'BOK asked to consider issuing digital tokens'
Smart PlanetA senior researcher at the Korea Institute of Finance (KIF) said Sunday that the steep price gains of cryptocurrencies such as bitcoin, don't pose a threat to financial stability and claimed central banks need to "seriously consider" issuing digital tokens.
In a report, researcher Lee Dae-ki said bitcoin's recent price moves were "significant" and more like an "equity-type risk," therefore, a decision by central banks to issue digital currencies on a blockchain platform could help them save costs for the issuance of such currencies, which will eventually allow consumers to make easier payments.
Blockchain is the technology behind bitcoin. Simply, it's a database of sorts allowing bitcoin to function without having backing, like banks, controlling it. Instead of an accountant tracking banking transactions, there's blockchain on an Excel-like spreadsheet for all the administration.
Pointing out the nature of the technology, Lee said all sorts of cryptocurrencies have a greater potential to become a "revolution in finance."
"Technology based on blockchain, the distributed accounting database, will show great promise in enabling central banks to improve their defenses against cyber attacks and overall the way payments are conducted between institutions and consumers," Lee said in the report.
For example, the Bank of England, started a financial technology accelerator in 2016, a Silicon Valley-type practice to incubate young entrepreneurs. While the United States and some European countries are weighing more on the value of cryptocurrencies, Korea is taking a hard line stance toward cryptocurrencies by planning to implement tax on capital gains from their trading.
Lee cautioned that the Bank of Korea (BOK) is still a long way from creating a digital version of the Korean won as digital tokens still have a confusing legal status. He said privacy issues will become another challenging factor, the reason why the KIF hasn't been overly enthusiastic about the idea of a central-bank issued answer to bitcoin.
"Regular currency or commodity regulating cryptocurrencies such as bitcoin are, in part, held back by the government's growing inability to officially name what it actually is. Some countries regard digital coins as commodity, while other places are treating them as regular money. That's why there are limits for virtual currencies to be widely used as a platform for value exchange," said the researcher.
But the KIF researcher said it's possible for central banks to issue digital tokens on blockchain technology and allow them to be traded with an equal face value, which he believes is the way to cut down on speculative trading.
"This will overhaul the banking industry as banks will have to compete with digital currency systems by providing higher interest or additional services which will be beneficial to consumers," said the researcher in the report.
However, the report didn't mention how to solve the scaling issue of cryptocurrencies. Currently, only one megabyte of transactions can be processed at any one time, leading to delays. The demand for bitcoin has been 매 significant recently, that those creating the cryptocurrency can't keep up, slowing transactions. Therefore, market analysts and experts say it's required for bitcoins to see a slowdown in transactions to become a commonly-used currency.