Why Japan’s Biggest Messaging App Line Decided to Create Its Own Crypto

On Aug. 31, Line, Japan’s most widely utilized messaging app with more than 200 million active users, revealed the launch of its own cryptocurrency called LINK.

Upon its announcement, Line immediately listed LINK on its digital asset exchange BitBox, which it launched back in July of this year.

Uniquely, as Cointelegraph reported, Line has decided not to conduct an Initial Coin Offering (ICO) to raise a significant amount of capital in exchange for the distribution of its token. Instead, Line utilized a mechanism called ‘airdrop’ to give users LINK as compensation for utilizing products within the Line ecosystem.

Essentially, LINK is a token that is designed to increase the adoption of decentralized applications (DApps) deployed by the Line development team by incentivizing users accordingly based on their activity on the Link blockchain network.

In the near future, the Line team revealed that it will release DApps and services related to content, commerce, social, gaming and exchange — all of which will rely on LINK as the main payment method.

In concept, Link is similar to EOS, ADA and Ethereum in the sense that it powers DApps and a wide range of services offered by its network of blockchain platforms.

Line’s story

In 2011, Japan was hit with the fourth deadliest earthquake in history. The Tōhoku earthquake, with a recorded 9.1 magnitude, led to more than 20,000 deaths. The Japanese economy was hugely affected by the 30-foot tsunami that triggered a nuclear meltdown of the Fukushima Daichi plant.

At the time, NHN Japan, a subsidiary of South Korea’s search engine operator Naver, envisioned the deployment of a messaging network that was independent of the cellular network so that families and friends could communicate in periods of crisis.

Line was launched in June of 2011, three months after the earthquake, garnering 50 million users within a 12-month period. It is said that Line surpassed Facebook in growth rate, as Facebook needed three years to secure 58 million users.

Since 2011, Line has continued to lead initiatives to assist families and households affected by natural disasters. In late 2013, Line utilized its revenues generated from stickers and emoticon sales to donate $500,000 for hurricane relief in the Philippines.

Line’s initial interest in crypto and blockchain

The Japanese messaging giant initially disclosed its intent to focus a large portion of its resources and developer capacity to blockchain development on April 20, 2018, at the 2018 Dev Week conference held in Seoul, South Korea.

At the time, Line chief technology officer Euivin Park discussed the future of IT in front of the company’s 1,000 developers and engineers, as well as the long-term development roadmap of Line that will allow the messaging app to evolve into an all-in-one communications platform."

During the conference, Park placed heavy emphasis on blockchain technology, stating that the Line umbrella will continue to accelerate the process of creating a blockchain-based tokenized economy that operates on top of a Line-specific blockchain mainnet.

“But Line also will go even further, with plans to support accelerating the development of DApp services outside of the Line platform and develop its own blockchain mainnet in the near future. To achieve this, Line is actively setting up developer bases and speeding up talent acquisition in other regions, as well as adding to Unblock and Blockchain Lab in Korea and Japan.”

While Line has been based in Japan throughout the entirety of its existence, its parent company is Naver — South Korea’s largest search engine. Due to its connections with Naver and South Korea-based internet companies, Park disclosed that two blockchain labs will be set up in South Korea and Japan, with the intent of collaborating with local blockchain projects in the two countries in order to speed up the deployment of a stable blockchain mainnet.

Strategic partnership with Korea’s largest blockchain network to deploy DApps

Naturally, the establishment of Line’s first blockchain lab in Seoul led to the conglomerate cooperating with several blockchain projects created by entrepreneurs and developers based in South Korea. In May, Line officially secured a strategic partnership with ICON, the largest blockchain project in the country (based on market valuation), creating a joint venture called Unchain to develop DApps based on the Link blockchain network.

In May, through an official announcement, the ICON team stated that it had formed a joint initiative with Line due to the shared vision between the two projects in creating a transparent and secure, tokenized economy that incentivizes users based on their contribution to the ecosystem.

The ICON team further emphasized that to streamline the process of DApp adoption, a large network and ecosystem of users is necessary. Considering the 200 million active user base of Line, the ICON development team said that the integration of a blockchain by the Line ecosystem would result in a wider and faster blockchain adoption:

“Unchain will create a blockchain ecosystem fueled by a token economy, where the users are rewarded for their contributions to the network. DApp services discovered through ICON and Unblock, a subsidiary of Line dedicated to blockchain research and to accelerate DApp projects, will be integrated with Unchain.”

In an interview with local publications, Unchain CEO Lee Hong-kyu stated that Line was interested in the interoperability benefits of the ICON network and the team’s technical capabilities. Similar to most next-generation blockchain networks, the ICON blockchain is designed specifically to support many blockchain networks in a single, unified protocol — a structure that is similar to Ethereum’s Plasma scaling solution in the way that many blockchain networks rely on each other to process information in a more efficient manner.

The partnership with ICON allowed Line to speed up the process of DApp deployment and, eventually, the creation of its own cryptocurrency, as the conglomerate garnered all of the technologies and development teams required to sustain a blockchain network.

But, as Line CTO Park said in April, the establishment of the Line blockchain mainnet is only the first step toward the actual initiative of the messaging giant, which is to create a tokenized economy — wherein users are compensated for all sorts of contributions, like content creation, social media presence, digital asset exchange and gaming.

In the years to come, the Line developer community will have to actively develop DApps and various blockchain solutions to ensure that its ecosystem can remain sufficient for hundreds of millions of global users.

Viability and practicality of Line’s independent cryptocurrency

A small portion of the cryptocurrency community questioned the viability and necessity of LINK, the native cryptocurrency of the Link blockchain network, at this stage of development.

