Cryptocurrencies exchanges (CCEX) are facing a clampdown in South Korea, where the government is cracking down on these unregulated financial instructions, viewing them as either casinos or money laundering sites. CCE’s such as Coinone and Bithumb trade in Bitcoin, Ether, and Litecoin as well as cross currencies including legal tender such as USD, GBP, and YEN. However, they don’t fall into any tax category since they are not regulated Forex or recognized gaming sites. As such, trade in CC is problematic.
Both Coinone and Bithumb opened walk-in customer service centers in Seoul, and Coinone added a CC-ATM. This growth activity and spurt in the number of new exchanges opening up has started to rattle the chains of governance and law. Police and tax investigators have visited both exchanges and demanded to see their financial documents and explanations into what they are doing.
Korea’s steps come at the same time that India has started to crack down on cryptocurrencies, tokens, and exchanges. In fact, India has taken it one step further, while all cryptocurrencies are not illegal commodities in this large country, the countries banks do not recognize them and are starting to retaliate to the growth and spurt of exchanges popping up all over the place. The government, together with the Reserve bank of India (RBI) are starting to retaliate with regulations. They are using weapons such as bank bottlenecking trades using Rupee’s so that exchanges cannot convert legal tender to and from CC’s. One Mumbai based exchange, Koinex stated that trading in CC is declining due to the constant campaigns against this commodity.
Koinex stated to the press that “In the past few days, many of our users have faced difficulties with INR withdrawals on Koinex. A tussle between our payment service partner and their bank has caused an indefinite delay in settlement of a large portion of deposits to Koinex in the past two weeks. In these circumstances, we were constrained to temporarily suspend INR withdrawals, until the differences between the payment service provider and their bank are resolved.”
Indian Minister of Finance, Arun Jaitley stated emphatically that the State of India does not recognize bitcoin as a legal tender. He went on to stress that “Recommendations are being worked at. The government’s position is clear; we don’t recognize this as legal currency as of now.” This comes after he told the government that they do not have the tools or the means to regulate CC. He also stated that in his opinion bitcoin is a Ponzi scheme.
The position of the RBI and the Ministry of Finance made its point, and local banks are clamping down on trading solutions that involve INR and CCEX’s. The head of the RBI, S Ganesh Kumar told the press “Our current position on bitcoins is that we will not be using it for any payments and settlements…though the underlying technology cryptocurrencies will not end.”
Jaitley also said, what many have found to be true, “The Virtual Currencies (VCs) don’t have any intrinsic value and are not backed by any kind of assets. The price of Bitcoin and other VCs, therefore, is entirely a matter of mere speculation resulting in spurt and volatility in their prices. There is a real and heightened risk of investment bubble of the type seen in Ponzi schemes which can result in sudden and prolonged crash exposing investors, especially retail consumers losing their hard-earned money.”
CC’s in India have a limited following, the community of traders is growing, and according to CCEX Zebpay, from May 2017 over 2,500 new traders were being added every day.
While the CC community in India is adamant at maintaining their freedom to trade, the government is adamant in saving people from their own stupidity. So, the two communities are poles apart, especially when Zebpay CRO Sandeep Goenka says “We will do our best to continue with our efforts to educate the government about crypto-currencies. It can be useful for India by turning the country into a fintech hub, to increase financial inclusion, and there are several other benefits of it.” it will be interesting to see how he can do this.
My interpretation of this is that cryptocurrencies are not remotely like legal tender. They are not based on an asset; they are not supported by any credit or debt, they are not regulated or controlled like shares or stock, and are not even real loans since they do not come with loan contracts. Basically, cryptocurrency is worth even less than a plastic casino chip. Where the house gives the chip, which has a value based on legal tender, but it can only be bought and sold and used in the house. It can be traded off-site privately, and people can buy and sell chips at any value they want. They do so at their own risk, where people can buy the chips for hard currencies, and others hoard them for future use. However, since the chip is not a currency, the trade value is only based on the value of supply and demand, and the chip can either have a minimum value of what the house originally gave it, or no value at all, which happens if the house closes, the chips have no value, and any investment is lost.(Casino’s at least have asset’s and the chips are given a legal tender value)
Just to focus the issue of legal currency, national currencies are based on the assets, loans, and debts of a country. They have a value based on that countries economic strength in the global community. Cryptocurrencies are not based on anything, and the most they can be valued at is the profitability and expected profitability of the company that owns the blockchain platform. In other words, cryptocurrency is a nice way to steal money without selling control of profit through shares, stocks or bonds.
Another important fact to understand is that there is much confusion between cryptocurrencies, tokens, the blockchain, and Ethereum.
So here is a quick pointer:
- Cryptocurrencies are bits of code that are generated by a process known as “hashing” on a blockchain. The only exist within the blockchain.
- Tokens are bits of code created by companies to imitate blockchain generated codes but are not reliant on the blockchain system for their existence.
- The blockchain is a software platform that links computers to create a virtual “super processor,” where the processing power of all the nodes works together to “hash” solutions for transactions. A transaction is then sealed and cannot be changed or deleted. A transaction is open in every node of the network, so it cannot be stolen or lost.
- Ethereum is an evolved blockchain platform that allows for OOP, which is sort of like the difference between asp and asp.net
- The trend that is slowly unfolding is that any blockchain software company would “wow” the world with fantastic visions of billions, and this led to a mass exodus from trading in Forex to trading in CCEX. In reality, the situation is identical to the WWW bubble of 1999, where every internet company came along and “wowed” investors to invest billions in software development that mostly led to nothing. The big difference here is that investors are not even getting shares in a company, they are just getting bits of code that have no value and are not linked to anything of value. Their only value is what a speculator or trader will give it when buying it for real currency.