CC BY
58ЭКОНОМИЧЕСКИЕ НАУКИ И МЕНЕДЖМЕНТ
(ECONOMIC SCIENCE & MANAGEMENT)
УДК 330.35.011
Thipphaphone E.
Institute of Industrial Management, Economic and Trade Peter the Great St. Petersburg Polytechnic University (Saint Petersburg, Russia)
Scientific supervisor: Podoba Z.S.
PhD in Economics, Associate professor Peter the Great St. Petersburg Polytechnic University (Saint Petersburg, Russia)
THE DEPLOYMENT OF BLOCKCHAIN TECHNOLOGY TO PROMOTE THE NATIONAL ECONOMY IN SOUTH KOREA
Abstract: South Korea has achieved incredible success in combining rapid economic growth with cutting edge innovations, advanced technologies, and significant poverty reduction. Science and technology are the areas on which the government has placed the greatest emphasis. This article aims to determine how South Korea leads in the innovation sector with the deployment of Blockchain technology. Likewise other countries, South Korea is a "FirstMover" in Asia to open up by initiating the deployment of Blockchain into various national economic frameworks. Blockchain is defined in this context as being officially implemented in South Korea with the contribution of the government. In order to gain a better understanding of research, systematic data analysis methods are used in this article, furthermore, it used information gathered from a review of the most relevant literature, also the results of pilot projects about blockchain deployment that were implemented in South Korea. The outcomes indicate the first step of achievement in implementing pilot projects for blockchain deployment in South Korea. Based on the results, it came to the conclusion that the R & D for blockchain technology will be time and budget consuming as well as in need of expertise. To make
this development model successful, it requires support from not only the government and private sectors, if the technology is not practical for the citizens, then this method is useless.
Keywords: Blockchain technology, South Korea, management administration.
Since 2016, the fact that South Korea is the biggest market for cryptocurrency trading in Asia has become evident. With the impeachment of President Park Geun-hye (who was found guilty of abuse of power and coercion), followed by elections in the summer of 2017, which brought Moon Jae-in to power, Korea went through a period of extraordinary political turmoil (when their president become the central figure in a corruption scandal)[0]. The tumultuous politics, combined with high youth unemployment and a sluggish economy, stimulated interest in cryptocurrency. However, the Korean government stepped in to put a stop to the unregulated speculative frenzy. Cryptocurrency price declines have extinguished the crypto fever even further.
As a result, a blockchain boom has developed, and it is beginning to evolve in this technologically advanced country, which surprised local investors and government authorities. Korean government departments are embracing and experimenting with blockchain technology, incorporating them into real-world administrative difficulties. Following the ashes of the 2016 crypto craze, blockchain has achieved huge popularity in Korea since 2018. Korea has a considerable percentage of blockchain implementation due to the quick acceptance of new technology. Several companies and non-profits have been experimenting with the blockchain's features. In terms of the Blockchain ecosystem, it is an opportunity for South Korea to raise its degree of initiative and progress in the technology industry to a greater level. Furthermore, blockchain utilization is rapidly growing in South Korea and it is considered a huge part of the country's goal for the 4th industrial revolution.
An overview of the South Korean economy
The South Korean economy indicates its position in the top tier of global competitiveness, with GDP growth of 4 per cent (1,630.5 US Billion) in 2021. During
the last 20 years in the Economy Complexity rank, Korea's position has moved from 28th to 5th. Furthermore, South Korea has emerged as the world's most active market for Korean goods (electronic products) and services (idols, K-drama, K-pop). South Korea's economy finished 2021 on a high note, and its manufacturing (raw materials) exports have been a key driver of the increase in the value of its exports. Furthermore, recent exports are led by circuits (85.2 billion USD), cars (40.8 billion USD), and refined petroleum (38.9 billion USD) [0]. Stronger economic growth in major economies such as the United States, China, the European Union, and the United Kingdom in 2021 helped South Korea's new export orders from key export markets.
