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The Story Behind Kakao and Klaytn's Blockchain Dominance in Korea

During Hong Kong Fintech Week 2019 held on Nov. 4-8, Zachary Keats, the Director of Corporate Development at Klaytn and Ground X, shared his insights on blockchain adoption initiatives in Korea. Kakao, a South Korean internet company offering a platform of services including messaging, cab-hailing, and payments, has developed Klaytn, the blockchain business arm of the company.

Getting to know Kakao

As many people are familiar with WeChat and other mobile applications that span from messaging, payments, ride-hailing, Kakao is the South Korean version of these applications.

“97% of people in Korea are using Kakao, it’s an extremely loyal and dedicated user-base we have to work with,” Keats elaborated. “We’re very excited to be the only public blockchain platforms that have been launched by a public company, as Kakao is a roughly a $9 billion publicly traded entity and it has backed Klaytn’s platforms. We also launched our mainnet in June of this year.”

Kakao’s captive audience as leverage for Klaytn

Keats explained that Klaytn aware that there are a number of messenger and social media networking sites that are launching a blockchain or using blockchain platforms such as Line, Telegram, Facebook, etc.

“While we don’t have as many users as Facebook does, we have an extremely captive audience in Korea. Kakao is unavoidable in Korea, for messaging, cab-hailing, and payment services, it is a dominant ecosystem,” he explained. “In terms of bringing real use cases and users to our platform, we are taking this opportunity to bring 50 million Koreans to the blockchain. At the same time, we are bringing third-party decentralized applications (DApps) on board, and we have made about 70 partnerships with the apps that already have existing crypto user bases.”

“Next year, we expect more integrations between Klaytn and the Kakao messenger and the suite of services that Kakao provides. Korea and Kakao can lead that next mass adoption experiment, as Koreans will be able to see the ability to use blockchain for their everyday lives,” he added.

Klaytn’s collaboration with large Korean banks

Two dominant Korean banks, Woori Bank and Shinhan Bank has entered into a memorandum of understanding (MoU) with Klaytn to explore the applications of blockchain technology. Keats shed light on the current blockchain regulation in Korea: “Blockchain regulation in Korea is still a bit grey, it’s still quite unclear what you can and cannot do. I believe that the government is very pro-blockchain, but maybe not pro-token.”

These financial institutions have been interested in the back-end applications of blockchain and how it can help with know-your-client (KYC) functions as well as data validation issues. “From this perspective, they are experimenting with us to see how they can best achieve their needs through blockchain technology,” said Keats.

“Klaytn also has a very interesting capability, called sidechains, which will be launched soon. This capability allows enterprises to operate their own private blockchain network, but selectively plug into the Klaytn public network as well,” Keats announced. This is a hybrid approach for enterprises that need to keep some data off-chain but are interested in sharing other data on a public blockchain. “We are very big fans of interoperability, and I think the future multi-chain.”

What has Klaytn been doing in the DApp space?

“We’ve been very aggressive in trying to bring DApps to the Klaytn platform, and we’ve made partnerships with about 70 of them. The first batch was heavily focused in Korea because we have had a lot of mindshare there,” answered Keats.

“Roughly half of them are now coming from outside of Korea, in areas such as Southeast Asia, China, even Europe, and South America, and they’re coming in verticals that are quite diverse. Obviously, gaming is a big focus for us, but also lifestyle, healthcare, and even finance to a degree. We have a number of the top applications currently listed on dapp.com.”

The blockchain-powered phone – Klaytn Phone

Photo: KlaytnPhone. Source: Klaytnphone.com

GroundX, Klaytn’s blockchain affiliate, has partnered with Samsung Electronics to release the Klaytn Phone to allow users to interact with blockchain-powered services. The Klaytn Phone project aimed to bring real usability to the average mobile user in terms of blockchain applications and cryptocurrency.

“If you buy a Klaytnphone, you will automatically have access to several of our DApps. There are also thousands of Klay tokens already loaded on the phone, which allows users to use it with ease – that’s our theme, to make it user-friendly,” Keats added. “Blockchain is actually a key focus on the Samsung Group. They are investing in several different properties, wallets, applications, and more. We are very excited to see that they wanted to support Klaytn and the Klaytn Phone.”

