The regulatory policy for cryptocurrencies in South Korea: balancing innovation and investor protection
South Korea is one of the most vibrant cryptocurrency markets in the world, with over **16 million users** (about 30% of the population) holding digital trading accounts, surpassing the number of local stock market investors. In recent years, the government has developed a sophisticated regulatory framework that balances encouraging innovation and protecting investors, especially after the shock of the collapse of **Luna and Teras** in 2022.
**Evolution of the regulatory framework**
1. **Foundational Laws (2018-2021)**:
- **Real-name trading accounts**: Since 2018, the government has required linking trading accounts to bank accounts in the user's real name to prevent money laundering, prohibiting foreigners and minors from trading.
- **Amendment 2020**: This amendment added stringent requirements for service providers, such as obtaining an **ISMS** certification for cybersecurity, implementing **Anti-Money Laundering/Know Your Customer (AML/KYC)** procedures, and registering with the Financial Intelligence Unit **KoFIU**.
2. **Virtual Asset User Protection Act (2024)**:
- Imposing severe penalties for fraud, including **life imprisonment** for those profiting over 5 billion won (3.8 million dollars) from illegal practices.
- It was mandated to store 80% of users' assets in **cold wallets**, compensating users for using their deposits.
**The political landscape and current trends**
- **2025 Presidential Election**: Cryptocurrencies became a major electoral issue due to their impact on **6.27 million investors**, most of whom are young. The elected president **Lee Jae-myung** (Democratic Party) made key promises:
- **Approval of Bitcoin ETF funds**: to attract institutional investments.
- **Launch of a won-pegged stablecoin**: to prevent the outflow of national wealth.
- **Lifting banking restrictions** on exchanges.
- **Bipartisan consensus**: even his rival **Kim Moon-soo** supported ETF funds, reflecting a rare agreement on the importance of advancing this industry.
**Challenges and enforcement actions**
- **Combating cyber crimes**:
- Korea established a **permanent unit for combating cryptocurrency crimes** in 2023, recovering **$500 million** in illicit assets and issuing joint warnings with the United States and Japan regarding hacking groups such as the North Korean **Lazarus**.
- **Restricting unlicensed exchanges**:
- In 2025, app stores **deleted 17 unregistered foreign trading platforms** and imposed fines and prison sentences on violators by **KoFIU**.