The Opportunity for South Korea to be a Leader in Blockchain Innovation
South Koreans love cryptos but regulators are cautious. Can there be a catalyst to connect Korean blockchain projects with Western investors and partners? Here’s how I’m hoping to help with the announcement of my first 5 projects in Korea.
In February, I attended the 2018 Winter Olympics in PyeongChang, South Korea. It was a beautiful celebration of athletes from all over the world competing at their peak performance. South Korea was a wonderful host country, and it was an honor to experience this special event in person.
My trip turned out to be about more than sports and great food, as I also learned first-hand about a powerful trend in the country: an awakening to the fascinating opportunities in blockchain and cryptocurrency.
The Startup Ecosystem in South Korea
South Korea is the 4th largest economy in Asia and 11th worldwide. The South Korean workforce is highly educated and, in many areas, highly technical. Large, successful conglomerates have been built and are often run by wealthy families. It is an incredible economic achievement that following the war, South Korea was able to make the leap from one of the poorest countries to a developed and high-income country within a single generation. The world acknowledges and respects the fact that Koreans are proud and motivated people.
Logically, following this economic growth, an active startup ecosystem has emerged, particularly in Seoul. What’s interesting about Korean startups is that they mostly serve the Korean people with ideas that cater to the unique aspects of their culture. Very few startups have been able to branch out of the Korean market, which has a population of 50 million people and naturally has its own language and customs amongst other Asian countries.
I had the pleasure of meeting with 김종갑/Mr. Jongkap Kim, Chief Executive Director of the K-ICT Born2Global Centre in Pangyo. Born2Global hosts 50 startups in their business centre, and provides mentoring and services to help them expand their business to the Americas, Europe, and China. He shared the successes and challenges of this mission in our discussion, and I offered to be a resource in Silicon Valley to his companies.
This discussion also planted a seed that would germinate later in the year.
Meanwhile the Crypto Market Changes Course
At the time of the Olympics, there had been a rush of ICO activity in the prior 9 months, with billions of dollars raised for thousands of projects. Bitcoin and Ethereum had recently hit all-time high prices, and early investors were suddenly extremely wealthy.
Some of the ICOs were legitimate — strong teams solving real problems with advanced blockchain technology. But other projects were unfortunately scams, and some were simply opportunistic fundraises that would later be scrutinized and collapse.
By mid-2018, the crypto market was losing its newly adorned shine, and investors were pulling back. Some crypto funds were seeing double digit losses year-to-date as the market was highly correlated to the top coins. Many projects were delaying their token sales. Regulators were issuing warnings. Everyone was in the same sinking boat and trying to read the proverbial tea leaves as to which way the market would go.
Yet while the bear market was seemingly in full effect, the activity in South Korea was still heating up. From some reports, nearly 40% of the young, professional population in South Korea owned and traded cryptos. Projects like ICON (ICX), which was seen as a very successful token sale by a Korean team with strong after-market trading performance, made cryptos a household discussion in Korea.
In Korea, there is a widespread opinion that investing in cryptos and working on blockchain projects was a once-in-a-generation wealth creation opportunity.
Korean startups pivoted to launch ICOs, funds and family offices turned their focus to investing in cryptos, and local exchanges exploded in trading volume. Even when Korean regulators signaled caution with respect to token sales, projects continued to push ahead by creating offshore entities for the purposes of fundraising.
This past July, Korea Blockchain Week took place in Seoul and was considered the largest crypto networking event in Asia. Nothing seemed to be stopping the excitement for blockchain in Korea; and I wanted to find out why.
My Investment Thesis for Blockchain
As an entrepreneur, I have operated in a variety of industries, including blockchain, fintech, gaming, analytics, and payments. I was founder/CEO of bitcoin security firm BitGo from 2013–15, during a time when bitcoin was just becoming known to the masses and well before the first ICO.
As an angel investor, I have a portfolio of companies both in the blockchain world and also in markets like gaming, SaaS, and healthtech. I try to invest early in entrepreneurs who have a big vision to change the world, and I see my role as helping to clear obstacles and accelerate execution. You can read more about my angel investing approach in this 2015 blog post.
