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Bitcoin theft frightens investors

Hacking could affect government push to regulate the currency
Apr 29,2017
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A notice on bitcoin operator Yapizon’s website informs users that 5.5 billion won (4.8 million dollar) worth of bitcoin was stolen. [JOONGANG ILBO]
Nearly 4,000 units of the digital currency bitcoin, worth about 5.5 billion won ($4.8 million), were stolen from the local exchange platform Yapizon earlier this month, sending alarms in the local investment community about the safety of this emerging currency.

“Four hot wallets were stolen between 2 and 3 a.m. on April 22,” said a post on the company’s website dated April 26. A “hot wallet” is an electronic wallet often used by bitcoin exchange platforms to store the digital currency.

Since Korean financial authorities have yet to regulate bitcoin, investors will likely suffer direct losses from the theft.

The Seoul-based operator said that a total of 3,816 bitcoins were compromised in the security breach, accounting for 37.08 percent of all of Yapizon’s assets.

While the police are investigating the origins of the attack, the company said the loss will have the same effect on all members’ holdings.

This means that all users will see their stored bitcoins cut by 37.08 percent.

In the notice, the company said it plans to reimburse the loss using its token Fei.

Yapizon declined to comment on details of the compensation plan.

Financial regulators advised investors to take caution when dealing with financial products outside the regulator’s purview.

“Investors of the digital currency can’t be guaranteed under any circumstance,” said Kim Yeon-joon of the electronic finance division at the Financial Services Commission.

The breach comes as the Financial Services Commission is on track to introducing regulatory guidelines for digital currency exchanges this year. The country’s top regulatory agency has launched a task force that will meet regularly to discuss the regulatory status of digital currency and create licensing rules for exchanges as well as devise measures to prevent money laundering and fraud in transactions.

Currently, the Ministry of Science, ICT and Future Planning oversees registration of bitcoin operators but offers no financial regulatory guidelines.

The Yapizon case is reminiscent of larger thefts outside of the country like those that occurred at Bitfinex in Hong Kong and MtGox in Tokyo.

Experts said such cases don’t necessarily mean that blockchain, the technology that fuels digital currencies, is unreliable. Rather, hackers target the internal systems or individual wallets of bitcoin platforms.

Nonetheless, industry players are worried that the cases will damage the public credibility of bitcoin and dissuade people from investing.

Korea’s top three bitcoin exchanges processed around 1.5 trillion won between January 2015 and October 2016, according to data from the Financial Services Commission.


BY KO RAN, PARK EUN-JEE [park.eunjee@joongang.co.kr]