Cryptocurrency exchanges are cropping up everywhere. The initial cost is so low that you can establish an exchange with a mobile version only with 50 million won. Moreover, there is no essential registration procedure as the Korean government has deprived cryptocurrency exchanges of the status of communication vendors. The government classifies exchanges as “cryptocurrency distributors,” saying the name “exchanges” might leave crypto investors confused. Although a growing number of investors fall victim to the spreading confusion in the crypto space, the government just looks on with folded arms.
According to the blockchain industry Wednesday, tens of new exchanges are established in one month amid the crash of the cryptocurrency market. As of November, about 60 exchanges are in operation in Korea, most of which opened this year. Many of them are being run by outsourcing companies, not by their own development manpower.
A variety of development companies have jumped on the crypto exchange creation market amid rumors that there is good money in them. Such big platforms as Huobi and Coinone also entered the market to provide their partners with solutions on crypto exchange opening, security and risk management. Some Korean outsourcing firms offer specialized services on exchange development and opening.
The problem is that such exchanges cause investors lots of damage, failing to observe the opening schedule or react promptly to the computer glitch. Small and mid-sized exchanges such as PureBit and Hitkorea, which inflicted losses on customers recently, had been built by outsourcing firms. Investors are increasingly worrying about capabilities of newly founded exchanges that went into operation months after letting oursourcing firms take charge of server construction and design. Given the characteristic s of cryptocurrencies that transact in real time, exchanges’ own development expertise is the crucial yardstick to gauge people’s trust in them. An official at a crypto exchange said, “There are some emerging smaller exchanges that have not a single developer.” These exchanges have outsourcing firms being in charge of the overall system because of chronic manpower shortages.
The prime reason for outsourcing is the low cost. An official at a mid-sized exchange that recently triggered controversy over its delay of the exchange opening said, “Although the cost varies, you can establish an exchange for the minimum 300 million won or 500 to 1,000 million won with a server.” If you pay an additional cost, it’s possible even to develop mining-type cryptocurrencies. The cost will be lowered if you use an overseas company. You can have an exchange with a mobile version with the minimum cost of 50 million won, which breaks down to 20 million won for building a website and 30 million won for making a mobile application.
That crypto exchanges are in the blind spots of government regulations is fanning this phenomenon as well. Currently, there is no registration procedure for opening exchanges because they became general corporations without such special status as finance after being deprived of a mail-order distribution license earlier this year. In fact, anyone could establish an exchange if he or she has money. There are also no regulations governing crypto exchange security. Some exchanges such as Gopax and Upbit have won information security management system (ISMS) certificates, but this obligation is imposed only on big exchanges that record more than 1 million visitors a day on average for the preceding three months the previous year.
Relying solely on outsourcing for the system could hamper the effective operation of exchanges. “There might be communication problems or outsourcing firms could demand the higher cost,” an official at another exchange said, adding that minor problems could erupt in operation. It’s also problematic not to be able to respond to even minor glitches.
But there is a counter-argument that it would be safer to use outsourcing if the exchange in question is not capable enough. A cryptocurrency developer said outsourcing could be safer if the company is devoid of competent manpower, noting that “outsourcing is one thing and excellent security is another.”
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