FinTech progress has come to a halt in South Korea as regulators carefully try to piece together new technology with existing privacy laws. In October 2016, Financial Services Commission (FSC) Chairman Yim Jong-Yong revealed South Korea’s plans for the acceptance and regulation of bitcoin. He announced in a public speech, “The government will push for the systemization of digital currency on a full scale in tandem with a global trend in the U.S., Japan, and other countries.” At the time, the top three Bitcoin exchanges in the country processed around $1.3 billion between January 2015 and October 2016, according to data from the FSC.
In December of 2016, the Korea Financial Investment Association launched its first blockchain consortium consisting of 21 financial investment companies and five blockchain tech firms to function as a leading blockchain think tank in the local capital market. Then, in January 2017, South Korea’s financial authorities revealed their plan to launch a full-scale pilot project for blockchain-powered financial services. The plan involved implementing blockchain technology as the core infrastructure for a sweeping financial services platform.
Progress continued in April 2017. Hongik University in Seoul and the Bank of Korea (BOK) released a research paper entitled, “Crowding out in a Dual Currency Regime? Digital versus Fiat Currency” which describes how cryptocurrencies and fiat monetary systems can exist side-by-side in the future in what is referred to in the paper as a “dual currency regime.” This research paper shows great interest from the BOK and Korea’s financial authorities in pursuing cryptocurrencies and blockchain tech in an effort to overhaul the traditional, less efficient methods of financial transaction. Also in April 2017, Seoul-based South Korean life insurance company, Kyobo Life Insurance, was officially selected by the government to trial the first real world implementation of blockchain technology for commercial insurance money payments in Seoul.
Now Korea has hit a bump in the road and stumbled upon a problem which is threatening to hold up progress. It is a question of how to move forward with regulation for blockchain technology while maintaining citizens’ privacy rights regarding credit information and personal data. Two laws, in particular, are on the front lines in this discussion. The first called the Credit Information Use and Protection Act, maintained by the FSC, states that a financial company must remove personal data within five years after a transaction is completed. The second law, the Personal Information Protection Act which is under the control of the Ministry of the Interior, declares that any personal information should be destroyed immediately after use.
Because any system built on blockchain technology requires records in a block of transactions to remain permanent with no option to alter them retroactively, allowing this type of system to engage with citizens’ personal data might be construed as a breach of regulations on handling private information. Unless another option reveals itself, financial authorities in South Korea now have to decide whether to exempt blockchain technology from regulations on financial privacy or to abandon pursuing this technology altogether.
Professor In Hoh, a computer science professor at Korea University commented on this dilemma, “Current regulations are the biggest challenges against the fourth industrial revolution wave’s foray into South Korea. Changes in the law should keep pace with technological advances.” Professor In Hoh also noted that existing laws are only applicable to centralized servers, and there are currently no laws regulating peer-to-peer decentralized ledgers.
Although this seems like a fork in the road with only two unattractive options; abandon privacy laws for blockchain systems or leave blockchain systems entirely, there just might be a third, much more attractive alternative on the horizon. As distributed ledger technology evolves and becomes smarter and more flexible, and as AI is weaved into these decentralized governing systems, blockchains might be able to adjust themselves to fall into line with existing laws as they adapt and fit more comfortably into the human world. We may find that we do not have to sacrifice privacy to gain security, and tamper-proof systems can be maintained while allowing data to be securely altered according to predefined parameters controlled by an intelligent blockchain. The next phase of blockchains is coming, and it may bring solutions we have not yet considered to be possible.