Why are young people in Korea going crazy for Cryptocurrencies?
Cryptocurrency fever in Korea
In January 2018, the nation’s Justice Minister made the statement that “Cryptocurrency trading is gambling, cryptocurrencies are not actual money, they are just virtual tokens, and we are considering closing the exchanges altogether.” The remarks shocked investors, and the skyrocketing prices of cryptocurrencies have dropped. There are several reasons for the price increase and reduction, of course, but it is generally thought that the Korean government’s strong stance played a major role in this event. The Justice Minister’s remarks were made in part as a reaction to the Korean market’s hot, and largely uninformed, craze for crypto. All the young people, and the elderly also, didn’t really know what cryptocurrency was. All they saw was that the prices had gone up dramatically, and after a few tests they made a profit, so they didn’t ask questions — just invested money.
Young people especially saw that with cryptocurrency they didn’t have to work late at night and struggle. It quickly became apparent that if they put all the money they had into crypto, they could quickly earn a few years’ salary. As a result, as of January 14, 2018, Korea’s crypto transactions were valued at 29.8 percent of the global trading market and $32.6 million in average daily transactions. The share of people participating in their 20s and 30s was 56.7 percent. In addition, while the share of Bitcoin in the world market was 70 percent, the amount of Bitcoin transactions in the Korean market was 32.7 percent and the rest were alt coins. That is because the lower priced alt coins were more likely to make a higher profit than the higher priced Bitcoin. So the younger generation took a high risk with the intention of earning a large amount of money in a short time.
Why is it that young people in Korea are particularly addicted to virtual money?
In short (and this might be unexpected or even shocking, but this is what we learned during a recent trip to Korea) — it is literally a question of “survival” for the young Korean generation. And here is why.
Amid the continuing economic slowdown in the world’s major economies over the past few years, serious phenomena have occurred in Korea as well, including a lack of jobs for young people, job insecurity, early retirement of middle aged people, negative polarization and generally rising unemployment. In February 2018, the National Statistical Office announced that as of 2017, the total number of unemployed people was 1 million, of whom about 40% were young people in their 20s or 30s. The unemployment rate among young people was 9.9 percent — one in 10 young people did not have a job. Worst of all, while the youth unemployment rate in OECD countries has recently been improving to levels before the global financial crisis, Korea is showing the exact opposite trend due to export-driven economic growth, the robotization of manufacturing, cheaper relocation of factories to China and Vietnam, and a high level of education and university entry. As artificial intelligence and automation robots become more widespread, job losses are expected to grow and the job shortage for young people will worsen.
This drop in jobs is likely to be a global trend. However, there is a more serious issue in the Korean society.
Only 50 years ago, Koreans had nothing to eat, so they could barely survive by boiling their porridge with western-supported flour from the United States, Europe and elsewhere. With the success of government-led economic development policies between 1970 and 1980, the country has achieved rapid economic growth and is about to surpass the mark of $20,000 in gross national income in 2006 and $30,000 in 2018. Korea has turned into a high-tech IT society where people carry the latest smartphones from Samsung and Apple, and it is ranked third in the world on the list of Mercedes Benz E and S-class sales as of 2017 (the sales volume is higher than in Germany).
Parents who have experienced poverty in the past are spending a great deal of money on their children’s education to pass along their economic success and social status. Accordingly, the college entrance rate in 2018 has reached 80 percent. But while a high quality workforce is plentiful with college graduates, the job market has narrowed down, creating serious social problems with a surge in highly educated unemployed people. Young people have also made it difficult to get into university because of fierce competition. It is not too much to say that getting a job is almost war. For example, LG CNS, a large company and major employer, received 10,000 applications for 30 positions in 2017. Most other large companies are in the same situation. Even if you do work, the average length of service at large companies is less than five years — seven at most — and four years is typical at small and medium-sized enterprises (NSO, employment statistics, 2017).
Young people who grew up witnessing this phenomenon have learned that this tragic future will come to them soon too. Because of these social structural problems, it is very difficult for young people to find other ways to lead their lives.
So young people began flocking to cryptocurrency in 2017 as the media filled with rumors of people making tens of millions or billions of krw from their investments. For example, in early January 2018, a young man in his 20s appeared on TV after he made 30 billion krw, and during the interview, made an additional 3 billion krw in real time as cryptocurrency boomed. While requiring no personal effort, high profits from the crypto market could be their only chance to change their lives. That is why Korean youths are so eager to participate in virtual currency investment.
The Present Situation in Korea
By the end of 2017, it appeared that the South Korean government would deny cryptocurrencies or ban transactions, but on March 8, 2018, the government changed its attitude and determined that it would apply blockchain technology to six areas:
1. A clear electronic voting system (Central Election Commission)
2. Certification for blockchain-based electronic documents (Ministry of Foreign Affairs)
3. A reliable management system for animal services (Ministry of Agriculture, Fisheries and Foods)
4. A smart contract-based real estate transaction platform (Ministry of Land, Infrastructure and Transport)
5. A fast and efficient smart personal customs service (Customs)
6. An online platform to support youth activities (Seoul City Office)
The government is even pushing for a contest among companies to develop blockchain pilot projects on the six selected tasks. The participating companies are limited to Korean companies, but the government will award $606,000 USD for each of the winning projects. There is not a limit or specification on what type of blockchain technology to use (Ethereum, Cardano, Hyperledger, etc), so the field is currently wide open.
So in just two months, fueled by the cryptocurrency speculation craze, blockchain is now being used as a future growth engine for the country, and the government is encouraging technology development going forward. This change happened because when the government’s comments to abolish the cryptocurrency exchanges sent a huge blow to the prices, young people complained loudly enough to the presidential office’s bulletin board to withdraw the abolition, and many have declared their objection to the ruling party candidate in the June local elections.
The next challenge is how to change lives and run businesses using blockchain technologies. In just a few months, the focus is expected to shift from cryptocurrencies speculation to business applications, where the new kinds of business models will be created.
The world’s highest Internet speed and smartphone penetration rates have created an IT-friendly environment for an entire generation in Korea, and as 5G super-fast communication technology is implemented in 2019, core security technologies and artificial intelligence networks will be applied. Remembering that cryptocurrencies are tied to blockchain technology operations, it is expected that these future developments will be a great boom to the cryptocurrency market.
tl;dr Not only Koreans but also other Asians are coming for real-world blockchain development. The next round of fierce competition is around the corner. What might it mean for prices/valuation? We have strong reasons to believe that the crypto market valuation by the end of the 2018 will be completely different from what the majority (crowd) now believes it will be. Asian fierce competition is one part of the puzzle. But not the only one. Stay tuned, we will keep publishing more on this topic.
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