The Cryptocurrency Ban in South Korea: How and Why

Cryptocurrency has been gaining in popularity in recent years both as a means of exchange and as a financial investment. A cryptocurrency is a digital currency that is entirely independent of any central bank. The currency employs encryption techniques to generate and regulate the units of currency and to verify that funds have been transferred. Bitcoin, Zcash, Dash, Ripple, Ethereum, and Monero are examples of popular cryptocurrencies that have been in use throughout the world. Recently, however, the government of South Korea banned its government officials from either holding or trading these types of currencies.

The ban on cryptocurrency applies to all public officials in all government ministries, regardless of whether the job has any connection to virtual currency or finance. This is the first such far-reaching ban of its type in the country, and because South Korea is the world’s third largest market for virtual currency (following the United States and Japan), the ban may have a major impact in the global cryptocurrency market. This market has in the past reacted to uncertainty regarding government regulation of cryptocurrencies, such as when a rumor of a complete ban circulated in South Korea.

The current ban came down through the Ministry of Personnel Management, which distributed a formal warning to civil servants. The document noted that any holding or trading of cryptocurrencies such as Bitcoin would constitute a violation of the civil servants’ law. The consequences of violating this law include potential disciplinary measures that will be administered at the discretion of the particular ministry for which the civil servant works. Consequences will be especially severe if any trading in virtual currency should occur at work while the civil servant is “on the clock.”

The ban is not a total surprise, given that Hong Nam-ki, head of the Office for Government Policy Coordination, has in the past warned government employees not to invest in such currencies. There have also been accusations of insider trading involving cryptocurrency. These accusations against officials were corroborated by South Korea's Financial Supervisor Service chief, Choi Hyung.