In my blockchain investments, I’ve carried that philosophy forward, but instead of purchasing equity, I buy tokens. I’ve invested in a number of foundational projects that have demonstrated leadership in their respective category, including Hub (reputation), Civic (identity), Orchid (privacy), Akash (cloud computing), Nodle (IoT), Lottery.com (lottery), CashBet (iGaming), Acquired.io (ad tech) and Telegram (messaging).
I’m also an advisor to a number of funds that invest in crypto projects, including Blockchain Capital, Arrington XRP Capital, Dispatch Labs, Elysium Venture Capital, Fabric Ventures, and others; and I’m a founding member of Silicon Valley Blockchain Society. I provide strategic and technical advice to these funds as needed, and sometimes co-invest in deals.
With all of these activities, I have my own point of view on the blockchain market. I don’t follow the herd, so to speak, and I avoid investing in oversubscribed projects that are raising too much money in an ICO. I look for the potential of market leadership, a team that can scale, and a valid reason for a token economy.
Here’s an article by the Korean press about this same approach that I shared at a 250-person meetup in Seoul in August 2018.
While I’ve historically found these types of projects in Silicon Valley, I’m now turning my attention toward South Korea and am pleased to introduce my first 5 projects here.
First Korean Project: Insureum from Zikto
During my trip to the Olympics, I met with the founders of Zikto, a startup seeking to help insurance companies create new products on the blockchain. After further research, I agreed to become an advisor to what would be my first Korean project, Insureum from Zikto.
Zikto is bridging the technology gap between insurers, their policyholders, and third parties using what they call the Insureum Protocol. Insurance is a vertical perfectly suited for blockchain innovation. With blockchain, there can be improved customer experience, reduced costs, and enablement of new insurance products that use smart contracts.
The Zikto founders, Ted Kim and David Suh, are both native Koreans who were educated in the United States and have work experience in Korea. They had previously participated in the Born2Global incubator and had been working on their business for several years by the time they approached me. They had partnerships lined up with major insurance companies, a viable token model, and early funding. I wanted to help them succeed while also learning about the Korean market.
Zikto launched the Insureum token (ISR) in April and by the end of May had sold out in the presale, collecting 20 billion won (US$18.50 million) from an investor pool that included institutional investors and insurance firms. Even in a looming bear market, this small startup from Korea was able to use a blockchain business model and a token sale as a way to reach global investors, partners and developers.
Building a Catalyst for Korean Blockchain Startups
With its funding, Insureum was the latest example of how blockchain innovation was powering the creation of new jobs in Korea. Is this a model that could be replicated with other startups? I came back to Korea in August to find out and search for more projects.
I spent a week on the ground meeting with startups, exchanges, investors, journalists, and other key players in the Korean blockchain market. It was abundantly clear that top talent in Korea was turning to blockchain and cryptos for the perceived wealth creation opportunity. And like with other periods of rapid economic growth, Korean companies were scaling quickly.
This opportunity, however, was not without significant challenges. First, regulators and government ministry officials in Korea expressed concerns about cryptos because, of course, they wanted to protect citizens from being scammed or losing money in speculative trading activities.
Second, companies in Korea were unsure how to reach foreign investors such as the leading funds and angels in Silicon Valley, Europe and China. Paying exorbitant fees to sponsor exotic blockchain conferences and managing large, noisy communities on Telegram seemed to be the only known playbook.
There are some local Korean funds who have begun helping blockchain startups accelerate and bridge to the rest of the world. One such example is #Hashed, whose stated mission is to empower networks and innovators
in building the decentralized future. They hold a portfolio of Korean crypto investments and projects they have accelerated, as well as investments in projects across the world.
After meeting with a number of Korean entrepreneurs, I concluded that this is a great time to support this market. In an interview with Korean financial press, I shared my strategy for acting as a catalyst for Korean blockchain startups to connect to the rest of the world, within the bounds of what is allowable by regulators as the market evolves.
In addition to Insureum, I joined as an advisor to 4 more Korean blockchain projects, as well as a leading Korean accelerator and fund, BLOCKCHAINi. Like with all of the companies in my portfolio, I plan to provide strategic and technical advice, introduce these projects to relevant and influential people in my network, and support the entrepreneurs on their journey.
I’m proud to share these projects here. I’ve spent quality time with each of the founders, delved into their vision and strategy, and believe that each can be a success like Insureum, to become models for other Korean projects to follow.
