Will South Korea become a global powerhouse in blockchain? The answer is no at this stage as long as policymakers remain negative on the emerging technology.

Technology startups grow three times faster than ordinary companies. The government is three times slower than ordinary companies. This means technology startups are nine times faster than the government in catching up with the latest market trend.

This analogy applies to South Korea. The Korean government appeared to have little idea that blockchain will replace the Internet in the future. Policymakers have yet to understand that the next global leader will be the country which is the powerhouse of blockchain.

Unlike other countries, South Korean policymakers are slow in appreciating the impact blockchain will have on the economy. They tightly ban blockchain startups from raising capital through initial coin offerings (ICO).
Any startup needs cash to fund the development of new technology.

Like the two sides of a coin, blockchain and token are inseparable. Without coin, blockchain could not grow. South Korean policymakers claimed that blockchain could grow without cryptocurrencies.

Blockchain developers need money to develop killer technologies and return the proceeds to investors. Investors must be able to get compensation for the money they put in blockchain developers. Without such a virtual cycle, the blockchain economy, called the token economy, would not grow.

Why does the blockchain will replace the Internet? Blockchain has the characteristics that the Internet does not have.

First of all, blockchain is a decentralized system, removing all intermediaries. Second, blockchain is immutable once records are entered in the ledger. Thus, blockchain manufactures trust.  Blockchain is a medium for creating value and enabling transactions. Internet is just a medium for exchanging information.

It is understandable for the government to get concerned over fraudsters in the blockchain business. But criminals and fraudsters use any killer technology first.

The ICO ban is liking burning your three-room thatched house to catch a bedbug as the Korean proverb goes. The ban is liking shutting down the central bank’s printing machine to contain inflation.

Korea has become one of the Internet powerhouses because the Kim Dae-jung administration has supported Internet startups in the late 1990s. President Kim then said the Internet would power the economy in the future. Thanks to such a proactive government policy, Korea could see the emergence of Naver and Kakao.

It is also true that many fraudsters had abused the state support program for financial gains in the late 1990s. However, they were a tiny portion of Internet startups. The proactive state support created a healthy Internet ecosystem.

Many blockchain startups are moving offshore as they can not get financing in South Korea. Money is not the only impediment to blockchain startups. The government’s negative stance on ICO and blockchain has spawned public cynicism over blockchain developers and cryptocurrency traders.

Few financial firms and cash-rich investors are willing to invest in blockchain startups out of the concern over the government crackdown.

As long as the government remains negative on blockchain and ICOs, only cash-rich chaebol will be able to invest in blockchain, driving out adventurous startups. This would make the Korean economy more and more dependent on chaebol, widening the gap between chaebol and small companies.

“In South Korea, you can not expect the emergence of Amazon, Google, Facebook and Microsoft as the government stifles innovation,” a Seoul business professor said.

Without home-grown blockchain platforms, foreign tech giants would dominate the domestic blockchain market in the future, he added.

For example, Facebook and Starbucks are heavily investing in blockchain-based fintech projects.

According to the Chain Partners Research Center, Starbucks had $1.2 billion in customer deposits in 2016. Starbucks has more cash than a small-size American bank. Starbucks is now constructing a blockchain platform where consumers buy its coffee through Bitcoins worldwide.

The report said Starbucks might become a blockchain-based banking platform in the future.

Many blockchain startups hope that the first regulation-free blockchain zone in Busan would be a place where they could raise capital, develop technologies and commercialize them.