Japan’s Blockchain Group Requests Crypto Tax Revision for Web3 Adoption

Among various accounts within a bank, a demand deposit account is considered a “station” where people can temporarily store their money and easily withdraw it for future investments. These accounts are highly liquid, since users can deposit or withdraw funds at any time without having to pay a penalty to a bank.  Following the recent cryptocurrency boom, the five major banks in Korea – KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank and NH Nonghyup Bank – are seeing a significant influx of funds into their demand deposit accounts, according to local media outlet Money Today. This is partly attributed to an increasing number of youths who are seeking to invest in crypto assets, parking their money in these banks’ demand deposit accounts. Shinhan Bank and Nonghyup Bank have seen the highest increase in their deposits, owing to their affiliation with local crypto exchanges that have access to real-name accounts from these banks. Photo by André François McKenzie on UnsplashBTC’s surge attracting young investors to cryptoExperts say that these deposits could be potentially transferred to the crypto market by owners as Bitcoin’s value continues to climb. An insider from a crypto exchange noted that the bullish crypto market, spurred by the U.S. approval of spot bitcoin ETFs, is driving a number of young investors to turn to crypto investments, encouraging them to channel their deposits into buying crypto tokens.  Data from these five major banks shows their total demand deposits by the end of February exceeded KRW 614 trillion ($460 billion), seeing a month-over-month increase of about KRW 23.5 trillion. During the same period, the banks’ combined regular savings grew by KRW 23.6 trillion, while their combined installment savings saw a decrease of KRW 13.3 trillion. This came after the government-led savings product “Youth Hope Installment Savings” reached its maturity, which returns users their principal with relatively large interest gains.  Banks scrambling to attract crypto investors with new savings productsIn response to the potential decline in interest rates in the second half of this year, an increasing number of customers are seeking to put their money into savings products with an interest rate of as low as 3%, according to a banker. In a bid to attract more users, local banks are busy introducing new savings products.  KB Kookmin Bank launched a savings product offering a relatively high annual interest rate of up to 4%, and Shinhan Bank rolled out a savings product targeting youths with an annual interest rate of up to 3.85%.  Meanwhile, Kbank, an online-only bank, is deemed among the largest beneficiaries of the crypto boom, as the bank saw its average daily new customers triple compared to last year. Since 2020, Kbank has served as the provider of real-name accounts to Upbit, the leading crypto exchange in Korea.  Ha Joon-kyung, a professor at the Department of Economics at Hanyang University, said the sudden surge in demand deposits means that a significant portion of these funds will be invested in high-yielding but risky assets, including cryptocurrencies, stocks and real estate.  

