing service KakaoTaxi, Internet banking services and a mobile cryptocurrency exchange (which holds the second-largest share in the crypto exchange services market domestically). Given this range of business, Han reckons he has not only the community, but also many directions to expand in, in what he calls “the token era.”
Still, Kakao may have to employ some crafty strategies to own the space, Han admitted. “We need to compete with existing market leaders in blockchain – we need to borrow or steal!” he said. “To totter into new territory, blockchain can be a good tool, as it has the capacity to disrupt existing markets. So we thought it was a worthwhile technology to invest in.”
From Han’s perspective, all assets can be digitized, tokenized and assetized, he said. “After tokenization, all assets can be further segmented and traded, and that kind of new structure can be created at this time,” he said.
He hopes that other companies will also move forward in the space. “Can we upload our business to blockchain? There is no experience of large companies adopting it,” Han mused. “Usually, large companies are first movers and others are followers. This is why Kakao is aggressively moving into blockchain – to show them.”
In addition to Kakao, Web portal Naver and game company NCSoft are known to be developing platforms, conference goers were told. But it is not just tech companies. More traditional sectors are also seeing the benefits.
MediBloc has set up an association with Korean hospitals and healthcare startups to facilitate health-data transfers via MediBloc’s platform.
“Health-care provides are conservative players, but even these conservative players are looking into blockchain and are trying to find suitable partners,” said Allen Kho, MediBloc’s co-founder. “They see this as a big chance to improve their own services, and think of having a chance to make their own services global through this tech.”
Moreover, there is also interest in utilizing blockchain and crytpos in public service – which would have the collateral benefit of removing the speculative aspect from the sector, making it more approachable for the general public.
“Lots of local cities and governments want to issue their own cryptos,” Kho said. “Recently, the mayor of Seoul announced an ‘S Coin.’” The token, which would not require an initial coin offering, would be used as mileage or points for Seoul city services.
Where Seoul goes, the rest of the country follows, and other local governments are also looking at the possibilities. “They are willing to open their infrastructure to all these blockchain projects,” Kho said.
Barriers to blockchain heaven
Even so, Korea is hardly perfect. For one thing, the overwhelming weight of the sector has been on investment – if not rampant speculation – rather than development or innovation.
That point was alluded to by Alex Shin, chief business officer and partner at Hashed, who introduced himself to the conference by saying, “I have one foot in the Bay Area, where the technology came from, and one foot in the most speculative market in the world” – the latter being Seoul.
However, there are moves toward maturation. “The developer community is growing here,” said Ericka Kang, CEO and founder of KryptoSeoul. “It used to be about speculators and retail investors.”
Ethereum Foundation’s Choi indicated another problem – one that many expatriate businesspeople point to in Korea: the high price of failure, and resultant risk aversion.
Korea Inc was created by huge companies with high political connections that were offered privileged, and in essence risk-free, sources of money. But small players have minimal access to capital, and entrepreneurs lose their creditworthiness after a single business failure – a situation that leads commentators to note that Korea simply cannot incubate a Steve Jobs or a Bill Gates.
“A little bit of risk-friendliness would encourage blockchain innovation,” Choi suggested. “Reward risk and venture into the unknown – there is a lot of difficulty around that in Korea.”
A global blockchain test bed?
Could South Korea become the blockchain world’s premier test bed? Conference discussants were keen to offer some ideas for promote the idea.
Choi proposed one way for the country’s conglomerates, with their globalized operations and vast economies of scale, to grab immediate presence in the sector. “If they work together as set of conglomerates to take over a vertical – say, a supply chain – they can leverage existing economic activity rather than fighting for market share,” he suggested.
He also reckoned gaming could be a breakthrough sector. “Korea has amazing gaming companies, and if they can take the lead on how to manage open-asset ledgers, that could be a way for Korea to get to the forefront,” he advised.
Essential engineering expertise may appear from the national brain trust: higher education. “Lots of universities now have blockchain clubs: Seoul National, Yonsei, KAIST,” or Korea Advanced Institute of Science and Technology, said Lee of Block72, citing the country’s leading learning institutions. “We have bright engineers now who want to learn about the technology.”
And the public sector – which led South Korea’s first industrial revolution, by creating infrastructure projects, then lending capital and directing private manufacturing firms into related industrial spaces in the 1960s, a model that was used in the second industrial revolution, when the public sector played key roles in the broadband and mobile infrastructure – may take a leading role.
The City of Seoul is preparing policies to lure global blockchain expertise to the metropolis. “The mayor of Seoul wants to make Seoul the capital of blockchain, to bring foreigners here,” Kho said.
And with blockchain all about decentralization and communities, South Korea is well placed.
“In Korea, there are so many users – 50% of white-collar employees are aware of, and have experienced, the surges and plunges of the crypto market,” said Kim of Hashed.
These high levels of public awareness and involvement in the sector could be Korea’s biggest strength.
“Since last year, there is a lot more awareness of Bitcoin and blockchain – more than in the US or China,” said Ethereum Foundation’s Choi. “If there is going to be an early adopter, Korea is on the short list every time.”
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