|Bitcoin Bug Bites Japan and South Korea as China Clamps Down|
By NATHANIEL POPPER
New York Times
OCT. 1, 2017
Customers discussing trading trends at the Seoul storefront of Coinone, a South Korean virtual currency exchange. Credit Jean Chung for The New York Times
SAN FRANCISCO — Until recently, China was a center of Bitcoin activity while the rest of Asia looked on with little interest.
Now, the tables have turned.
The Chinese government has been clamping down on virtual currency activity at the same time that hundreds of thousands of Japanese have thrown themselves into Bitcoin trading, making Japan’s main Bitcoin exchange, bitFlyer, the largest in the world in recent weeks by some methods of counting.
South Koreans have also shown a sudden interest in virtual currencies, though they have generally opted for Bitcoin competitors like Ethereum and Ripple. Trading has been so popular that two South Korean exchanges, Bithumb and Coinone, have set up storefronts in Seoul that people can visit to buy and sell in person.
Since Bitcoin was created in 2009, it has become increasingly popular around the world because of its anti-establishment appeal — a virtual currency that is challenging governments and financial institutions. But in South Korea and Japan, the countries’ most important institutions have been leading the way.
Japanese trading took off after the government approved legislation in April that creates the first national licensing program in the world for virtual currency exchanges. On Friday, the government announced that it was giving the first licenses to 11 exchanges, including bitFlyer
“Japanese people tend to be very conservative with their investments, but once they get triggered they go all in,” said Yuzo Kano, the founder and chief executive of bitFlyer.
In South Korea, trading ticked up after the country’s largest company, Samsung, announced in May that it had joined a large alliance of global companies aimed at finding corporate use for the software behind Ethereum.
The New York Times Explains...
What Bitcoin is and how it works: click here »What Ethereum is and how it works: click here »
Ethereum includes a virtual currency, Ether, but it is also software that allows parties to enter into what are essentially legal agreements, or smart contracts, involving the money.
The South Korean government moved last week to curb some of the frenzy. Korean regulators announced on Friday that new virtual currencies, being sold through so-called initial coin offerings, will be banned in the country. The regulators also said they would exercise stricter oversight of online exchanges. But trading in the most valuable coins went on after the announcement. (Regulators in the United States and Switzerland also took steps on Friday to crack down on the offerings.)
Companies in both Japan and South Korea have been experimenting with the blockchain, the technology introduced by Bitcoin that allows multiple parties to keep shared digital records. And a consortium of Japanese banks announced last week that they were preparing to introduce a national digital cash, J Coin, that shares some qualities with Bitcoin.
Even North Korea is getting in on the game, with reports suggesting that people with ties to the government have been trying to “mine” new Bitcoins and to hack into virtual currency exchanges in South Korea and elsewhere. Digital money like Bitcoin, which exists outside the traditional financial system, could be useful for a country trying to evade financial sanctions.
So far, though, virtual currency trading in Japan and South Korea has not been tied, in any significant way, to buying or selling things with Bitcoin or any of its competitors.
Instead, interest in both Japan and South Korea appears to be linked to a longer history of speculative financial trading as a recreational pastime — and to the general interest in virtual goods.
“Word just spreads really fast in Korea,” said Tony Lyu, the founder and chief executive of Korbit, a Korean exchange. “Once people are invested, they want everyone else to join the party. There’s been this huge, almost a community movement around this.”
The interest in South Korea and Japan is picking up some of the slack in support of Bitcoin that has been lost to the crackdown in China.
Prices and other information about virtual currencies being displayed at Bithumb’s customer service center in Seoul. Credit Jean Chung for The New York Times
At various points in the past few years, China has been thought to account for over three-quarters of all Bitcoin trading. The government, though, has stepped in several times to cool the speculative fever.
The latest measures appear to be the most serious yet. All Bitcoin exchanges have been told to stop trading by the end of October. Some in the Chinese Bitcoin community believe that business will be allowed to resume after the annual meeting of the People’s Congress, the national legislative body, takes place in mid-October — but there have been no clear indications of that.
The price of most virtual currencies dropped sharply after the Chinese government’s moves leaked out in September. But it did not put a damper on interest in Japan and South Korea, and the prices of digital tokens recovered most of their losses.
The price of Bitcoin recently stood around $4,300, down 12 percent from the high earlier last month. But that was up about 50 percent from the low last month and still up more than 340 percent since the beginning of the year.
Bitcoin has been used — most controversially — to buy drugs online and make virtual ransom payments to hackers. More recently, it has provided a way for investors to put money into new starts-ups through initial coin offerings.
Beyond all that, though, it is a speculative asset. People buy and sell it because it is scarce — only 21 million Bitcoins will ever be created — and investors hope it will gain real-world applications in the future.
Japan might have seemed like an obvious place for Bitcoin to catch on earlier. The anonymous creator of Bitcoin carried a Japanese name, Satoshi Nakamoto. But most people from Bitcoin’s early years believe that the person or people behind Bitcoin were not from Japan.
Japan was also home to the first major Bitcoin exchange, Mt. Gox. But Mt. Gox was run by a Frenchman living in Tokyo, with mostly foreign customers. Perhaps more important, Mt. Gox was run very poorly, leaving it vulnerable to thieves who eventually stole most of the Bitcoins the exchange held for its customers — some $500 million worth at the time.
In-person service at the customer center opened by Bithumb, a virtual currency exchange. Credit Jean Chung for The New York Times
The collapse of Mt. Gox in 2014 scared many Japanese people away from Bitcoin. But it also encouraged the government to move forward with some of the most far-reaching legislation in the world, which gave a sort of government stamp of approval to the market when it was passed in April.
The legislation promises licenses to exchanges that follow anti-money-laundering practices, and defined Bitcoin as a valid means of payment. Trading took off almost immediately.
Much of the interest at bitFlyer, the largest exchange, has been for futures contracts, which are not as popular elsewhere. When these are included in tallies, bitFlyer is hosting more trading than any other exchange in the world, according to data from CryptoCompare.
The legal status of virtual currencies in South Korea has been less clear than in Japan. But Samsung’s decision to join the so-called Enterprise Ethereum Alliance was enough of an institutional sign of approval for many Koreans.
Corporations like Samsung are generally interested in using the Ethereum software without using the internal virtual currency, Ether. But the announcement set off a summer of feverish trading in Ethereum and a number of other Bitcoin alternatives.
In recent days, the heaviest trading has been in a competitor to Bitcoin that was introduced in August, known as Bitcoin Cash, which can handle more transactions. Trading volumes have been amplified in both South Korea and Japan because many of the exchanges offer leverage, which amplifies both positive and negative swings.
Jeff Paik, the founder of Finector, a research firm in Seoul, said the trading had been worrisome because it had been dominated by older pensioners, not tech geeks.
These traders, he said, have been deciding what coins to buy and sell not because of the underlying technology, but because of the number of other people trading the same thing.
“There’s no logic to it,” Mr. Paik said. “As long as there is an open market, and a currency to be traded, people will flock into it. It doesn’t matter which coin.”