[칼럼] Korea Story 21 - Economy and Finance 4 by Atty Jeong-kee Kim

(Newskorea=Seoul) Digital News Team = Korea Story 21 - <Economy and Finance 4  by Atty Jeong-kee Kim>

● New Technology called BLOCKCHAIN

When discussing blockchain, the most common question is whether blockchain and Bitcoin are the same or different. The answer to this question can be seen as a matter of perception. Some argue that blockchain and Bitcoin should be viewed as the same, while others believe they should be seen separately.

Experts often compare them with analogies such as, “If the virtual currency market is a tree, blockchain technology is the root that supports it,” “If blockchain is a car, virtual currency is the engine,” or “If blockchain is a highway, virtual currency is the vehicle traveling on it.”

It is generally understandable. This may indeed be a matter of perception. Virtual currency is one implementation of blockchain technology and can be seen as a result of blockchain.

However, the most important point is that blockchain and virtual currency cannot be considered separately. Moreover, blockchain and virtual currency cannot be separated from digital finance because blockchain is a new technology that originated from financial data processing.

Blockchain is a technology designed to securely store financial data and is also referred to as a public ledger or digital ledger. Instead of storing financial data on a central server, it is distributed and stored among the participants in the transaction, making it a P2P system that is resistant to hacking.

To clarify, let’s consider a simple example. Suppose A and B are trading a product with each other. B can trade the same product not only with A but also with C and D. Similarly, A can trade the same product with C and D, and C and D can trade the same product with each other.

In this process, the transactions are automatically recorded on each individual’s ledger through a P2P distributed network. The term ‘blockchain’ comes from combining ‘block,’ which refers to individual transaction ledgers, and ‘chain,’ which signifies the connections between them.

At first glance, it might seem trivial to share and distribute information among individuals, but blockchain is not to be underestimated. Its technological value is immense, and its potential applications are vast, to the extent that it is considered the completion of the Internet revolution.

We are living in the Internet age, which began in the mid-20th century and was fully integrated into our society in the 2000s. The Internet now dominates nearly every aspect of our lives. Without the Internet, we would be unable to do much or easily obtain the information we need.

For example, before the Internet, if you wanted to understand an unfamiliar word, you needed a dictionary. For knowledge and information, you had to consult encyclopedias. News and information were dependent on newspapers, TV, and radio, which consumed a lot of time. However, in the Internet age, a few keystrokes on a computer allow us to obtain the desired information almost instantly.

However, the Internet is not without its problems. All knowledge and information are concentrated on servers. In simple terms, power is centralized in one place. The server is like a monarch who holds all the power and exercises it as they please.

Managing centralized and concentrated servers incurs immense social costs, and expanding their capacity involves significant expense each time. Moreover, servers are easy targets for hackers and can become overloaded and crash if there is a sudden influx of users.

To overcome these drawbacks of the Internet, blockchain was developed through persistent efforts. This is why blockchain is considered the completion of the Internet. Centralized servers develop and expand their capacity based on their accumulated knowledge.

In contrast, blockchain is a revolutionary technology that allows individuals to share necessary information without a central server. Due to the distributed nature of information among numerous individuals, hacking is nearly impossible. The advent of blockchain signifies a shift from an expert era to a common people era. Therefore, even if virtual currencies face problems, blockchain, which underpins them, must be preserved and protected urgently.

One expert compared virtual currencies and blockchain by saying, “If virtual currency is a car, blockchain is the engine. Abolishing virtual currency is like trying to promote the automobile industry while preventing the production of engines.”

Another expert likened blockchain to infrastructure such as highways, while virtual currency is just a single car driving on that highway. The expert remarked that if a single car is speeding and the response is to close down the highway, it would be a significant problem.

A good historical example of this is the 19th-century British Red Flag Act. At that time, horse-drawn carriages were a major means of transportation. When steam-powered cars emerged due to the industrial revolution, carriage drivers, feeling threatened in their livelihoods, collectively opposed the car industry.

In response, the British government created the Locomotive Act, which regulated the operation of automobiles on public roads. According to the law, automobiles had to be preceded by a person waving a red flag at least 50 meters ahead, and the vehicle had to carry three people: the driver, a crew member, and a flag bearer. Speed limits were set at about 16 km/h in rural areas and about 8 km/h in urban areas. Although the act was revised several times, its basic framework remained largely unchanged.

The Red Flag Act stifled the growth of the British automobile industry, and caused it to fall significantly behind Germany, France, and other countries. By the late 20th century, when Prime Minister Margaret Thatcher's tenure saw a significant increase in Japanese cars like Toyota entering the UK market, British car manufacturers petitioned Thatcher to prevent the entry of Japanese vehicles.

