(Part 3) Crypto of Korea: Exchanges

Not the kind of global coverage you want
The BCH issue happened in late 2017 during the peak FOMO period for cryptocurrency trading in the Bitcoin Bubble. One couldn’t possibly imagine a worse time for a ‘server outage’ to happen, but it happened nonetheless. Bithumb escaped the fiasco relatively unscathed which is an aspect that will be explored in greater depth later.

South Korean exchange hacks became the stuff of global news in 2018. Their reputation for reliability, honesty, and transparency were all at all-time lows due to the frequency and magnitude of the hacks. Bithumb itself would be yet hacked again later in 2018 to the tune of some $30 million, for example. These hacks, however, were merely the symptoms of larger problems. Those problems manifested themselves in the tacit expectation that exchanges would lose millions of dollars of investors’ funds without incurring any public wrath. Traders just accepted the fact that if they deposited fiat onto an exchange that it was virtually already gone.

An example of the malaise, or what some might consider disgust among traders in South Korea is the Coinrail hack episode.

Coinrail was a relatively small exchange clinging to a top-100 ranking on CoinMarketCap, coming in at 98th in May 2018. They offered only a small handful of trading pairs similar to how Bithumb and Upbit got their inauspicious beginnings in the crypto trading industry. While these days merely being in the top 100 of exchanges isn’t noteworthy if that position ranks in the bottom half of the list, there was still enough trade volume being reported back then to make it a respectable position especially for such a small operation.

In late May, Coinrail issued an official update to the terms of service with its users which stated that the exchange would not be held responsible for unintended negative consequences. Such a change to the terms of service, which users of course had no control over, would raise eyebrows if individuals ever actually read the terms of service. Business continued as usual at the exchange and among users of the platform.

On June 10th, just about 2 weeks after the new terms of service were issued, Redditors noticed extremely unusual withdrawals coming from Coinrail. Large amounts of Kyber, Storm, Tronix, B2B, NPER, Jibril, Aston X, NPXS, and Dent token were removed from the platform. The alleged attack took place at 2:10am Korea time during a period of low activity. It was almost as if someone was trying to sneak the hack in the wee hours of the morning while Koreans were still asleep. Assuredly over 90% of users were Korean, and the remaining 10% mostly resided in Korea so there is a very good chance that most of their users were asleep while the alleged attack took place. This also explains why Redditors were the first community to notice the coin movement since most Redditors are English-speaking folks in the west – they would have been wide awake at 2:10am Korea time.

The alarm raised by all netizens caused Bitcoin to crash over the next few days from about $7,500 on the 10th of June to just over $6k on the 13th. That’s a 20% drop in 3 days. Affected altcoins also dropped upwards of 30% at the time of the hack. The news was so important to the markets that Reuters and all the top blockchain and cryptocurrency news outlets covered the story at length.

TheNews.Asia covered the story with multiple updates including the very minute police visited Coinrail offices to raid their hard drives and pertinent documents. The contact who just happened to be there at the moment police came in reported to the news outlet that all bodies were ordered to sit still or stand where they were while collections took place. By this point, Seoul police had become accustomed to such raids as they had performed the same routine at CoinOne and Upbit shortly before Coinrail. All told, high-end estimates put the total losses at just under $40 million in stolen coins. It also rang the tired tune of weak security and lax regulations on a market that begged for government intervention.

Brian Newar(2020.12.15) Crypto of Korea: Exchanges
retrieved from https://thenews.asia/crypto-of-korea-exchanges/