Beyond Korea: Future plans to go global

Kakao has a huge dominance in Korea, as it has a loyal user base, kind of similar to a sandbox to play with, in Korea, to bring broader adoption and to prove blockchain as a mass adopted technology at least in one core market. “We hope to achieve something that hasn’t been done in other regional markets or globally for that matter,” said Keats.

Part of the reason Kakao started the Klaytn initiative was to bring a lot of Kakao’s content overseas. Some of the core markets are in Southeast Asia, Indonesia, Vietnam, and Thailand. Klaytn is interested in getting into the Greater China market as well, as many of Klaytn’s application partners are coming from China as well as Southeast Asia.

“Our goal is to prove adoption at a high level in Korea, then moves towards being a regional Asia Pacific player for the next generation of blockchain,” he said.

Klaytn's Governance Council: Bringing Enterprises and Institutions Together on Blockchain

In part 1 of our interview with Zachary Keats of Klaytn, Kakao’s blockchain development arm, we explored Klaytn and Kakao’s dominance in the online and digital community in South Korea. Although Kakao gives Klaytn a large audience and participant pool in South Korea, what other attributes does Klaytn have that makes it an exceptional blockchain?

Klaytn: The hybrid blockchain with PBFT

While elaborating on the Klaytn blockchain, Keats first mentioned the ‘hybrid design’ of Klaytn, “Klaytn is a hybrid of a public and private blockchain, so we have made some compromises to our decentralization in order to improve scalability and performance.”

Keats also explained the performance improvement brought by Klaytn’s hybrid design, “The transactions and consensus are using the PBFT algorithm which is done privately within when the blocks are confirmed, and then they are sent to the public. The hybrid structure works with private blockchain for achieving consensus propagating blocks, but then relaying it to the public blockchain network.”

Klaytn adopts the trust model of private consensus with public disclosure. A smaller group of consensus nodes (CN) executes BFT consensus in a private network that is surrounded by a larger network of permissionless endpoint nodes (EN) to access block generation results. He added, “With this current hybrid method, I mentioned, achieving one second block time with finality, because we have the node operators that are doing that privately, then reaching transactions per second of about 4000.”

Klaytn’s governance council

Klaytn’s governance is similar to Libra’s consortium governance style. Klaytn is putting together groups of trusted, large enterprises with users and applications to move to the blockchain, where reputation is put on the line.

“We have achieved a very successful result of about 26 different enterprise partners governing our platform,” said Keats. Starting with governance, these large enterprises are running nodes on our platform. “Our 26 enterprise nodes are made up of Kakao companies and other large players such as LG and major gaming companies, including Netmarble.”

Originally, Klaytn did not invite any blockchain or crypto companies to be a part of the governance council. The original idea was that the governance council should have real users that are very trusted have a strong reputation, and are interested in blockchain. Binance is a large brand with many users, fits all the criteria, and is “very ambitious.”

As Binance is also very familiar with blockchain, Klaytn has invited the company to their governance council and is looking to inviting more players to join the council in the future. Keats stated, “With Binance, I believe there are a lot of ways we can collaborate in, including co-investments, perhaps DeFi, and we will be looking into how we can apply these new initiatives to the new markets. We haven’t announced specific projects with Binance yet, but we will be exploring these potentials together.”

“We’re very excited about the governance council that we have put together — having gained validation from other players who are trying to do the same thing, including Libra and Hedera Hashgraph. I believe the future is bridging traditional enterprise to this new technology, and we shouldn’t shy away from the centralized enterprises, because we need them and their users to be taking on blockchain to use on a regular basis. This kind of cooperation model of bringing groups of enterprises and other institutions together is the next way we move forward.”

Klaytn’s transparent evaluation and incentive mechanisms

Keats introduced the Proof of Contribution and Klaytn Improvement Reserve (KIR), Klaytn’s transparent evaluation, and incentive mechanisms and described them as that they are similar to government program models. “If you think about Klaytn as an economy, as the government of that economy, in order to stimulate certain good behaviors, growth, infrastructure improvements, we have to make some programs to encourage people to do those kinds of initiatives.”

Proof of contribution is a growth stimulus package for small businesses or startups and DApps to get certain rewards for showing that they are contributing to the volume of transactions, activities, and new users to the Klaytn chain. This is to ensure that there will be the right amount of services and users to the chain. With this program, Klaytn can provide extra token incentives to those who are contributing to the Klaytn economy.

