The Virtual Asset User Protection Act was approved by South Korea’s National Assembly on Friday, which was the first step in the development of the nation’s legal framework for virtual assets.
The bill, which will go into force the next year, is the result of 19 legislative proposals. It outlines the definition of digital assets and sanctions for unethical business practices. In addition to holding certain reserves in cold wallets and segregating user funds, service providers are required to have insurance and keep detailed logs of all transactions.
Virtual assets are described in the law as a “electronic representation of an economic value that can be traded or transferred electronically.” The central bank digital currency (CBDC) issued by the Bank of Korea, the country’s central bank, is not covered by the law. According to Hwang Suk-jin, a member of the People Power Party’s Digital Asset Special Committee, the proposed bill will provide legal protection for virtual asset consumers while also creating a more safe and stable market for cryptocurrencies.
As of 2020, South Korea had one of the world’s most active cryptocurrency economies, ranking seventh on the Global Crypto Adoption Index produced by blockchain data company Chainalysis. The country, however, fell to number 23 on the index in 2022, the same year that the Terra-Luna cryptocurrency and stablecoin, which was formed in the country and caused major losses to hundreds of thousands of investors, failed to a US$40 billion loss. Regardless, the Upbit cryptocurrency exchange in South Korea is the world’s third-largest by trading volume, according to CoinMarketCap data.
The Terra-Luna debacle led South Korean law to establish a legal framework for cryptocurrencies, with a primary focus on investor protection. The next wave of crypto legislation will most likely focus on token issuance and information disclosure requirements for domestic businesses.
The Financial Services Commission is granted power under the bill to monitor and examine service providers. Data requests from service providers are permitted by the Bank of Korea. Following a probe into a local lawmaker’s cryptocurrency holdings and the collapse of Terraform Labs last year, virtual assets have drawn increased attention in the nation