The Legal Future of South Korea’s Crypto Industry: Necessary Legislation and SystemsA recent National Assembly symposium organized by South Korea’s Digital Asset Policy Forum brought experts together to discuss the challenges and prospects of the implementation of the Virtual Asset User Protection Act at the National Assembly Members’ Office Building in Seoul on Tuesday.Photo by Tingey Injury Law Firm on UnsplashInternational modelsReferences were made to global examples, such as the Markets in Crypto-Assets Regulation (MiCA) — the world’s first standalone virtual asset legislation enacted in the EU — which ensures transparency, disclosure, authorization, and supervision of crypto-asset transactions. However, unlike the capital market, MiCA does not impose regular disclosure reporting requirements or corrections on them. Firms in Japan, on the other hand, are asked to provide disclosure under autonomous regulation through the Japan Virtual and Crypto Assets Exchange Association (JVCEA).Notably, in its recent Policy Recommendations for Crypto and Digital Asset Markets Consultation Report, the International Organization of Securities Commissions (IOSCO) states that it is “seeking to encourage optimal consistency in the way crypto-asset markets and securities markets are regulated within individual IOSCO jurisdictions, in accordance with the principle of ‘same activities, same risks, same regulatory outcomes’.” This principle refers to the concept that any crypto-asset activity that has a similar function and poses similar risks to those in the traditional financial system — such as operating a trading platform or providing custody services — is subject to regulation that ensures equivalent outcomes, as defined by the UK Parliament.The IOSCO report also suggests that crypto-asset service providers (CASPs) should disclose information regarding ownership and control of crypto-assets, issuer and business-related information, issuer management teams, transaction history and operational description of crypto-assets, token ownership concentration, transfer protocols, and a given CASP’s treatment of the client crypto-assets and their respective rights and entitlements during events like hard forks and airdrops.Hurdles to overcomeExperts at the forum reflected these considerations in their sentiments. Han Suh-hee, a lawyer at Barun Law Firm, emphasized that it is important to determine what kind of information should be disclosed. She argued that it is necessary to discuss to what extent information about virtual asset issuers should be disclosed and whether mandating firms to disclose their financial and business conditions is efficient.In particular, Han underlined the need to consider the differences between virtual assets and stocks when establishing a framework for the disclosure of virtual assets holdings. Unlike stocks, virtual assets possess distinctive characteristics like their borderless and decentralized nature, unclear issuer backgrounds, and the ability to conduct peer-to-peer (P2P) transactions.Lee Han-jin, a lawyer at Kim & Chang Law Firm, added that the enactment of Korea’s Virtual Asset User Protection Act was aimed at establishing a system directly targeted at regulating virtual assets and virtual asset service operators (VASPs) — a significant development from the Financial Transaction Reporting Act, which had until now been the only legal framework responsible for regulating VASPs along with other entities like casino business operators. Virtual assets are now subject to a more systematized regulatory approach.However, he said that the Virtual Asset User Protection Act still has its setbacks because it is undergoing a two-stage legislative process. Lee criticized the fact that the same definition of VASPs outlined in the Financial Transaction Reporting Act had been brought over, which limits their identity to transaction intermediaries, wallet operators, and custodians while overlooking their other roles like crypto management, crypto deposits, and crypto collective investments.Lee also pointed out another weakness: the scope of prohibition on using undisclosed information and market manipulation is broader in the Virtual Asset User Protection Act than in the Capital Markets Act. He argued that enforcement decrees should stipulate the definition of insiders and exceptional cases when deliberating on the prohibition of insider virtual asset trading.Lee thus emphasized the need for a clear definition of virtual assets in the Virtual Asset User Protection Act, as it is yet unclear whether they are objects or assets. All things considered, he believes there must be a law that can encompass blockchain-based decentralization, outline the similarities and differences between digital assets and financial products, and accommodate new services that utilize smart contracts.“We are in the process of creating a regulatory system similar to those being adopted in other countries based on their respective markets,” said Lee Seok-ran, head of the Financial Innovation Bureau at the Financial Services Commission (FSC). “Unlike the stock market, which is equipped with regulations to prevent fraudulent transactions and misconduct, virtual assets are traded on multiple exchanges, so we are considering how to interpret unfair trading activities and conduct market surveillance.”She explained that the commission is prioritizing user protection measures and subordinate regulations. “I believe we will be able to create a system for subordinate regulations on disclosure once an overall global trajectory is established. But before that happens, we are working on guidelines for defining unfair trading activities with regulators and the Digital Asset eXchange Alliance (DAXA).” Unfair trading activities associated with virtual assets include not only those conducted on exchanges but also under other circumstances.The FSC officer said that the financial authority is set to establish legal criteria to distinguish cases such as false statements in white papers of crypto projects. She added that enforcement decrees will define both the conditions for restricting deposits and withdrawals on crypto exchanges and the corresponding limits.

1st-Generation, a leading firm in the blockchain sector based in Daegu, South Korea, has signed a memorandum of understanding (MOU) with global cryptocurrency exchange Tapbit, according to an article published by South Korean news outlet Tokenpost on Tuesday (KST). Through this MOU, 1st-Generation expects to further accelerate its growth through active participation and advancement into the global blockchain industry.Photo by Chris Liverani on Unsplash"As the global blockchain industry continues to grow at a rapid pace, we aim to create an ecosystem where we can make a positive impact through cooperation," said Lee Jun-hyuk, CEO of 1st-Generation. Pioneering the future of blockchainWith its advanced technology and outstanding expertise in the blockchain field, 1st-Generation has registered with the Financial Supervisory Service (FSS) under the name "1st Generation Group". The company is focused on providing innovative solutions globally, effectively utilizing blockchain technology based on advanced IT experience. Tapbit’s statisticsFounded in 2021, Tapbit is a global exchange with a user base that exceeds six million users worldwide. In particular, it is currently ranked 38th on CoinMarketCap’s top cryptocurrency derivatives exchange list with a 24-hour derivative trading volume of about $8 billion as of this writing. In addition, it is also working on creating crypto Travel Rule solutions through cooperation with domestic exchanges.