South Korean cryptocurrency exchange Bithumb said on Wednesday that its internal system had a serious vulnerability that made it vulnerable to potential damage and failed to prevent the erroneous transfer of more than $40 billion in assets that occurred last week. South Korea's second largest virtual asset exchange said that during a promotion event, the platform mistakenly issued about 620,000 bitcoins to users instead of the original 620,000 won (approximately $426), which caused the price of bitcoin to plummet 17%.
Lee Jae-won, CEO of Bithumb, said that the size of the assets mistakenly issued was equivalent to 15 times the exchange’s holdings (42,000 Bitcoins). The main reason is that there is a delay of approximately 24 hours in transaction processing, resulting in a delay in updating virtual asset balances.
"We are deeply aware of the flaws in internal system control," Lee Jae-won said at a congressional hearing on the incident on Friday.
He said that the exchange's original risk control mechanism for verifying the transfer amount and the actual amount of assets held failed, and the funds involved were not transferred into separate accounts to ensure transaction security.
Regulators said the exchange had recovered most of the bitcoins, but 1,786 bitcoins had been sold in the minutes before the exchange froze the receiving user's account.
Users who sold the coins are legally obligated to return the proceeds, they said.
South Korean congressmen expressed disappointment with the government and companies' regulatory failure in the virtual asset market. South Korea is one of the most active markets for virtual asset trading in the world in terms of transaction volume.
Lee Chan-jin, director of the Financial Supervisory Service (FSS), said that he personally believes that the virtual currency market should receive the same supervision as banks and other financial service institutions, but this cannot be achieved under current laws and regulations.