According to the report of GCI 4.0 2019 [0], the Republic of Korea improved its overall scores by 0.8 per cent and moved up two ranks to 13 th globally. It has led the world in the Information and Communication Technology (ICT) adoption sector with a score of 93/100. Since the government and organizations invest heavily in technology to support their business activities, technology has become the mainstay of their economy. The report of IMD 2021 indicates that South Korea performs unchanged at 23rd out of 64 countries in world competitiveness ranking [0], it gains a great profit in technology and heavy industry, due to Korea has progressed in technology innovation fields and proves with the overall performance in the Digital Competitiveness sector (figure 1) that Korea has achieved rank 12th in global ranking and 4th in Asia-Pacific (2021).
Figure 1: Overall Digital Competitiveness Ranking and Factors [0]
In conclusion, the Korean economy is still recovering from the COVID-19 shock, thanks to robust export growth, improved company investment, and state backing. Growth is expected to reach 4% in 2021 and to stay strong in 2022 and 2023, averaging close to 3% [0]. While distancing measures have weighed on the service industry this summer, quick vaccination has paved the stage for an increase in private consumption.
The impediment in the South Korean administrative work
Due to the large value of its exports, as mentioned in the first paragraph, South Korea has huge share in the economy of East-Asia region [0]. As a result of its political stability, public safety, world-class logistics, solid infrastructure, communication technologies, and a well-educated and competent population, Korea has become a desirable place for foreign investors. South Korea has strong consumer demand, which supports economic growth, and their debt dynamics are favorable, meaning that they have additional funds to invest in infrastructure as they promote tourism strongly. Even throughout the worst of the pandemic crisis, the country's economy remained steady and grew. However, inefficiencies and out-of-date operational policies wreak havoc on workflow in the government management administration industry.
- Bureaucracy issues: South Korea is a unitary state with two levels of public administration systems: central and local. Technically, an effective and robust bureaucracy could carry out economic policy decisively despite changeable and impoverished social, political, and economic situations. Nevertheless, the Korean bureaucracy has considerable effects on the policy process based on its expertise. For instance, the National Assembly of the Republic of Korea often forces delays in approving budget deals and government reorganization plans, and this political barrier crucially slows the bureaucracy's workflows [0]. This is because Korea has a strong legacy of centralized and bureaucratic government and the sharing of information across agencies using outdated methods (paper-based) causes time-consuming and a less transparency. Even to protect against data-based cyber-attacks, authorities require
more than just artificial intelligence (AI).Evidently, it is in the IT integration sector that cybersecurity and software privacy are ranked lower than 20.
- Falsification issues: The vulnerable regulatory environment can be challenging for both foreign and domestic firms. South Korea has made significant strides in certain areas of IP protection. In 2020, South Korea's high dependency on ICT has also caused large debates about privacy issues, mostly from external sources, during the COVID-19 pandemic [0], and Korea has also gone through many fraud scams and privacy issues related to COVID-19 patients' information. During chaotic circumstances, the government set up online coronavirus tracking by deploying a new system using data such as surveillance camera footage (CCTV) and credit card data. That data on COVID-19 patients was also made freely available on the government's data portals early on. Private-sector developers used them right away to create Corona Defense smartphone apps. Patients have also suffered as a result of this scheme, as apps capable of monitoring people in domestic isolation and allowing health authorities investigators to track confirmed infected patients by briefly accessing images from CCTVs and credit card transactions have been developed. These actions have concerned people worldwide about data protection issues.
Blockchain Technology
Blockchain Technology is a network system for storing digital transactions, a network like spiderwebs that keeps statistical transactions and properties without intermediaries like financial institutions. This is called Blockchain. It works as a block and collects data in each block that connects to each other like a chain, and each block contains a cryptographic hash of the previous block. Moreover, with a method of computer encryption for security, it provides a timeline history to know when the data was collected, whether it was modified or not.
A blockchain is based on a decentralized network and is managed or operated by a peer-to-peer (P2P) network as a publicly distributed ledger. In particular, the security of the data is irreparable, the transparency of information allows all parties to see the same information, and optimization to reduce middlemen [0]. Consequently,
all the transactions that are stored in these blocks record information in a way that is difficult or impossible to hack and cheat on the system.
Main features of Blockchain technology
- Distributed Database: Members in the blockchain network will have the same information by processual consensus because it is visible to everyone at the same time. No individual or organization is in charge of the transaction [0].
- Peer-to-Peer Transmission: Members in the blockchain networks will exchange data directly with each other through a data exchange model (Protocol), without the requirement of third party authorization.
