South Korea was one of the countries most deeply involved in cryptocurrency’s incredible 2017 bull run, and with good reason. This is a tech-savvy country, known for having some of the fastest internet speeds in the world. More than three-quarters of the population own a smartphone. It’s a country quick to embrace technological change. You could probably attribute this to Korea’s incredible economic development in the latter half of the 20th Century, when it was transformed from a poverty-stricken country in the aftermath of the Korean War into a thriving nation with the 12th largest economy in the world. Finally, it’s a country with strict anti-gambling regulation for its citizens, where casinos are exclusively open to those with foreign passports. The interfaces of many of the country’s largest crypto exchanges invoke a casino-like feeling, with prices rolling up and down in real-time. They make the interfaces of exchanges such as Binance look incredibly static and subdued in comparison. These factors all helped South Korea become one of the epicenters of the crypto boom.
As reported by Quartz, more than 30% of salaried workers within South Korea have held cryptocurrency at some point. Cryptomania was everywhere in Korea in the second half of 2017, with politicians making alarmist statements and television documentaries warning of the dangers associated with crypto trading. Anecdotally, it seemed like everyone in Korea was either trading crypto or regretting they hadn’t bought in already by the time the bull run hits it peak. In late December, I saw a drunk man stumbling through the streets of Hongdae staring at his phone and screaming “GAUZA!” – “Go up!,” the mantra of Korean crypto enthusiasts.
‘Korea FUD’ was a familiar sight within English-language online crypto communities. News such as SK Prime Minister Lee Nak-yeon’s warning that crypto was largely associated with “drug dealing or multi-level marketing frauds” was widely shared, as was news of Korea’s ban on ICOs in September. In early January, CoinMarketCap stopped including figures from South Korean exchanges. This caused a major dip in the market, and although a final alt-coin surge toward many still-standing all-time highs followed soon after, this event contributed to the beginning of 2018’s crypto bear market. CoinMarketCap’s decision was prompted by an effect dubbed ‘the Kimchi Premium’ – huge demand for cryptocurrency and strict regulations on moving money out of the country leading to massively inflated crypto prices within Korea, and creating a huge arbitrage opportunity for anyone capable of exploiting it.
Korea’s largest crypto exchanges have been hit with several other waves of bad new besides this. In January 2018, the offices of two exchanges were raided during an investigation into alleged tax evasion. Three more exchanges were raided in March on suspicion of siphoning funds from users’ accounts. Between December and January 2020, senior staff at two more exchanges were accused by prosecutors of fraudulently inflating their exchanges’ trading volume. And in January it was also reported that just seven out of 21 exchanges were able to pass a government-sanctioned security audit. Less than two weeks later, a long-proposed ban on anonymous cryptocurrency trading came into effect.
Since the bull run ended in January 2018, it seems that crypto fever has left Korea as quickly as it arrived. Most people I’ve heard talk about crypto since the bull run ended have either cashed out or taken such huge losses that see now pointing in doing anything but hodling, with no real expectations of ever making a return. But away from the volatilities of crypto trading, there is still lots of Korea-based activity related to cryptocurrency and blockchain development.
Samsung recently announced plans to incorporate a cryptocurrency wallet into its Galaxy S10 handsets. The Korea Blockchain Enterprise Promotion Association (KBEPA) have pushed for the mayor of Gwangju to turn Korea’s sixth-largest city into “a special governing city for cryptocurrency.” And the Hankyung newspaper, known in English as Korean Economic Daily, recently published a piece on a scheme orchestrated by ICONLOOP and the Central Election Management Committee to pilot a blockchain voting system.
ICONLOOP is behind many initiatives to bring blockchain technology into everyday use in Korea. It has also started a global accelerator program to spark collaboration with overseas enterprises. ICX Stations have already been created in San Francisco and Singapore as part of this program, with plans to expand to Tokyo early this year. So what exactly are ICON and ICONLOOP? And how do they fit into the bigger picture of blockchain development in South Korea?
Building an Ecosystem of Interconnected Blockchains
The ICON blockchain project was started by Korean fintech startup incubator Dayli Financial Group, which also owns Coinone, one of the country’s largest crypto exchanges. As a Forbes piece written prior to ICON’s launch explains, Dayli identified many potential uses cases for blockchain within Korea, alongside a need for various distinct blockchain networks to interact with each other. The vision behind ICON was to create a system whereby information could easily be exchanged between government, banks, financial firms, healthcare providers, educational institutions, and private companies. Dayli’s Chief Strategy Officer Min Kim told Forbes that ICON was looking to go further than other blockchain startups in tailoring solutions to their clients’ needs. Whereas Kim characterized most such startups as creating a blockchain protocol first and then passing this on to clients, ICON aimed to create unique tailored blockchain solutions for each client, then connect these distinct blockchains within the ICON ecosystem.
A comprehensive Vleppo report describes ICON as “an interlinking model of communication across various blockchain protocols, creating a practical system that interlinks existing organizations with the purpose of increasing cost efficiency between digital communities.” ICONLOOP – rebranded recently from theloop – is a for-profit organization that provides blockchain solutions to firms across various sectors utilizing the ICON protocol. The ICON protocol allows for the creation of smart contracts and dApps. It also allows for interoperability between various blockchains both inside and outside of the ICON ecosystem. At a technical level, Vleppo describes ICON as functioning on “a Loop Fault Tolerance consensus algorithm… which is a synergetic process between Delegated Proof of Stake and Byzantine Fault Tolerance,” facilitating “hyperconnectivity on a network level through a new symbiotic governance model that increases the value exchange within the network.”
