Regulator launches probe into Bithumb's accidental bitcoin pay out

Seoul, Feb 10
Financial authorities began a formal investigation on Tuesday into Bithumb, a local crypto exchange, to determine how it was able to pay out over 60 trillion won ($41.2 billion) in bitcoins it apparently did not have, industry sources said.

Regulators informed the crypto exchange Monday that an investigation will be conducted, three days after they conducted an on-site inspection, according to the sources, reports Yonhap news agency.

"We are taking this case very seriously," an official from the Financial Supervisory Service (FSS) said. "The FSS will take stern legal actions against acts that harm the market order."

On Friday, Bithumb erroneously sent 620,000 bitcoins, instead of the 620,000 won originally planned, to 249 customers in a promotional event, triggering a sell-off at the exchange.

Most of the mis-sent bitcoins were retrieved immediately after the accident, but 1,788 tokens were already sold off, the crypto exchange said in a statement.

Centralised exchanges like Bithumb use a "book-entry trading system," in which exchanges record ownership and execute trades electronically within their internal databases, rather than recording every transaction on the public blockchain.

Such a system, if mishandled, could generate "phantom balances," resulting in a discrepancy between listed balances and actual reserves.

Bithumb held around 42,000 bitcoins as of end-September, of which all but 175 tokens were customer-entrusted crypto.

Tuesday's investigation also comes amid pending legislation on virtual assets at the National Assembly.

The country's financial watchdog said that it will introduce a set of measures to impose tougher penalties on financial companies for IT infrastructure-related accidents.

The Financial Supervisory Service (FSS) said it will draw up measures to prevent IT accidents in the financial sector, which will include punitive penalties and enhanced regulations on IT security in order to better protect consumers.