Starting Mar. 25, South Korean exchanges are required to implement the travel rule outlined in the Financial Transactions Reports Act (FTRA).
The FTRA is the same law that required all exchanges to register with the Financial Intelligence Unit (FIU) of the Financial Services Commission (FSC) by September 2021.
Only four exchanges survived the FTRA's strict registration requirements: Upbit, Bithumb, Coinone and Korbit. These are collectively referred to as the Big 4. Other exchanges are allowed to operate, but must do so without fiat on-ramps.
This essentially funnels most Korean crypto traders into the Big 4, as these are the only exchanges where users can use fiat currency to purchase crypto.
Upbit is by far the largest Korean exchange, accounting for an estimated 80% of domestic trade volume.
The travel rule requires exchanges to track and verify the personal information, including wallet addresses, of the sender and receiver of all transactions that exceed 1 million won ($820).
Simply put, the travel rule prevents users from exercising anonymity when sending and receiving crypto from their exchange-based wallets.
The Big 4 seem conflicted as to how they're going to enforce the travel rule.
Upbit will forbid all withdrawals and deposits to and from private wallets, with the exception of Metamask. Even with Metamask wallets, however, users must register them with Upbit beforehand. This means Upbit users can only send and receive crypto to and from Metamask wallets that are pre-registered under their real names. Users must also provide information such as the address of their place of residence.
Bithumb is also expected to forbid all withdrawals and deposits to and from private wallets that are not registered under a user's own name. Users can utilize Metamask, Kakao Klip, and Paycoin wallets so long as they're pre-registered under their real names. Bithumb will not allow transfers to and from wallets that are registered under another name beside the user's own.
Coinone has announced that users can send and receive crypto to and from private wallets that are registered under a user’s name, phone number, or email address. So far, Coinone has affirmed they will permit transactions with Kakao Klip, Metamask, and Paycoin wallets.
Korbit has also announced that they will permit users to interact with private wallets so long as they're pre-registered under the required information. Korbit will exchange transactions to and from Metamask, MyEtherWallet, Kakao Klip, Kaikas, Nano Ledger, imToken, Trust Wallet, and D'Cent Cold Wallet.
What leaves users in further ambiguity is the question of interoperability between exchanges.
Currently, the Big 4 use two different systems for travel rule compliance.
Upbit uses a system called VerifyVASP(VV), which was developed by Lambda256, the blockchain arm of Dunamu, the company that operates Upbit.
Bithumb, Korbit and Coinone utilize a system called COnnect Digital Exchanges (CODE), which the three exchanges developed through a joint venture.
Currently, the two systems are not interoperable, meaning that Upbit users cannot send or receive crypto to and from wallets based in Bithumb, Korbit or Coinone, and vice versa.
Exchanges have announced that interoperability between the two systems will be available starting Apr. 25.
This means that an Upbit user cannot use an Upbit wallet to transfer crypto to a Bithumb wallet. However, such a transfer is possible via a Metamask wallet that is pre-registered with both exchanges.
Users are likely to be even more confused when it comes to transfers to and from overseas exchanges.
Upbit is expected to only permit deposits from a select list of exchanges such as Coinbase, Binance, Bybit, FTX, Crypto.com, Okaycoin, and Kraken. This list is subject to change in upcoming weeks. Withdrawals to overseas exchanges wallets will not be permitted. In other words, you can only take in crypto from overseas exchanges. You can’t send it outward.
Bithumb will allow deposits from and withdrawals to major exchanges such as Binance, Coinbase, Kraken, FTX and Bybit.
Korbit is expected to permit deposits from and withdrawals to Coinbase, Bitstamp, Kraken, FTX, Binance, OKX, Bybit, and Okcoin.
Coinone has announced it will accept deposits from and withdrawals to Binance, FTX, Bybit, Gate.io, OKEx, Bittrex, Crypto.com, Coinbase, Kraken, and Gemini.
Users should be on the lookout for changes and announcements in the upcoming weeks as exchanges work out their respective compliance issues.
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