The KIR is intended to generate positive economic externalities. “As a token-based incentive program, we are focusing on encouraging participants to build services that benefit the ecosystem, with infrastructure layers or wallet layers – this type of improvements to the Klaytn platform, which does come at a cost for a participant’s time and resources,” said Keats. “We strongly encourage the development of these services to improve the experience for all of Klaytn’s users.”

President Xi’s statement on blockchain – what does it mean for the industry?

Keats commented on President Xi’s statement on blockchain and said, “The announcement was virtuous and positive for blockchain technology overall. As there a lot of players and investors in China, any push to bring more awareness to this technology is beneficial. President Xi’s commitment to blockchain for China is nothing but positive as it increases overall awareness.”

“Looking at Libra, it has come out and stumbled a bit, and lost some of their major node operators. Although that is a setback, it still brings greater awareness for blockchain overall.”

Korean Businesses Come Together to Form Massive Blockchain Council Similar to Libra's

Korea’s internet giant Kakao is bringing crypto and blockchain adoption to the Asian markets. A huge consortium of financial giants and big brands have joined together to form a Governance Council relating to all matters blockchain.

Blockchain platform Klaytn has 27 companies in total, forming the council from all types of financial markets, aiming to work closely together to embrace fintech opportunities to work together in emerging markets.

Some of the major players in the council include; LG, UnionBank, CellTrion, and Binance.

Building awareness, the council has exposure to many different user’s data, combining their knowledge for a global scale campaign into all Asian regions. UnionBank bringing vast resources from Southeast Asia and LG, bringing their expertise in technology shows the level of experience and direction that the council could tap into.

Much like Libra, it is possible a crypto ecosystem of some sort could be created, Klaytn has not yet announced the plans for it, but when banks, payment systems, crypto exchanges, and large companies come together to get involved in blockchain, we will likely see much more development into a one-world currency free from cross border restrictions.

Image via Shutterstock

Kakao Plans to Launch Crypto Wallet in the First Quarter of 2020

Kakao’s Co-Chairman, Yeo Min-soo, said that the company is planning to launch its cryptocurrency wallet called Klip in the first quarter of 2020 in his speech during the Klaytn Governance Council Summit in Seoul. Klip will allow users to store their Klay, Klaytn cryptocurrency, and Klaytn-based cryptocurrencies, which will be available for use in various ways in their daily lives.

Yeo Min-soo, said that the company would strongly back the popularization and advancement of blockchain-based services through the development of Klip.

“We will actively support Klip so that people can keep their Klay in the wallet and use the cryptocurrency in their daily lives,” he emphasized.

He also indicated that the company equally has its eyes on the development of other blockchain applications and services.

“Kakao has already launched KakaoCon, a blockchain-based point system, and the company is planning a variety of applications, including the use of blockchain technology for identification software,” he noted.

According to the report, Klip will be released first in the form of “Kaikas” the first half of 2020 was introduced at the summit for the first time. The wallet is being developed by GroundX, Kakao’s blockchain unit, as a digital asset management wallet. First, the wallet is going to be provided through the KakaoTalk “More” tab. plug-ns before it will be extended to KakaoTalk Klip.

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South Korea Sees Surge in New Blockchain Platforms for Trading of Unlisted Stocks

South Korea’s progressive-thinking and liberal attitude on blockchain technology and cryptocurrencies recently got another boost. Industry sources revealed the upcoming launch of two new blockchain-based exchanges to bolster the financial trading of unlisted equities.

Korea turns to blockchain

According to a report, Dunamu and PSX will see the launch of blockchain-enabled services for the traditional finance sector. The two firms currently operate trading and investment platforms for users and are backed by Korean giant Kakao’s venture arm.

The launch means three blockchain-based trading platforms will exist in Korea by 2021. Earlier in 2019, the Korean government’s KOSCOM division announced the “Be My Unicorn” project, that allowed for the listing of unlisted stock on an exchange.

“Through the Be My Unicorn platform, investors will be able to trade the unlisted stocks from professional investors such as accelerators, and stocks from venture company employees,” KOSCOM said at the time.