BLOCKCHAINi — Korean Blockchain Accelerator
BLOCKCHAINi is a leading accelerator in Korea that has helped a number of blockchain projects to successfully come to market. Some of their clients include Origo, Blockcloud, and Chromaway. They also acted as an incubator for HINTChain, Insureum, and TEMCO.
CEO and co-founder Andre Yunsoo Kim told me that this is a special time for South Korea. He and his partner Victor Kim started BLOCKCHAINi because they wanted to work with the best projects and show the rest of the world that Korean blockchain companies can compete at a global scale.
GameXCoin — Industry: Gaming
GameXCoin (GXC) provides a technology infrastructure for game developers to integrate their in-game currency on a blockchain. Game developers issue game currencies on the GXC blockchain and the GXC coin becomes the key currency for trades between different game currencies.
At a time when game development costs are skyrocketing, GXC can enable game developers to harness the power of the blockchain for more transparent transactions between players, a decentralized token economy, and a reduced dependency on third-party payment processors.
Gaming has always been an industry where innovation moves quickly and it’s exciting to see a gaming blockchain platform in GXC.
HINTChain — Industry: FoodTech
With 8.5 million users across Korea, China, and Southeast Asia, HINTChain is one of the few Korean blockchain projects (in the world) that is introducing a token economy to an existing distribution.
The company has developed an AI-based, personalized taste recommendation platform. Users open the app regularly to be presented with food selections based on factors like reviews, diet history, purchase history, and a personalized taste profile that expands over time.
HINTChain plans to put the taste profiles on the blockchain so it can enable other players in the value chain to give better recommendations to users. Imagine grocery stores, restaurants, and brands incorporating personal taste, and potentially compensating users for sharing their data.
HINTChain founder Paul Jiwoong Chung (郑志雄,정지웅) has been working in the personalized recommendations space for a long time, and finally hit it big with his food preference app, which was named best of Google Play Korea in both 2015 and 2017.
ScanetChain — Industry: AR and Advertising
Scanetchain is a decentralized platform for augmented reality (AR)-based advertising. It’s a blockchain-based platform that allows brands to register real-world objects as AR anchors for unique marketing placements.
For example, Scanetchain is working with a cosmetics brand that is sold in major department stores in Korea. Consumers can user their phones to scan actual physical products (as if one scanned a QR code) and the phone immediately shows videos about the products and provides links to purchase at retail locations.
By incorporating blockchain technology, both brand and consumer data are held in a decentralized system made available via API. This allows other companies to build on Scanetchain’s platform, opening up a bigger market for AR-based experiences such as scavenger hunts and Pokémon Go or Ready Player One types of interactions.
TEMCO — Industry: Supply Chain
TEMCO is a supply chain platform built on the Bitcoin blockchain using Rootstock’s (RSK) smart contracts, and is the first official RSK partner in Korea. Using blockchain technology, they connect isolated supply chain systems and offer new data services.
For companies, they provide a business intelligence layer to optimize and improve their supply chain. For consumers, they provide tracking data in real time and a cryptocurrency payment gateway.
Supply chain is a classic example for blockchain-based disruption, moving from inefficient paper systems to digital smart contracts.
It’s an exciting time for the blockchain industry, and I believe South Korea has an opportunity to play a leading role. People in Korea have jumped on the blockchain movement because they feel this is a rare opportunity to grow their careers and generate wealth. By adding a token economy to their businesses, startups and even large companies have the ability to connect with investors, partners, and developers outside of Korea like never before.
Regulations must be in place to ensure that the people of South Korea are protected. Many people I spoke with in Seoul feel that it is a reasonable expectation that regulators will ultimately support businesses in the blockchain industry with clearer guidance. Perhaps blockchain innovation can be a new catalyst for job creation in South Korea.
I’m excited to partner with these first 5 Korean blockchain projects, and I look forward to meeting others who share our collective vision.
I’m also proud to finally learn my Korean name.
Please note: These views are my own. None of this constitutes financial advice. I am an investor or advisor to many of the companies and projects I mentioned in this article, but I am not in any way promoting these as investments for others. Please read this to learn my current point of view on the blockchain market, which is subject to change, and conduct your own research before making any decisions of this nature.