South Korean cryptocurrency exchange Bithumb yesterday said that serious flaws had left its internal system susceptible to potential sabotage and failed to prevent an erroneous transfer of more than US$40 billion in assets last week.
The nation’s second-largest virtual asset exchange said it accidentally gave away about 620,000 bitcoins to customers during a promotional event, instead of 620,000 won (US$428), triggering a 17 percent slump in bitcoin’s price.
Bithumb CEO Lee Jae-won said the giveaway amounted to 15 times the exchange’s holding of 42,000 bitcoins, largely because a lag of about 24 hours in processing transactions delayed updates to the balance of virtual assets.
Photo: Bloomberg
“We are acutely aware of the deficiency in internal system control,” Lee told a parliamentary committee hearing on the incident that took place on Friday last week.
The exchange’s policy of checking the volume of currency to be transferred against its actual holdings had failed and the amount was also not earmarked in a separate account to ensure the safety of the transaction, Lee said.
Most of the bitcoins have been retrieved by the exchange, but 1,786 had already been sold within minutes before the exchange froze the accounts of the customers that received them, regulators have said.
The customers who sold them are legally required to return them, they said.
Lawmakers expressed dismay at the failure of government and corporate oversight in the nation’s virtual assets market, which is one of the most active in the world by trading volume.
“Bithumb gave away bitcoin that were not in the company’s possession, and that is what we call naked short selling,” Democratic Party MP Min Byeong-deok said at the hearing, adding that the exchange effectively distributed “ghost bitcoin” in the market.
The episode underscores vulnerabilities in South Korea’s breakneck cryptocurrency boom, where trading on domestic digital-asset exchanges has occasionally outpaced that of the KOSPI and KOSDAQ stock indices — a dynamic rarely seen in other major markets.
The parliamentary grilling highlights growing political concern that operational lapses at major exchanges could undermine confidence in a sector that has become deeply embedded in household investing.
The South Korean Financial Supervisory Service (FSS) launched an investigation into the incident, focusing on compliance systems and risk management at the nation’s second-largest digital-asset platform
FSS Governor Lee Chan-jin said he personally believed the virtual currency market should be subject to the same regulatory oversight as banks and other financial services institutions, but it is not possible under existing laws and regulations.
Additional reporting by Bloomberg
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