Ethereum Tokens Swiped, Returned After South Korean Tax Service Publishes Wallet Seed Phrases
TL;DR
South Korea's National Tax Service accidentally published crypto wallet seed phrases in a press release, allowing someone to steal $4.8 million worth of illiquid tokens. The tokens were returned 20 hours later, highlighting security risks in government crypto handling.
Key Takeaways
- •South Korea's National Tax Service publicly disclosed crypto wallet seed phrases, enabling theft of $4.8 million in tokens
- •The stolen tokens were highly illiquid and essentially worthless on the market, leading to their return
- •This incident follows other recent crypto mishaps by South Korean authorities, including police losing $1.4 million in Bitcoin
- •The case demonstrates critical security failures in government handling of cryptocurrency assets
- •Proper crypto custody protocols are essential for both individuals and institutions to prevent such breaches
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The first rule of self-custodying crypto is that you do not tell anyone your seed phrase—a set of 12 or 24 words that unlocks the private key to the wallet, therefore enabling control of the digital assets inside.
South Korea’s National Tax Service (NTS) broke that rule in a very public fashion this week, publishing a photo of hand-written seed phrases in a press release and enabling an unidentified actor to make off with tokens valued at $4.8 million at face value, according to a local news report from Maeli Business Newspaper. But the highly illiquid tokens have since been returned.
The incident occurred after the NTS completed a search and seizure of high-value tax delinquents and subsequently photographed some of its haul to share in a press release. In that release, one individual’s lot, labeled as “Case 3,” included multiple Ledger hardware devices and their respective seed phrases, according to the report.
“This is like advertising to open your wallet and take your money,” Professor Cho Jae-woo of Hansung University told the publication.
Upon publication of the release, an individual did just that, pulling contents from at least three wallets into an Ethereum address ending in “86c12” before transferring them again.
On-chain data shows that three distinct addresses holding a total of 4 million Pre-Retogeum (PRTG)—valued at $4.8 million based on the token’s current price—were funded with a negligible amount of Ethereum to cover transaction fees before the user transferred their respective PRTG tokens to “86c12.”
The three addresses, which have not made any transactions since January 2023, held 40% of the total supply of the PRTG token—a defunct Ethereum-based token that boasts only 1,500 holders and 1,600 transfers all-time.
While initial reports noted the token’s $4.8 million face value, if the thief tried to sell these tokens, they would have not been able to recoup anywhere near that amount given very limited liquidity. The token lists no trading pairs on decentralized exchanges, and is only listed on one centralized exchange—MEXC—where it registered 24-hour volumes of only $332.
According to CoinGecko, the exchange’s liquidity for the PRTG-USDT trading pair is so small that only $59 in volume would send the price down 2%. For comparison, to move Bitcoin down 2% down on MEXC, a trader would need to sell around $2.6 million worth of the top crypto coin.
Perhaps that understanding is why on Friday morning, about 20 hours after initially moving the PRTG tokens, an address tied to the original “86c12” address transferred all the tokens back to their original wallets.
The hiccup is just the latest in a string of apparent crypto blunders for officials in South Korea. Earlier this week, it was discovered that $1.4 million in BTC went missing four years ago thanks to police not adhering to proper crypto custody guidelines.
Plus, South Korean regulators have come under fire after not finding an internal flaw in crypto exchange Bithumb’s system, which led to the firm erroneously distributing $43 billion worth of Bitcoin to users earlier this month rather than sending them small amounts of South Korean won.