- Transparent Transaction: Members of the blockchain network are able to access the same set of data from any Node, making it difficult to forge data.
- Immutability: Each block that contains data will assign a mathematical letter which is called Hash and if the editing occurs to the block, the whole chain afterwards will be impacted. Consequently, it is hard to change or reverse information in the block. Miners are those who validate transactions and add them to blocks.
- Computational Logic: Developers are able to write an optional program for adding information to the Blockchain platform, such as a Smart Contract, whose implementation will follow the conditions set in the program.
The risk posed by the Blockchain-based business model
Any new technology's successful adoption and operation are dependent on effective management of the risks associated with those technologies. It is especially true when the technology is more than just an application and is integrated into the organization's core infrastructure. Distributed ledger technologies (DLT) have the potential to be the backbone of many-core platforms. While blockchain technology has the potential to increase efficiency and reduce costs, it also has some inherent risks. In order to reap the benefits of this technology, businesses must first understand the risks and the satisfy needs [0]. Furthermore, it is critical to comprehend the evolution of regulatory guidance and its implications. The Blockchain risk can be classified under three categories:
First, standard risks, blockchain technologies expose institutions to risks similar to those associated with traditional business processes, but they introduce nuances for which entities must account. Second, risks associated with value transfer, Blockchain enables peer-to-peer value transfer without the need for a central intermediary. Assets, identities, or information may be transferred as value. This model subjects the parties involved to the same risks that were previously managed by central intermediaries. Third, Smart contracts, it has the potential to define complex business, financial, and legal arrangements on the blockchain, potentially raising the risk involved with the one-to-one mapping of these structures from the physical to the digital framework.
Blockchain solution in the management administration task
- Clearance solution: In 2018, there were pilot projects that implemented Blockchain solutions into the clearance process and cross-border data exchange. The majority of the projects have been led by government agencies like the Korea Customs Service (KCS). In fact, the KCS's own electronic customs clearance system, UNIPASS, that both computerizes customs procedures and automates the clearance process, is being investigated with the goal of establishing a new blockchain-based platform to improve data accuracy (the prevention of forgery and falsification of import/export documents), process reliability, speed of delivery, and efficiency. These pilot applications all make use of "hyperledger fabric," a private blockchain framework implementation (a permissioned blockchain infrastructure) [0]. As an outcome, pilot projects were conducted in order to identify any technical and institutional challenges and to develop strategies for gradually integrating blockchain into existing customs systems.
- Cross-border data exchange: It is critical to ensure reliable information sharing between countries to improve work processes and facilitate trade. However, for countries to agree to such a level of cooperation, trust must be established. The major benefit of blockchain is that it creates a "trust" environment in which unknown parties can transact business and exchange information. As a result, it is the best
technology for establishing automatic cross-border data exchange between Customs administrations. The pilot for this project aimed to test a solution for exchanging certificates of origin, a document that is still in paper form in many countries, despite the fact that the number of FTAs being signed, and thus the number of certificates being issued, is increasing [0]. Later, Korea worked with Vietnam Customs together with Vietnamese importers and Korean exporters are presently examining the enabled certificate of origin issued in South Korea in order to be shared in real-time between the Customs Administrations of both sides. Nonetheless, modern technology would have a substantial effect on the trade environment, so a gradual and systematic approach was taken.
- Bureaucracy task solution: The Seoul Metropolitan aims to integrate governments, citizens, and private enterprises in a transparent manner through the ICON Network (ICX) [0]. In February 2019, they launched their ambition to create a blockchain ecosystem by forming the Seoul Blockchain Governance Team (SBGT) [0]. This is South Korea's largest blockchain project. It establishes online communities for authorities and enterprises in the field to share information. Furthermore, the government has designated ICONLOOP as an official operator. [0]. The adoption of the ICON network is the Korean government's first application of blockchain technology for information processing. They aim to expand their use to significant activities in the following year, such as building a citizenship card service utilizing a distributed ledger to process payments, recording mileage point integration, and carrying out other daily operations. [0].
