A South Korean City’s Answer to Its Aging Population: A Crypto Hub

A catastrophic period for cryptocurrency isn’t stopping South Korea’s second-largest metropolis from betting digital money will solve a major problem: having one of the grayest populations in one of the world’s fastest-aging nations.

Busan, a port on the southeastern coast of the Korean peninsula, is seeking to become a global crypto hub because its planners believe embracing virtual tokens will bring more young people to its streets. It’s setting up a publicly run exchange for digital assets, wooing blockchain firms and soliciting investments from venture capital companies.

Not even the spectacular of Sam Bankman-Fried’s crypto empire is making the plan’s architects change their minds. Their determination underscores the demographic challenges facing the country’s first major city to be designated as super-aged, where more than a fifth of the population is at least 65 years old.

Younger people prefer to work in areas such as crypto, Park Kwang-hee, head of the finance and blockchain division at Busan’s metropolitan government, said in an interview. “We thought it was right to focus on digital assets and financial products.”

It’s not unusual for officials to set ambitious targets for their cities to become centers of finance or other industries. East Asian neighbor Tokyo, for example, has long striven to become an Asian financial hub, despite its language barrier and prohibitively higher tax rates than Hong Kong or Singapore.

It’s also far from uncommon to ascribe to crypto the ability to cure a host of ills. El Salvador Bitcoin as legal tender in a bid to boost its economy. Crypto proponents argued digital assets were a hedge against inflation and a way to promote financial inclusion. And blockchain technology has been touted as capable of revolutionizing everything from the financial system to the travel industry.

But this may be the first time cryptocurrency has been held up as capable of altering the makeup of a population. For one expert in demographics, the attempt is meaningful, but its chances of success are low.

This “alone won’t be enough to solve the aging issue,” said Choi Eunju, a research fellow at think-tank Sejong Institute who also lectures on population and economic growth at Yonsei University. Living in Busan may not appeal to younger people partly because its education and other options aren’t as good as places like Seoul, she said.

Korea is one of the world’s fastest-aging nations among economies with per capita GDP of at least $30,000, according to Bloomberg calculations using data from the United Nations and the World Bank. The over-65 group is set to reach a fifth of the population by 2025, according to Statistics Korea.

The problem is particularly acute in Busan, where people aged at least 65 rose to 21% of the population as of September. The phrase “The Old Man and the Sea,” a reference to a short novel by Ernest Hemingway published in 1952, is often used to describe the port city, according to Park from the municipal government.

Busan has signed memorandums of understanding with some of the world’s largest cryptocurrency exchanges, including Binance Holdings Ltd., to work together to launch the crypto trading venue by the end of this year. 

The plan to start a public bourse has echoes of the country’s main securities exchange, which is also based in Busan and was once publicly run. It comes as customers pull their money from private venues after billions of dollars vanished at FTX. Bankman-Fried, the exchange’s founder and former chief, is currently awaiting trial in the US and has pleaded not guilty to criminal charges. Eventually, the exchange will be run by private companies, according to Park.

Busan is sticking to its plans even after the developments at FTX, Park said. Crypto’s unregulated nature is precisely why a properly regulated public exchange is needed, the bureaucrat said. He gave another example closer to home: the implosion of Luna and its sister token TerraUSD in May. The virtual currencies caused some $60 billion in losses for investors and their South Korean creator Do Kwon is now a fugitive.

The exchange will eventually expand into so-called security tokens, digital assets that are classified as securities and regulated under Korea’s capital markets law. The country plans to allow the issuance of such tokens this year, a reversal of sorts after initially banning all initial coin offerings in 2017. 

Another part of Busan’s drive to become a global crypto hub is its efforts to woo blockchain companies. In 2019, the city was designated as a regulation-free zone for testing blockchain technologies and developing related businesses. The zone is currently backing six blockchain projects involving 17 companies. Busan is also seeking to attract blockchain firms outside the regulation-free zone. In December, 15 such companies moved into the 63-story Busan International Finance Center, bringing the total to 29. 

And earlier in October, a group of venture capital funds focused on blockchain technology pledged $100 million in investments.

But getting more firms to establish headquarters in a port city more than 300 kilometers (186 miles) from the capital, Seoul, won’t be easy, according to Koo Yunmo, a research fellow at Busan Development Institute, a think tank. Setting up the public crypto exchange quickly will be key, he said.

Making matters more complicated, South Korea’s central government has taken a hard line on cryptocurrencies. As well as initially banning ICOs, it has prohibited crypto trading by minors and foreigners. 

But despite the challenges, Busan mayor Park Heong-joon remains optimistic. He says the city is in talks with the national government to iron out any differences.

“This is a completely new road,” Park told Bloomberg in October while attending a blockchain conference in the city. “We are continuing to consult with experts to develop our plan.”