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Bithumb's 'phantom coin' incident highlights need for stronger safeguards

A recent incident at cryptocurrency exchange Bithumb involving the erroneous crediting of phantom assets worth 60 trillion won ($41 billion) has exposed structural vulnerabilities in Korea's virtual asset platforms and underscored the need for stronger security controls.

On Friday and Saturday, the exchange was distributing promotional rewards to 249 users when an employee mistakenly entered the payout unit as Bitcoin rather than won. As a result, a prize of 620,000 won was credited as 620,000 Bitcoins, an amount valued at roughly 60 trillion won at the time. Although most of the Bitcoin was quickly recovered, the fact that a simple input error could trigger such a massive asset transfer cannot be dismissed as a minor operational mishap.

The core problem lies not in individual error but in failed internal controls and gaps in the security system. The execution of a large Bitcoin transfer in what was meant to be a small won-denominated event indicates that even basic verification procedures were not functioning properly.

This vulnerability stems from the operational structure of many virtual asset exchanges. Customer assets are often held in internal wallets, and transactions are processed through internal ledgers rather than being immediately recorded on public blockchains. While this approach reduces costs associated with frequent transactions, the incident revealed that nonexistent or "phantom" assets can effectively be created and circulated within the system.

The implications extend beyond the cryptocurrency market itself. As virtual assets become increasingly interconnected with traditional finance, structural weaknesses in what remains a relatively small segment of the broader financial ecosystem could trigger outsized disruptions. Such a scenario raises concerns about a potential "wag the dog" effect, in which instability in the virtual asset sector spills over into the larger financial system.

The persistence of operational failures makes the situation more troubling. Exchanges have repeatedly faced system errors, withdrawal delays and service disruptions, yet fundamental safeguards remain insufficient.

Korea introduced the Act on the Protection of Virtual Asset Users in 2024, requiring exchanges to separate customer assets, maintain insurance or reserve deposits and prohibit unfair trading practices. These measures provide a basic legal framework but are not sufficient to prevent human error or operational risk.

The National Assembly should accelerate deliberations on the second phase of virtual asset regulation now under discussion. The latest incident highlights the need to mandate multilayer verification and automatic blocking mechanisms for large-scale asset transfers and payouts.

In addition, institutional measures should clarify management accountability when internal control failures occur. Strengthening governance and risk management at exchanges is essential to restoring trust and preventing operational mistakes from escalating into broader financial instability.(END)

Korean Newspaper Headlines

Today in Korean History

Editorials from Korean Dailies

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