- After, the failure of authorities to use surveillance camera footage to track patients has raised concerns about privacy protection. In August 2020, as part of its plans to promote innovative growth in local governments, the SBGT carried out the COVID-19 tracking project on South Korea's Jeju Island. They selected the Zzeung mobile app, which runs on a blockchain application and uses its Decentralized ID (launched by the ICON network) to secure and track COVID-19 cases to prevent forgery or tempering of any information while ensuring the privacy of residents and
visitors. The project aims to track and ensure the health and safety of the 15 million annual tourists on Jeju Island [0].
- The app's user convenience is a key feature. Scanning a QR code is a familiar and quick check-in process for many people, which means only the verifiable login (PIN, fingerprint), which contains no personal data, is transmitted for record-keeping on a high-security private blockchain network. To ensure personal privacy, each visitor's personal identifying records and information about where they visit are kept separate. If a COVID-19 case is discovered, the Jeju crisis response team can conduct a rapid epidemiological investigation and tracing. Consequently, it is cost-effective for business owners, and they are not required to collect or handle any private information, which relieves them of any legal liability, reducing costs and time.
- Falsification solution: The COVID-19 pandemic has cured the whole world under the pressure of economic recession, while e-commerce and the digital market have expanded more than before. Therefore, the prevention of falsifications has become a priority on board, particularly in financial business areas like the privacy of customers' data, which requires high-level protection. Shinhan Bank, referred to as the oldest and second-largest commercial bank in South Korea [0][0], has suffered from cyber-attacks and fraud. As a result, in August 2020, Shinhan Bank added the Decentralized ID function to its bank app in order to prevent falsification and make security policies more effective [0]. Consequently, the project "Know Your Customer (KYC)" has been formed. The biggest advantage of the project that it prevents damage from fake ID cards by using 100 per cent encrypted identity information. Moreover, the procedure has been shortened; the requirement is only a fingerprint.
To conclusion, South Korea offers a favorable economic climate with little risks, attracting global investors. As a result, it helps to the constant growth of their economy. According to the IMD 2021 research, more than 97 percent of the Korean population has access to the internet, and the government can make enough information available to the public to promote real-time engagement with residents. Furthermore, e-government and communications technology are in the top 10 in the IT integration
sector, indicating that Korea is doing well with the development of its technological framework with backing from all departments.
Blockchain is distinguished by its decentralized structure within a specific computer network rather than being held by a single host commuter, where data stored cannot be deleted or modified, and participants who interfere with the data are easily monitored. All-access to information on blockchain queries the hash value of the information and is not processed through a third party, making hacking or attacking difficult. Because all transactions on the Blockchain network are fast and low-cost, the South Korean government recognizes the efficiency of utilizing Blockchain's potential to rebust the gap in the national economy.
The recent "Korean wave" is the rise in the global popularity of South Korean pop culture. Since the turn of the twenty-first century, South Korea has been recognized as a dominant exporter of popular culture and tourism, both of which have become important components of the country's burgeoning economy. In terms of expanding the Korean market further, the South Korean development plan for the next 5 years has added the new policy of a virtual world concept (Metaverse) that is tied up with pop-culture content as a new title to focus on. Because of Non-Fungible Tokens (NFTs), they have received a lot of attention in the digital market and media platforms, which are expected to grow to $41 billion by 2021. In the same way that the Metaverse trend increased the value of Blockchain near the end of 2021, the Metaverse was referred to as a virtual world with enormous social and financial potential.
Hence, South Korea's Ministry of ICT, Science, and Future Planning has committed 223.7 billion Korean won (186.7 US million) to the development of a large Metaverse space in order to boost digital content development and business expansion in the country [0], and Korea aims to become the world's fifth largest Metaverse by 2026. However, the achievement perhaps requires more than commitment due to metaverse crimes, which rises major concerns, wherewith the Metaverse represents threats of sexual harassment targeting minors and states that consistent high-level
vigilance must be maintained. It is against the law in Korea for adults to engage in sexually exploitative conversations and attitudes with minors, both online and offline.
Consequently, the government aims to boost their potential by deploying Korean daily tasks on technologies. When all conditions are ready, it is easier to deploy Blockchain technology into the international economic infrastructure. Although blockchain technology may have a good impact on a variety of economic sectors in Korea, it may not be adopted in some countries due to a number of variables, including cryptocurrency laws. It may take some time to put the same notion into international practice, which needs that all members adhere to the same protocol as standard Blockchain standards, notably in human resources.
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