The Justice Ministry of South Korea has disappointedly reported that its economy incurred losses worth approximately $2.3 billion in cryptocurrency-related hacks and thefts between July 2017 and June 2019.

Furthermore, the ministry said that roughly 420 criminals have been indicted for their involvement in fraudulent and illegal cryptocurrency-related activities over the course of the past two years, with many also being physically detained.

Poor security practices at major cryptocurrency exchanges within South Korea has been a crucial driving force behind the steady rise of offenses. According to a report released by a non-governmental organization, The Korea Financial Investors Protection Foundation, there had also been an increase in the number of South Koreans investing in cryptocurrencies. In a video report released this past April by local news outlet Arirang Daily News, the average investment made by a South Korean national cryptocurrency investor has gone up to $6,000.

Opaque Accounts: A Gray Area?

Amid the rise in cryptocurrency investments, the number of exchanges in South Korea has also been on the rise. As of May 2019, 205 cryptocurrency exchanges were reported to be operating within the country.

To lure the ever-increasing number of South Korean investors, minor exchanges have been using ‘opaque’ accounts, also known as ‘beehive accounts’ in the region. According to a report by the Korea Herald, these accounts allow exchanges to store and manage investor wealth with their corporate bank accounts.

By keeping investor identities private, these quasi-anonymous accounts are being used to circumvent South Korea’s conventional ‘real-name’ system where the identities of all trading entities are known to the exchange. The system was introduced by the local government in January 2018 to prevent anonymous bank accounts from participating in illicit cryptocurrency transactions such as money laundering.

One of the reasons for the increase in cryptocurrency-related offenses is the lack of official regulation which would prevent exchanges from allowing investors with opaque accounts.

More Regulation, Fewer Problems?

In November 2018, a Korean Court ruled in favor of a cryptocurrency exchange on grounds that banks cannot block transactions solely on the basis of the government’s real-name guidelines. The Court held that it was inappropriate for the government to order cryptocurrency exchanges to shut down their corporate accounts.

In spite of the court order, the government of South Korea does not seem to be backing down. In June of this year, Justice Minister Park Sang-ki ordered stringent measures to be taken against cryptocurrency criminals. Je Youn-kyung, a representative of the Korean Democratic Party has proposed to pass legislation that will ensure greater scrutiny over cryptocurrency exchanges operating in the country. However, the bill is currently pending approval in the Korean National Assembly.

With cryptocurrency-related crimes in South Korea on the rise, do you think stricter regulation may be introduced in the near future? Let us know your thoughts in the comments below.