Responding to a question about the value of holding the ICX token, Reddit user /u/Pancake_Design explained how this fits into ICON’s plans for expanding use of the ICONLOOP ecosystem:
“[The] ICX token will be used in multiple ways: paying transaction and smart contract fees, identifying how much stake in the ICX platform an individual has and rewarding these individuals in proportion to their stake and contribution as a node in the ICX network, accepted in ICOs hosted on the ICX platform, used as a base trading pair in the DEX, used as the base currency in the ICX platform. The more people who use the platform, the more people will buy ICX to take advantage of the above items.”
As explained on chainhead.io, ICX has a circulating supply of 400 million tokens, with 400 million new tokens set to be released at a maximum rate of 20% per year, dependent on the consensus of participants within the ICON Republic network. In December, ICON published a yellow paper which details the various factors which will determine the AI-based distribution of new tokens to participants within the network.
The ICX Rollercoaster from ICO to Mainnet
ICON raised $42.75 million through its September 2017 initial coin offering (ICO). The combination of its Korean roots and the perceived value proposition of a delegated proof of stake (DPoS) consensus mechanism made it a huge beneficiary of the crypto bull run. From 10.7 cents at ICO, ICON’s price soared above $12 in January 2018, giving it a peak market cap above $4.5 billion. Like virtually every other project within the crypto space, ICON has fallen sharply since then. But even within a sea of red, ICX has fared particularly badly. ICX tokens are currently trading at 18.9 cents, with a market cap just below $90 million – a more than 98% drop from January’s all-time high.
While most projects that were riding high in early January 2018 experienced dramatic drops as the year wore on, ICON’s decline was worsened by issues relating to the launch of its mainnet. The mainnet launch was originally scheduled for March, but this was delayed without official confirmation of when it would be activated. Then, just days before the postponed June 20 mainnet launch, a bug was discovered which allowed any user to disable token transfers within ICON smart contracts. While the issue was resolved by ICON on the same day that it was discovered, it added to uncertainty surrounding the project’s mainnet migration. ICON suffered some of its steepest decline during this period, with ICX tumbling from $4.24 on May 15 to $0.52 on August 16. In response to this fall, ICON announced it would buy back $5 million worth of ICX tokens.
Now that the troubled mainnet launch is behind it, the focus around ICON is returning to the impressive array of partnerships it has established within Korea.
How does ICON fit into blockchain development in Korea?
ICONLOOP and its ICON blockchain network are currently involved in the development of blockchain solutions for a large number of public and private enterprises within South Korea. ICONLOOP’s technology has already been used by major banks, healthcare providers, and securities firms within Korea. This Medium post from May 2018 outlines some of ICON’s key applications, with highlights including the creation of the WeeBee Korean Won-based stablecoin with Woori Bank, insurance claims settlement at several hospitals, and the processing of e-commerce imports for the Korea Internet Development Agency (KISA) and the Ministry of Information and Communication.
One of ICONLOOP’s biggest applications could be CHAIN ID, an identity verification system it is developing in conjunction with the Korea Financial Investment Blockchain Consortium. As detailed in this Medium post from the ICON Foundation, personal identity verification is currently legally required to be routed through a centralized governmental system of authentication certificates. One example of the inefficiency caused by this is that Korean internet users need to download software to make card payments using a computer. This software often utilizes antiquated ActiveX controls and is typically only compatible with Internet Explorer, making using it a far-less efficient process than identity verification in other countries. With the CHAIN ID system, ICONLOOP is hoping to make this process more convenient for users and more flexible for companies.
As detailed in the pre-ICO Forbes article on ICON, these system has already been trailed with major security firms. By allowing participant institutions to share data across blockchains, ICON made it possible for customers to open new accounts with multiple securities firms without having to complete comprehensive Know Your Customer (KYC) identity verification processes for each firm individually. In May 2018, the ICON Foundation revealed in a blog post that Samsung was planning to incorporate Chain ID into its Samsung Pass service, which comes pre-installed on all Samsung mobile devices.
The official ICONLOOP website was recently updated with details of some of its biggest use cases. Along with some of the projects already mentioned, there is information on an automated insurance claim settlement system for insurance providers including Kyobo and Korea Post, and a pilot customs clearances scheme for the Korea Customs Service.
The Future Outlook
Korea may no longer be the hotbed of cryptocurrency trading it was during the 2017 bull run, but ICON is making great strides toward making the country a world leader in blockchain adoption. While there are many competing projects looking to connect various industries and public sectors in other countries, ICON has established itself as the only real contender to dominate blockchain development in South Korea. And as Dayli CSO told Forbes before ICX launched: “If we connect every single company in Korea or even half of Korea on our network, that’s a massive success story.”
This is, of course, cold comfort to those who bought in at the top. ICX has an incredibly long way to go to ever eclipsing its $12 all-time high – a 10x increase in the token price would still leave those who bought at peak price with an 85% loss. As we noted in a recent piece on the battle between Ripple and SWIFT, even those most involved in blockchain and cryptocurrency development think we may be five years or more away from large-scale real-world adoption. But ICON has created an incredibly expansive foundation for building a Korean blockchain giant.