The Financial Services Commission (FSC) announced today it was outlawing initial coin offerings (ICOs) using any kind of digital cash.
This comes after it was discovered North Korean hackers have been stealing bitcoins from the south to prop up Kim Jong-un’s regime.
ICOs are a new form of fundraising used by cryptocurrency startups.
Instead of buying shares with their investment, stakeholders are provided with virtual currency which can be spent once the company’s new software is up and running.
But concerns have been raised over the recent rise of ICOs – sometimes known as “token sales” or “coin sales” – which are described as “very high-risk, speculative investments” by the UK’s Financial Conduct Authority.
Some of the startups are legitimate but have poorly thought out business plans meaning investors end up losing their cash, and some are just outright scams.
A statement from the Korean FSC today said: “Raising funds through ICOs seem to be on the rise globally, and our assessment is that ICOs are increasing in South Korea as well.”
The regulator said “stern penalties” would be imposed on any businesses and individuals involved in launching ICOs.
It comes after similar steps were taken in the United States and China.
The news caused the Bitcoin value to drop two per cent.
Cybersecurity firm FireEye revealed this week it had traced three attacks on cryptocurrency exchanges in Seoul back to the Kim Jong-un’s rogue state.
The attacks took place between May and July last year and one was successful.
Jeffrey Dorfman, professor of agricultural and applied Economics at the University of Georgia, told CNBC: “The ability of regimes like Kim Jong-un’s North Korea to mine or steal cryptocurrencies such as bitcoin is a new reason to be cautious in treating these commodities as currencies.
“While rogue states have practiced counterfeiting even longer than they have been computer hacking, counterfeiters are easier to catch.
“Once a cryptocurrency is stolen, it is virtually impossible to stop the new owner from spending it, and doing so in untraceable ways.”