By Kim Yoo-chul
The financial authorities are preparing a plan to allow initial coin offerings (ICOs), digital token-based fundraising rounds, for domestic investors, to advance blockchain-based technologies, according to sources familiar with the issue.
"The financial authorities have been talking to the country's tax agency, justice ministry and other relevant government offices about a plan to allow ICOs in Korea when certain conditions are met," said a source asking for anonymity as he wasn't authorized to speak to the media.
The plan, if implemented, will be a major reversal as last September the government banned ICOs, claiming cryptocurrencies were neither money, nor currency or financial products.
Despite this, the administration has yet to implement the ICO rule and hasn't forced companies to return ICO funds. It also continues to let local investors put money into foreign ICOs and digital currency exchanges operating within the country.
Kang Young-soo, who oversees cryptocurrency trading policies at the Financial Service Commission (FSC), said the country's top financial policy regulator has yet to decide whether to allow ICOs in Korea for domestic investors and companies.
"There are many speculating about the possibility of allowing ICOs. The FSC has acknowledged a third-party view regarding the issue, but there's nothing that we can say officially at the moment," Kang said.
Another source familiar with the country's tax code said he expects the order banning ICOs would only be reversed after the country fixes the legal groundwork for crypto-trading.
"Various scenarios such as the imposition of value-added tax, a capital gains tax, or both on trade; and the collection of corporate tax from local cryptocurrency exchanges, as well as the initiation of authorized exchanges with licenses are being discussed," said the source. He added that allowing ICOs should involve local banks, the justice and finance ministries, and the tax agency to create transparency. This will allow the government to track the history of capital inflow into ICOs.
ICOs are used by startups to raise funds with digital currencies which work through blockchain technologies. In Korea, some startups used ICOs as they require little paperwork, letting companies solicit money directly from investors rather than relying on banks or venture-capital firms (VCs).
When the ICO ban was announced, local startups which had planned to raise seed money through them said they would raise funds overseas, instead.
A trend taking place is that the number of investors interested in ICOs is rising significantly. Also, with increased transparency, more and more investors are able to make better investment decisions when it comes to the offerings. Some analysts say this is the reason companies are gaining larger investments in shorter time periods.
Kang, said the country has no plans to regulate cryptocurrencies and blockchain technologies, while it tries to work out how to regulate the market.
"Yes, we have to have plans on how to advance blockchain-related technologies and effectively regulate crypto-trading. This is a separate issue," Kang told an industry forum held recently at the National Assembly.