Compensation

South Korean regulators have begun investigations into Bithumb, days after the crypto exchange accidentally sent some $43 billion worth of Bitcoin to hundreds of customer accounts.

At a Monday press conference, the head of South Korea’s Financial Supervisory Service told reporters that the error “laid bare the structural problems of virtual asset exchanges’ ledger systems.”

The regulator plans to strengthen on-the-ground supervision of financial institutions by introducing punitive fines for IT incidents, reinforcing security responsibilities for executives, and expanding information security disclosure requirements.

New measures would include requirements for the self-management of IT asset inventories, as well as “on-site inspections and examinations conducted for companies that fail to address critical vulnerabilities,” a translation of the report from state news wire Yonhap reads.

The FSS added that a separate review is underway into safeguards for user funds at electronic payment firms, including how prepaid balances and settlement funds are managed.

Late last week, Bithumb erroneously airdropped hundreds of customers as much as 2,000 BTC each (a sum worth $140 million at writing) instead of 2,000 Korean won ($1.37). The transfers only occurred on the company’s internal ledgers, and did not involve actual on-chain Bitcoin movements.

But nonetheless, the massive error led to a huge sell-off of paper Bitcoin that temporarily depressed the token’s listed price on Bithumb’s platform, falling as low as $55,000.

On Sunday, Bithumb CEO Lee Jae-won announced a compensation plan for users impacted by the mistake. All users who were connected to the exchange’s app or website during the time of the incident will receive 20,000 won ($13.73). Customers who sold Bitcoin at an erroneously listed low price will be paid 100% of the selling price, plus 10% consolation money. And, beginning today, the platform will charge zero trading fees to all customers, for the next week.

The CEO added that 99.7% of the overpaid Bitcoin has been recovered. The missing 0.3%—worth $123.4 million at writing—was repaid with company assets, he said.

“We will never forget that the value of Bithumb’s future growth lies solely in the trust of our customers,” Lee said. “Bithumb will continue to protect our customers’ assets with the utmost safety under any circumstances.”

Despite Bithumb’s assurances, the episode has created quite a political stir in Korea. The head of the country’s Financial Supervisory Service said the exchange’s error revealed “fundamental weaknesses” and “regulatory blind spots” that must be remedied via digital asset legislation.

A spokesperson for Korea’s ruling Democratic Party said over the weekend that Bithumb’s accidental Bitcoin giveaway “clearly exposes structural vulnerabilities” in the operation of crypto exchanges, and is “by no means a minor issue.”

“Establishing a real-time verification system between ledger transactions and actual blockchain assets, along with multi-verification procedures and an internal control system capable of simultaneously blocking human and system errors, is a task that can no longer be postponed,” the spokesperson said.

Incidents such as the inadvertent Bitcoin transfers from a local crypto exchange will “surely put on more caution on the industry,” said Crypto Council for Innovation advisor Sean Lee, given the regulator’s efforts at “putting forth the digital asset basic act,” as well as its won stablecoin regime.

“Policymakers often don’t have economic-based KPI’s. Their measurement is more on preventing things from going wrong,” Lee told Decrypt.

Editor’s note: This story was updated after publication to add further context and comments from an industry expert.