Together the three projects utilize traceability and ensure inclusivity. The benefits work both ways; unlisted companies – those not listed on the public stock exchange but looking to raise money – get an opportunity to raise money while retail traders can bet on companies primed for a run on their public listing.

Reportedly, Dunamu and PSX are preparing their unlisted stock trading services in collaboration with Shinhan Financial Services, a major Korean bank, and Samsung securities. The two firms are duly following Korea’s legal framework for blockchain and cryptocurrency businesses to ensure the public’s trust in their respective platforms on launch.

Finer details of the platforms

Korean startups like Vuno, Ridi Books, Blocko, and Musina will be traded on PSX. The firm secures stock from venture firms, incubators, and private funds and uses Shinhan’s services for account creation, trade execution, and liquidity.

Dunamu, which operates crypto exchange UpBit, will soon add firms to its “Securities Plus” unlisted stock exchange and use Samsung Securities as an underwriter and trade facilitator.

For the transfer of stock from venture funds to retail investors, both funds will utilize native blockchains to verify investor identity and digitally “sign” transfers.

KOSCOM has recognized the use of blockchain as essential to a country’s financial health. They note the technology helps eradicate fraud, increase transparency, and provide infrastructure for trading. In the ministry’s view, the benefits also help promote retail investments in promising startups.

Since 2019, KOSCOM is a designated member of the “DID Alliance,” a blockchain-based ID and authentication network in South Korea. Later in May 2020, the ministry is launching a blockchain-based identity application called “Initial,” making logins and singing off on digital contracts an easy, one-click process for retail investors.

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Kakao Affiliates Face Probe Over Crypto Misappropriation Allegations

The prosecution has initiated a formal investigation into allegations of cryptocurrency embezzlement and breach of trust involving former Kakao chairman Kim Beom-su and executives of Kakao affiliates. The case has been assigned to the Seoul Southern District Prosecutors’ Office Joint Cryptocurrency Crime Investigation Team (led by Lee Jung-real), which conducted its first examination of the complainant on October 11, 2023.

The examination of the complainant is the first step in the investigation of the complaint case, signaling the prosecution’s commencement of a thorough investigation into the matter. On the day, the prosecution inquired in detail about the main allegations written in the complaint, the legal background, and the extent of the damage.

The prosecution has also requested additional data submission regarding the cryptocurrency Klay transactions of Kakao affiliate executives from the complainant. The complainant side mentioned that the request for supplementary data submission was made to compare and contrast the data secured by the prosecution with the content of the complaint.

Previously, on September 13, the economic democracy advocacy group, Economic Democracy 21, had filed a complaint against former chairman Kim Beom-su and executives of Kakao affiliates for embezzlement and breach of trust, among other charges. They claimed that Kakao, through its subsidiary, created the cryptocurrency ‘Klay’ and sold it to investors to collect funds, which were not used for related business but were embezzled instead. If fraudulent unfair transactions under the Capital Market Act are proven, investors who invested during this period can claim compensation for losses caused by criminal acts.

The group alleges that embezzlement occurred during the pre-sale process of Klay, with Kakao’s subsidiary collecting KRW 150 to 300 billion, which was not used for related business but was misappropriated. The funds collected from the pre-sale should have gone to either Clayton (Singapore corporation) that issued Klay or GroundX (Japanese corporation) that spearheaded blockchain projects, but there is no trace of such funds in the financial statements, as per the complaint.

Furthermore, the group contends that executives of Clayton affiliates, i.e., insiders, are accused of embezzling Klay under various pretexts. Through media promotion of ‘overseas investment projects,’ they created a pretext for siphoning off Klay, which was then received back by the affiliate.

Klay is a virtual asset issued by Kakao’s subsidiary, Clayton (later rebranded as Crust), and at one point, its market capitalization surpassed KRW 10 trillion. Although once regarded as a testament to the prowess of domestic cryptocurrencies, its price has now plummeted due to insider trading and operational issues.

Meanwhile, both Kakao and Clayton stated, “Many details are yet to be confirmed, and the raised issues are unilateral claims with no basis in fact.”

Recently, Kakao announced an alliance with nine partners to expand commercial services on its blockchain platform, “Clayton.” In collaboration with WeMade Entertainment Co.’s subsidiary, WeMadeTree, Kakao aims to develop blockchain-based gaming content.