South Korean Lawmakers Slam Regulators Over Bithumb's $43 Billion Bitcoin Blunder
TL;DR
South Korean lawmakers criticize regulators for failing to detect a system flaw at Bithumb that led to a $43 billion Bitcoin distribution error. The incident highlights regulatory weaknesses and complacency in oversight.
Key Takeaways
- •South Korean regulators missed a structural issue in Bithumb's systems during multiple reviews, leading to a $43 billion Bitcoin blunder.
- •The error resulted in 695 users receiving Bitcoin worth $135 million each instead of small promotional amounts, causing market disruption.
- •Bithumb recovered 99.7% of the Bitcoin but had to cover $123 million in losses and compensated affected users with payments and premiums.
- •Lawmakers and regulators acknowledge the incident exposes fundamental weaknesses and regulatory blind spots in the virtual asset market.
- •The Financial Supervisory Service is investigating the incident, including past minor errors, with an extended deadline until month-end.
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South Korean regulators are facing increased scrutiny after they failed to discover an issue with crypto exchange Bithumb’s internal systems, which led to $43 billion in Bitcoin accidentally being credited to user’s accounts earlier this month.
Korea’s Financial Services Commission and Financial Supervisory Service (FSS) had both reviewed Bithumb at least three times since 2022, according to a local report from The Korea Times—yet the pair never found a structural input issue that ultimately led to the problem.
“The episode is not merely a technical mishap but a case that lays bare deeper structural weaknesses in the virtual asset market, including complacent supervision and gaps in regulation,” Rep. Kang Min-guk Kang said.
Another representative called out regulators for shifting blame to the exchange, “despite their supervisory role.”
The incident, which took place earlier this month, saw 695 individuals accidentally be credited with upwards of 2,000 Bitcoin—currently valued around $135 million—apiece instead of 2,000 Korean won (about $1.38) as part of a promotion.
While the mistake only impacted the internal ledgers at the exchange, and was fixed within five minutes according to Bithumb, some users noticed the error and sold their airdropped Bitcoin immediately, sending the price of the asset on Bithumb’s exchange to around $55,000.
Shortly thereafter, the firm indicated it was able to recover around 99.7% of the erroneously distributed BTC, but around 0.3% or about $123 million worth, was missing and had to be repaid with company assets.
Due to the size of the error, Korean regulators quickly sprung into action, noting that the incident revealed “fundamental weaknesses” and “regulatory blind spots” that must be remedied.
The FSS has been conducting a formal investigation into the matter, which was recently given an extended deadline until the end of the month, according to The Korea Times.
Bithumb CEO Lee Jae-won indicated before the National Assembly that the firm had previously made two minor coin distribution errors in the past and later recovered the assets. Those events will also be investigated as part of the FSS probe, an official for the regulator told the local news outlet.
The firm ultimately provided a compensation plan for all users affected by the issue, paying around 20,000 won ($13.73) to any user who was logged in to the exchange during the time the error was committed. Additionally, it paid back users that had sold BTC at the artificially low price, and paid a 10% premium on top.
“We will never forget that the value of Bithumb's future growth lies solely in the trust of our customers,” Lee said in a blog post on February 8. “Bithumb will continue to protect our customers' assets with the utmost safety under any circumstances.”
Bitcoin, which is down around 46% from its all-time high of $126,080, is up 2.4% in the last 24 hours, recently changing hands around $67,752.