In response, Thatcher famously retorted, “If you can’t keep up with Japanese cars from such a faraway country, then don’t bother making cars at all!” Her remark silenced the representatives of the British car industry. Despite this, the UK’s automobile industry remains behind other production countries. Similarly, improper regulation of virtual currencies could stifle blockchain technology, causing the country to fall behind in global finance.

There are generally two types of blockchain. One is a Public Blockchain that is open to anyone, and the other is a Private Blockchain in which only specific participants such as companies can enter. Technological innovation is achieved in a Public Blockchain in which anyone can participate. It happens. Cryptocurrency is a public blockchain. If regulation is excessive, blockchain will inevitably shrink.

Furthermore, blockchain is a new technology with applications in almost every field. As previously explained, blockchain distributes data across users in a network using a P2P method, creating a structure that is virtually immune to hacking. This allows only participants in the distributed network to securely share data.

A good example is the recent case of Walmart in the US. As a well-known global retailer, Walmart operates over 5,000 stores in many countries and employs 1.5 million people, making it one of the largest companies in the world by sales.

After Walmart entered the Chinese market, it faced significant challenges with the distribution of substandard food products. The poor hygiene conditions of Chinese suppliers and the widespread distribution of counterfeit and low-quality food made it difficult to discern the authenticity of products, with pork, a staple in China, being a particularly severe issue.

Unable to ignore the issue any longer, Walmart collaborated with IBM to fundamentally solve this problem by adopting a new data storage method that tracks the entire process of food production, distribution, and delivery in real time. This was made possible by blockchain technology.

Similarly, in the transportation of fresh food, regardless of the distance, information on the food's location, temperature, and humidity during transit is sent every 10 minutes to stakeholders, including the shipper and the carrier. This eliminates numerous inspection procedures and cumbersome paperwork, thanks to blockchain’s innovative technology.

Blockchain’s revolutionary technology is now being applied in various fields beyond finance, including logistics, security, distribution, authentication of artworks, copyright protection, gem appraisal, counterfeit currency prevention, and electronic voting. As a result, major corporations in advanced countries are racing to develop and utilize blockchain technology.

Korean conglomerates are no exception. Samsung SNS established a dedicated organization in 2015 to develop blockchain platforms, which are used for electronic document verification, biometric authentication services, and automatic login services for partners, as well as to prevent document forgery and simplify document issuance. They also plan to integrate blockchain technology with IoT in trade, shipping, finance, and insurance.

LG CNS has participated in the International Fund Transfer Pilot Project, which is a joint initiative by 22 domestic and international banks. They have partnered with R3, the world’s largest financial-focused blockchain consortium, and launched the LG CNS Blockchain Platform. They are also expediting the practical application of blockchain technology for insurance claim verification.

SK C&C has developed a Blockchain Mobile Digital ID Authentication Service. This system allows customers with a digital ID to use services at affiliated financial institutions, shopping malls, cinemas, etc., by simply entering an identification code. Additionally, SK C&C applies blockchain technology across various industries, including finance, telecommunications, logistics, and services.

Additionally, companies like Lotte Information & Communication and POSCO ICT are also developing blockchain services. Particularly, South Korean conglomerates are fiercely competing to dominate the blockchain market in banking, insurance, and other financial sectors. Currently, blockchain technology is primarily used for authentication purposes in the financial industry.

It is encouraging that South Korean venture firms and startups are actively engaging in blockchain technology development. These companies have been interested in the potential growth of blockchain technology even before the cryptocurrency boom, though their concrete achievements have been modest so far. However, with blockchain technology gaining prominence as a new technology, development efforts are accelerating.

Companies like Cton and ' Medibloc are integrating blockchain technology into the medical field. Medibloc is developing an app that could break the traditional practice of hospitals and governments monopolizing patient medical information. The goal is to encrypt and store patient information received from hospitals so that other hospitals can access it as needed.

Cton is developing blockchain technology to streamline the process of issuing medical certificates and statements, which amounts to over a million documents issued monthly. Meanwhile, fintech company Sentbee offers an overseas remittance service using blockchain technology, inspired by the high demand for remittances from Southeast Asian workers in South Korea.

Another blockchain startup, Chain Partners, launched a payment service called Coinduck, allowing cryptocurrency to be used at offline stores. Many other ventures and startups are also developing highly practical blockchain technologies, creating considerable anticipation.

Additionally, blockchain startup company Chain Partners launched Coinduck, a payment service that allows cryptocurrency to be used at offline stores, early this year. In addition, many venture and startup companies are developing blockchain technology that has great practicality, so we are very excited.

Regardless of how new a technology is, one clear expectation is that blockchain technology could bring significant changes to fields requiring intermediary services, such as real estate agencies where contracts between parties necessitate intermediaries.

Especially in corporate accounting, which has traditionally been prone to issues like financial statement fraud due to management’s control, blockchain technology could enable real-time sharing of digital ledgers among stakeholders. This would make it more difficult for managers to manipulate information for their benefit, significantly improving the reliability of corporate accounting and tax reporting.