In its official announcement, Line CEO Takeshi Idezawa disclosed the intent of the company to create an ecosystem of DApps that will be easy to utilize on a daily basis but did not offer a specific use case of Link, at least in the short-term:

“Over the last seven years, Line was able to grow into a global service because of our users, and now with Link, we wanted to build a user-friendly reward system that gives back to our users. With Link, we would like to continue developing as a user participation-based platform, one that rewards and shares added value through the introduction of easy-to-use DApps for people’s daily lives.”

According to The Verge, in the months to come, users will be able to use LINK to purchase stickers and webtoons on the platform, before the primary use case of the token shifts to become the main incentivization and transaction method of the Line ecosystem.

Image Caption: Physical store of Line characters and stickers in Seoul, Photograph taken by Line Friends, official merchandise distributor of Line

Unlike open-source apps — like Telegram, Line, KakaoTalk and others — for-profit messaging apps have built-in marketplaces that sell stickers, emojis and themes to users. In the foreseeable future, Line expects LINK to be used for small purchases — like the aforementioned items — and, as its DApp and blockchain ecosystem grows, LINK is expected to have a more profound impact on Line.

Line could have utilized existing cryptocurrencies — such as Ether, EOS or Cardano’s ADA — as the primary method of incentivization. But, the Line team explained that the long-term strategy of the company has been to create a blockchain network built from scratch that is specifically designed and structured to facilitate DApps applied to the Line messaging platform.

Based on its partnership with ICON and its decision to create its own blockchain network, it is likely that the core infrastructure of the Link blockchain network will evolve around scalability and multi-chain protocol.

A highly scalable, multi-chain protocol would allow the Link mainnet to process more transactions than other public blockchain networks, similar to VeChain and WaltonChain — two Internet of Things (IoT) blockchain protocols that have implemented their own unique consensus algorithms to maximize the transaction capacity of their blockchains.

Facebook’s potential blockchain launch rumors, stance of WeChat

In May, around the same period in which Line started to explore the blockchain sector, sources close to Facebook revealed the social media conglomerate has been considering the launch of its own cryptocurrency that could be utilized by billions of its users worldwide.

However, speaking to Cheddar, David Marcus — the former vice president of Facebook Messenger who was asked to lead a team of 12 developers in a division focusing on blockchain development — said that Facebook is looking into ways that can leverage the potential of the blockchain.

“Like many other companies, Facebook is exploring ways to leverage the power of blockchain technology. This new, small team will be exploring many different applications. We don’t have anything further to share,” Marcus said, adding that payments in crypto are expensive due to scaling issues and that the company will only consider adding cryptocurrencies onto its platform once it is cheap and efficient to send digital transactions:

"Payments using crypto right now [are] just very expensive [and] super slow. So, the various communities running the different blockchains and the different assets need to fix all the issues, and then, when we get there someday, maybe we'll do something.”

While the stance of Facebook and Marcus on cryptocurrency integration was made clear through his interview, rumors around a potential cryptocurrency launch by Facebook intensified when Marcus left the board of Coinbase, the world’s largest cryptocurrency brokerage and wallet.

Last month, Coinbase stated that Marcus had left the company’s board to avoid the appearance of a conflict of interest and, in a statement provided to Business Insider, Marcus said that the establishment of the 12-developer blockchain team at Facebook led him to resign from his position as a board member.

In the past several months, almost every major messaging application, from Line to Facebook, disclosed their interest in utilizing blockchains or integrating cryptocurrencies to their platforms, apart from one messaging platform: WeChat.

As China’s most frequently utilized messaging app, with nearly a billion users — fivefold the active user base of Line — WeChat has not shown any interest in integrating cryptocurrency or leveraging the blockchain to improve the usability of its platform, primarily due to the Chinese government’s encouragement to ban everything related to cryptocurrencies.

More than that, as Cointelegraph reported last week, WeChat has cracked down on cryptocurrency businesses and publications on its platform, permanently suspending the accounts owned by major cryptocurrency-related ventures that utilize WeChat to spread information about the cryptocurrency sector.

ICO regulation in Japan and South Korea

Kakao, the largest internet conglomerate in South Korea — which operates KakaoPay, KakaoTaxi, KakaoStory, KakaoStock and KakaoTalk, all under the Kakao banner — with nearly 90 percent dominance in every sector it operates in, also announced its plans to release a cryptocurrency earlier this year.

But, the initiative of Kakao was shut down by the Financial Services Commission (FSC), which publicly stated that Kakao is not permitted to conduct a token sale inside or outside of South Korea:

“Even if there is no prohibition on cryptocurrency or digital asset trading, there is a possibility that it [Kakao ICO] may be regarded as fraud or multi-level sales according to the issuance method. Since the risk is very high in terms of investor protection, the government has a negative stance on the ICO.”

Since then, regulatory frameworks around ICOs and cryptocurrency trading in both Japan and South Korea have significantly improved, and the positive change in cryptocurrency regulation may have contributed to the early launch of Line’s native cryptocurrency, LINK.

It is possible that, as regional governments — like South Korea’s Jeju Island — enable ICOs and token sales, Kakao will pursue its previous plan of a token sale and a cryptocurrency launch, directly competing against Line and Naver, the messaging app’s parent corporation.

The active blockchain development division in Facebook led by Marcus, who has been involved in the cryptocurrency sector for many years, could also lead to Facebook, Kakao or others exploring the potential of leveraging blockchain technology, which may place Line in direct competition with the global market’s largest social media platforms.