South Korea’s Bithumb acknowledged on Wednesday that critical weaknesses in its internal controls left the cryptocurrency exchange vulnerable to both sabotage and operational mistakes, culminating in an accidental distribution of roughly 620,000 bitcoins during a promotional event, the firm told a parliamentary committee.
Instead of crediting customers with 620,000 won - about $426 - the exchange says a system error caused the far larger bitcoin figure to be transferred. The error, which Bithumb CEO Lee Jae-won described as reflecting a serious deficiency in internal system control, coincided with a 17% fall in the price of bitcoin.
CEO Lee told lawmakers that the giveaway equaled about 15 times the exchange’s usual holdings of 42,000 bitcoins. He said the mismatch occurred because transaction processing experienced a lag of about 24 hours before balances of virtual assets were updated, and because the firm’s policy-checking mechanism failed to prevent the transfer.
Lee explained that the exchange’s procedure of verifying the volume of currency slated for transfer against its actual holdings did not operate as intended, and that the amount involved was not placed in a separate, designated account to secure the transaction. Those gaps, he said, exposed the platform to an avoidable and large-scale error.
Regulators said most of the bitcoins have since been retrieved by the exchange, but that 1,786 coins had already been sold within minutes before Bithumb froze the accounts of the customers who received them. Authorities stated that those who sold the mistakenly received bitcoins are legally required to return the proceeds.
Members of the national assembly voiced dismay at the apparent failures of both corporate risk controls and government oversight of the virtual assets market, noting that South Korea is among the most active markets in the world by trading volume for digital assets.
Financial Supervisory Service Governor Lee Chan-jin told the committee he personally believed the virtual currency sector should face the same regulatory oversight applied to banks and other financial firms, but that such supervision is not currently feasible under existing laws and regulations. The exchange rate cited by authorities during proceedings was $1 = 1,455.4700 won.
Context and implications
The episode highlights how system design, reconciliation timing and account segregation practices interact to determine operational resilience at large crypto platforms. While most funds were recovered, the rapid sale of part of the misplaced holdings and the immediate market response underscored how technical failures can translate into market volatility and legal entanglements.