[THE INVESTOR] Following the recent hacking of Japanese cryptocurrency exchange Coincheck that led to a record US$400 million of losses, concerns are rising anew about the security of Korean exchanges.
“As digital currency exchanges are outside the ambit of the legal system, there’s no way investors can get compensated,” said Lee Gun-hee, a business professor at Sogang University.
Korean digital currency exchanges are classified as “mail order distributors,” meaning they have the same status as online shopping malls. This is why they aren’t obligated to provide the same level of security as a financial institution, although they actually operate like one.
What’s more worrying to both investors and regulators alike is the frequent hackings here.
In April last year, Yapizon lost 5.5 billion won (US$5.17 million) worth Bitcoins in a cyberattack and the company -- now called Youbit -- suffered another hacking which wiped 17 percent of its assets. In June, Bithumb, one of Korea’s leading exchanges, suffered two hacking attacks.
The government has been warning the cryptocurrency exchanges to ramp up security. On Dec. 15, the Korea Blockchain Association -- made up of major digital currency exchanges and blockchain-related businesses -- unveiled a set of self-regulatory measures.
Among them are non-binding clauses such as exchanges should have 2 billion won or more in assets, and that they should put at least 70 percent of cryptocurrency deposits offline, known as “cold wallets,” to prevent hacking.
But loopholes remain. On Jan. 24, Korea Communications Commission imposed a fine of 141 million won (US$132,346) on eight exchanges for insufficient security measures. They include Upbit, Youbit, Korbit, Coinone, Coinplug, Ripple4y, Yapian, Coinpia, and Eyabit.
In the meantime, a Korean lawmaker is proposing a legislation to nudge cryptocurrencies further into the system. “Korean financial laws are specified depending on each industry such as banking law or capital markets law, so if a new industry doesn’t fit into the existing laws, we have to make a new entry,” said Min Byung-doo, a lawmaker in the Democratic Party of Korea, said. “A bill to be submitted on Jan. 30 will identify cryptocurrency trade as a new industry to be included in the system.”
By Park Ga-young (firstname.lastname@example.org)