Asian Dragon's new leap: how the latest developments in India and South Korea will affect the bitcoin industry

A few days before the Bitcoin ratebegan a rapid decline, falling below $8,000 by Monday morning; quotes showed a slight rise to levels above $9,200. This could have been facilitated by several factors, one of which analysts named events in India and South Korea — two countries that traditionally occupy a significant market share.

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They happened almost simultaneously. On March 4, the Supreme Court of India issued a verdict repealing the decision of the Reserve Bank (RBI) to ban local banks from servicing cryptocurrency companies, and on March 5, after several years of discussion, the South Korean authorities adopted amendments to the current legislation, which essentially introduced cryptocurrencies into the legal field.

ForkLog magazine examined these events in more detail and tried to find answers to questions about the future of the industry in these two jurisdictions.

India&#8212; background

In April 2018, RBI issued a directiveprohibiting financial institutions reporting to the central bank from conducting any business with cryptocurrency related companies. The central bank said that cryptocurrencies not only undermine the anti-money laundering standards developed by the FATF and are used to finance terrorism, but also jeopardize the integrity of the banking system. On July 6 of that year, the order entered into force.

It is noteworthy that before this the tax authorityFor several months, India has been checking the activities of cryptocurrency exchanges and wealthy bitcoin entrepreneurs, trying to find evidence of tax evasion or financing criminal activity. Cryptocurrency exchange transactions were delayed even before the publication of the directive.

The incident had an impact in the local communitya bomb exploded, forcing India's leading exchanges to either significantly limit their activity in the country or even temporarily transfer it to other countries. In particular, this decision was made by the country’s largest trading platform at that time and cryptocurrency wallet provider Zebpay. In September 2018, she announced the cessation of trading, and a few weeks later &#8212; on opening an office in Malta and ceasing services to Indian residents.

About the significance of Zebpay’s departure from India,the numbers fully say: at some point, the exchange accounted for about half of all bitcoin users in the country (at that time about 5-6 million people), and the number of downloads of its mobile application, which allowed working with 22 trading pairs based on 20 cryptocurrencies amounted to 3 million

An equally important role in maintaining infrastructureUnocoin also played the industry in India, shortly before the scandalous decision of the central bank, it launched its own trading platform with support for Bitcoin, Bitcoin Cash, XRP, Ethereum, Litecoin and Stellar.

By the way, Unocoin in 2018 tried to get aroundthe ban by opening their own terminal through which users could directly make deposits in fiat. However, he did not work long: less than two weeks later, co-founder of the exchange Harish Bv was arrested, and his laptops, smartphone, credit cards and cash were confiscated.

The Bangalore police, where the incident occurred, said that Unocoin had no right to service the terminal without the relevant licenses of the Central Bank and the Indian Securities and Exchange Commission.

Must pay tribute to the localto the cryptocurrency community, which almost immediately entered into legal struggle with the RBI directive. Almost immediately after its publication, a petition was launched stating that India, as a country known for its talented developers, should be in the forefront of the blockchain revolution, and the country's authorities should contribute to the development of industry. The potential of cryptocurrencies was also noted in the context of strengthening the local economy. In total, about 20 thousand users signed the petition in a day.

Many began to arrive in local courtsapplications requesting the annulment of the RBI decision. As a result, in early May, the Supreme Court decided to collect all complaints into one collective and no longer accept such petitions.

Two meetings were held in July 2018The Supreme Court, at which the issue of repealing the directive was considered, however, both times it was upheld. As explained in court, this was due to the lack of sufficient comments from the participants in the process.

Historical decision

For various reasons, the third session was postponed several times, but it was at it that the community achieved the result: the Supreme Court repealed the directive.

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The decision was based on the argument aboutThe "disproportionate nature" of the directive. The authors of the lawsuit emphasized that the central bank could not prove the existence of a threat to banks from cryptocurrencies. The Supreme Court also agreed that the directive was adopted in the absence of a clear regulation of cryptocurrencies in India.

In the largest non-profit associationNasscom, India’s cryptocurrency company, welcomed the Supreme Court’s decision, stating that “the prohibition of technology will not help and it is necessary to develop a risk-based structure for regulating and monitoring cryptocurrencies and tokens.”

The victory of the #IndiaWantsCrypto movement was announced inlocal crypto exchange WazirX acquired by Binance. The very next day &#8212; &#171;after 19 months of agonizing waiting&#187; &#8212; The site has added the ability to top up accounts in rupees.

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Competitor WazirX &#8212; also demonstrated a lightning-fast reaction. CoinDCX. According to representatives of this exchange, after the court decision, it took less than six hours to integrate payments through banks.

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On March 5, Unocoin exchange resumed fiat support:

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And finally, on Monday, March 9, Zebpay announced the return to the Indian market:

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The community believes that the lifting of the ban will positively affect not only the further development of the industry, but also stimulate the growth of related sectors, including fintech.

