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Cryptocurrencies are Necessary For Blockchains to Operate

Joseph Young | February 4, 2018 | 9:09 am
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Bitcoin

Cryptocurrencies are Necessary For Blockchains to Operate

Joseph Young | February 4, 2018 | 9:09 am

Kim Dong-yeon, the Finance Minister of South Korea, firmly stated that cryptocurrencies as incentive systems are necessary for public blockchain networks to operate.

“Blockchain technology can disrupt and revolutionize the world. But, for open-source blockchain networks, cryptocurrencies are necessary as incentives for individuals to participate in the network.”

Yeon’s statement was released this week, following the official decision of the government to not ban cryptocurrency trading both in the short and long-term. During a government hearing held on February 1, Yeon further emphasized his stance on cryptocurrencies, when he stated that the South Korean Finance Ministry has no intentions to eliminate cryptocurrencies or strictly restrict them to the point in which cryptocurrencies can no longer be used in the local market.

“The Finance Ministry has no plans or intentions to eliminate or prohibit cryptocurrencies. Blockchain technology is an important technological breakthrough to fuel the fourth industrial revolution and as such, the ministry will take a cautious approach in regulating the cryptocurrency market. For negative use cases of cryptocurrencies, the ministry will impose strict regulations,” added Yeon.

Previously, several government officials and self-proclaimed influential economists in South Korea claimed that blockchain networks can function without cryptocurrencies, and that cryptocurrencies like bitcoin and Ethereum are not necessary. Yoo Shi-min, a popular author and former government official, criticized bitcoin as a gambling tool, stating that the blockchain is a disruptive technology but cryptocurrencies are not.

Jang Jae-seung, a professor at Korea Advanced Institute of Science and Technology (KAIST), the most prestigious technology-focused university in the country, directly refuted the claim of Yoo, noting that without cryptocurrencies serving as incentive systems, public blockchain networks cannot function. Centralized blockchains are not an option as they lack strong security measures, transparency, and most importantly, decentralization.

Minister Kim echoed a similar sentiment to professor Jang, as he explained that mining is a necessary and a crucial system of open-source and public blockchain networks. Without incentives, individuals do not have the motive to contribute to the network and inevitably, the public blockchain will disintegrate.

“It doesn’t apply for centralized or permissioned blockchains but for public blockchain networks, mining is necessary to create blocks and provide incentive to individuals within the network,” said Kim.

Although the South Korean government and the Blue House, the executive office of President Moon Jae-in, reaffirmed on several occasions that the government will not ban cryptocurrency trading, the statement of Finance Minister Kim strongly reasserted the South Korean government’s intention to regulate and foster the market, to protect investors and help businesses grow.

Cryptocurrency exchanges remain optimistic in the long-term growth of the market and their enthusiasm is demonstrated in the entrance of new cryptocurrency trading platforms into the market. Huobi, formerly the largest cryptocurrency exchange in China, has already obtained 150,000 users on its waiting list and it plans to launch its exchange in the first quarter of 2018.

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