However, the roles and functions of intermediaries such as tax accountants, auditors, real estate agents, and agricultural and marine product brokers could be greatly reduced, potentially leading to their disappearance. Nevertheless, there is an argument that it will take significant time for blockchain systems to be fully integrated into institutional frameworks, so this concern might be premature.

On the other hand, there are some negative perspectives on the activation of blockchain. One expert argued that blockchain is not a new technology but one that has been around for 30 years, and the claim that it is a core technology of the Fourth Industrial Revolution is exaggerated.

The expert further stated that blockchain has only recently found efficient applications in financial transactions after over 30 years, and that it is still possible for blockchain to be hacked, suggesting that excessive idealization of blockchain should be avoided.

While this perspective cannot be dismissed entirely, I hold a different view. Although the principles behind blockchain may have been understood more than 30 years ago, it was not practical until now. The real practical implementation began with the advent of cryptocurrencies like Bitcoin.

Consider automobile driving as an analogy. Drivers understand how cars work and how to operate various controls, but the car needs to be started to move. Even then, starting can sometimes be problematic.
 
However, once the car starts and moves, the driver can accelerate as desired. Similarly, while hacking remains a concern, internal hacking is a valid point. Nevertheless, there is currently no more secure online network system than blockchain.

Blockchain technology is undoubtedly promising for the future, but South Korea is still in its infancy regarding its implementation. It is suggested that it will take more time for companies to fully integrate public blockchains into their operations.

Just like kindling a fire, it’s challenging to ignite the wood, but once the fire starts, it quickly burns brightly. Similarly, blockchain in South Korea is already ignited. Although we lag behind globally, our infrastructure is well-established. With proper direction and active government support, we can catch up with and even surpass advanced countries.

The Korean Blockchain Association, chaired by Jin Dae-je, a former Minister of Information and Communication who led the development of South Korea’s Internet industry, includes exchanges like Bithumb, Korbit, Coinone, and Coinplug, as well as over 50 blockchain security companies from more than 80 countries. This association is expected to greatly contribute to the stabilization of cryptocurrency transactions and the advancement of blockchain technology. There is also a Korean Blockchain Society dedicated to blockchain research.

Blockchain is now an undeniable global trend. A venture entrepreneur remarked, “Blockchain technology is a true blue ocean. Unfortunately, domestic development is not as advanced as in leading countries.”

Traditional institutional financial markets are dominated by advanced countries like the US and the UK. However, for emerging cryptocurrency markets, South Korea, along with Japan, holds significant influence. Such opportunities are rare.

We must not miss this chance. It is undeniable that speculative forces and illegal activities are rampant in our cryptocurrency market. However, as the saying goes, “Burning the house down to catch a flea,” we should not recklessly and aggressively destroy the cryptocurrency market.

Instead, we should reasonably regulate irrational speculation and illegal activities while seriously considering ways to legitimize cryptocurrency transactions. This is crucial because cryptocurrencies are fundamentally based on blockchain technology. As one expert compared, if cryptocurrencies are the tree, blockchain is the root. Blockchain and cryptocurrency are inseparable and must coexist.

Thus, we should aim to lead the global cryptocurrency market and secure dominance in blockchain platforms. To achieve this, we need to actively nurture blockchain as a major industry of South Korea, striving to become a global powerhouse in blockchain technology. This represents a crucial path to achieving dominance in the global digital financial market.

☆ Author:  Atty Jeong-kee Kim ☆

● Education
- Bachelor of Arts in Political Science, Summa Cum Laude, State University of New York at Stony Brook
-  Doctor of Jurisprudence, Marquette University Law School
- Senior Executive Program, John F. Kennedy School of Government, Harvard University
- Research Scholar in North Korean Studies, Peking University

● Experience
- Consul General of the Republic of Korea in Shanghai
- Commissioner General for the Korean Pavilion at the 2010 Shanghai Expo
- CEO, Asia-Pacific Local Government Network for Economic and Social Development (CityNet)
- Secretary General, World Smart Sustainable Cities Organization(WeGO)
- Law Clerk, Milwaukee Circuit Court, USA
- Senior Attorney-at-Law, Dr & Aju LLC
- Distinguished Visiting Professor, World Economy Research Institute, Nanjing University
- Research Professor, Institute of Oriental Studies, Peking University
- Distinguished Professor, Graduate School of Political Science, Kookmin University
- Chair Professor, Graduate School of Business, Dongguk University
- First President of Soongsil Cyber University

● Publications
- Georo English Studies Series for College Students [10 volumes] (Georo Publishing)
- I Challenge the Possibility of One Percent (Chosun Ilbo)
- The Art of Negotiation (Cheongnyonneongsin Publishing)
- Korea and the World (Chekmidum Publishing)