The erroneous transfer of Bitcoins worth 64 trillion won ($44 billion) at Bithumb has prompted financial authorities to scrutinize not only the internal control system of the country’s second-largest cryptocurrency operator but the overall reliability of digital asset service providers. The Bank of Korea (BOK) pointed to a lack of oversight as the fundamental cause, with the system allowing far more tokens to be issued than the exchange actually holds — roughly 13 times — following a mistake by an employee. The employee mistakenly entered 2,000 Bitcoins instead of the intended 2,000 won for each of the 249 winners of a promotional event on Feb. 6. “To prevent a recurrence of such an incident, it is necessary to establish a double-check control framework and systems capable of detecting and controlling human errors before they materialize,” it said.
The central bank went on to call for strengthened internal control requirements stipulated in the Digital Asset Basic Act as the government is pushing to pass the regulatory framework for digital assets within the first quarter. “As similar incidents could occur upon the introduction of a won-denominated stablecoin, it is necessary to strengthen internal control requirements when enacting the Digital Asset Basic Act in order to ensure security in won-based stablecoin issuance and distribution,” it said. In addressing the request for an assessment of the incident, the BOK cited a $300 trillion stablecoin blunder by Paxos, the New York-based blockchain partner of PayPal, last year, as an example of lax oversight inherent in the cryptocurrency ecosystem. Bithumb held around 42,000 Bitcoins as of the third quarter of last year, 175 of which belonged to the company and the remainder being customer deposits, according to a quarterly report filed on the electronic disclosure.
Financial regulators have stepped up their response to the case, shifting from an on-site inspection to a full formal investigation. The Financial Supervisory Service significantly expanded the scope of its probe by deploying additional personnel in light of the severity of the incident. On the day of the incident, 1,788 mistakenly-distributed Bitcoins hit the market, causing the price of Bitcoin on Bithumb to temporarily plunge to around 81 million won, while the asset traded at around 97 million won on rival exchange Upbit. The sudden drop in valuation led to at least 64 cases of forced liquidations of collateralized Bitcoins on the exchange worth 1 billion won, but industry insiders project that total damages could be larger.
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