It also cannot be ruled out that a court decision will allowlaunch a more aggressive Ripple payment market in India. The fact that India is considered as an extremely important area, as early as 2018, said Vice President Ashish Birla. In particular, this may be relevant for the On-Demand Liquidity (ODL) payment solution using the Ripple XRP token.

The early signs of a recovery in the industry in India were also confirmed by a statement by the American software company HashCash Consultants about plans to invest $ 10 million in this sector.

&#171;Historic decision of the Supreme Courtputs India back on the global map of the cryptocurrency industry. The resumption of activity in this area opens up opportunities for new partnerships and ventures for global players, as well as new prospects for the Indian economy as a whole.&#8212; said HashCash Consultants CEO Raj Chaudhuri.

Is it too early to rejoice?

Despite the optimism experienced in thesedays, industry representatives in India, experts pay attention to some pitfalls that can be found in a more detailed analysis of the Supreme Court's verdict.

Tanvi Ratna, founder and CEO of consultingPolicy 4.0, notes that in the final text, cryptocurrencies are defined as a by-product of blockchain technology. In the future, she believes, the country's government, which is still working on the regulation of the cryptosphere, may well divide digital assets and the technologies underlying them into two separate categories. In the light of not the most friendly attitude of the authorities towards cryptocurrencies, this can carry significant risks.

In the summer of 2019, the government working groupIndia, led by Secretary of Economic Affairs Subhas Chandra Garga, recommended not only to ban all cryptocurrencies (with the exception of digital tokens issued by the central bank), but also to introduce severe penalties for their use: a fine of up to 250 million rupees ($ 3.35 million at current exchange rate ) or imprisonment up to 10 years.

It is hoped that common senseit will triumph and the authorities will not go for such measures. The legislative struggle, however, promises to be difficult, especially since the country's central bank intends to appeal the decision of the Supreme Court.

During the preparation of this material for publication, the American exchange Kraken made a statement of intent to return to the Indian market.

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And what happened in South Korea?

South Korean authorities that plays a substantialrole in the cryptocurrency industry; for a long time they have been working to introduce this sector into the legal field. This is largely due to alleged cases of money laundering through local bitcoin exchanges, including through the country's largest Bithumb platform, as well as hacking and theft of user funds.

In November 2019, the National Policy CommitteeThe National Assembly of the Republic of Korea passed a bill on the regulation of virtual currencies, according to which they are classified as digital assets. The document suggested that companies working with cryptocurrencies would be required to comply with the FATF requirements to prevent money laundering, as well as register with the financial intelligence unit of the Financial Services Commission (FSC).

On March 5, the National Assembly adopted theseamendments to the legislation, and they will begin to operate in 2021. The new rules actually introduce cryptocurrencies into the legal field, including allowing regulated trading on exchanges.

According to the accepted standards, bitcoin exchanges, ICO issuers and other industry participants are required to:

• comply with all financial reporting requirements;
• use only bank accounts with real names and ensure compliance with KYC procedures in conjunction with a partner bank;
• certify information security management systems (ISMS).

It is also emphasized that certification will not pass.enterprises that refused to notify authorities of suspicious activity, did not receive an ISMS certificate, and also managed bank accounts that did not pass identification. For such companies, a fine of up to 50 million won (about $ 41,600 at the current rate) or imprisonment for up to five years for their leaders is envisaged.

Local media warn that the new rules will lead to a major restructuring of the blockchain industry in the country.

In September 2019, there wereMore than 70 platforms for trading cryptocurrencies. Most of them failed to establish partnerships with banks, and ISMS certification, which is conducted by the Korea Internet Security Agency (KISA), may prove to be unbearable for them from a financial point of view. As a result, new regulation rules can lead to the fact that by 2021 the country will have only half a dozen regulated cryptocurrency exchanges.

Mixed feelings are experienced by investors. Some of them welcomed the new legislation, announcing the advent of the “New Era of Coins” and noting that cryptocurrencies in South Korea are no longer considered a form of gambling.

Others are less optimistic. Recognizing the fact that the new rules will indeed provide a high level of security on exchanges, they note that the plans hatched by the government to equate cryptocurrency trading income with “other incomes” nullify all their efforts. According to the current legislation, such income is taxed at 20%.

Be that as it may, with the adoption of the newlegislation South Korea became one of the first countries in the world where cryptocurrencies found themselves in a relatively clear legal framework. Any rules have advantages and disadvantages, there will always be critics of any government actions, but at least in this country the industry turned out to be extremely close to that very “regulation”, the need for which has been talked about so much over the past years. Will it have a positive impact on the development of the industry &#8212; only time will tell.

Andrew Asmakov