South Korea’s Bithum admitted on Wednesday that serious flaws left the trading platform’s internal systems vulnerable to potential breaches and failed to prevent $40 billion in Bitcoin from being mistakenly transferred to customers, Reuters reported.
According to Reuters, the mistake caused the price of Bitcoin on Bithumb to plummet 17% after the country’s second-largest cryptocurrency trading platform accidentally gave away 620,000 Bitcoins to customers instead of just 620,000 Korean won (approximately $428).
The Financial Supervisory Authority said on Sunday it would begin investigating “high-risk” behavior that disrupted market order, including large-scale price manipulation by so-called “whales”, trading schemes linked to suspensions of deposits and withdrawals and coordinated pump-and-dump tactics fueled by social media misinformation. The regulator also said it plans to develop tools that can automatically extract suspicious transaction patterns at the second and minute levels, as well as text analysis systems that use artificial intelligence to flag potential market abuse.
Bithumb CEO Lee Jae-won said the giveaway amount was 15 times the cryptocurrency trading platform’s 42,000 bitcoins, mainly due to a 24-hour lag in processing transactions and delays in updating its cryptocurrency holding balances. “We are acutely aware of deficiencies in internal system controls,” Lee told a recent parliamentary committee hearing.
The CEO admitted that Bithumb’s policy of ensuring that the amount of transferred assets matched its actual holdings failed and that the amount was not specifically held in a separate account to ensure the security of the transfer.
Reuters reported that the exchange had recovered most of the bitcoins, but 1,786 bitcoins sold in the minutes before the exchange froze customer accounts remained unaccounted for. Customers who sell their lost Bitcoins are legally obliged to return them.
Members of parliament expressed frustration at the lack of government and corporate regulation of the country’s virtual asset market, one of the most actively traded in the world. According to a recent report, cryptocurrencies have become a major investment asset in South Korea, with the number of investors growing to 10 million and exchanges such as Upbit and Bithumb generating trillions of won in revenue.