Bithumb to write off $9 million in Bitcoin losses after giveaway gaffe

The South Korean crypto exchange Bithumb says it will cover $9 million worth of losses with its own funds after a botched promotional event saw it hand out $40 billion worth of Bitcoin to its domestic customers on Friday.

But financial regulators are taking a dim view of the so-called fat finger error, and have launched an on-site inspection, South Korean newspaper Kookmin Ilbo reported. Their ire has been stoked by the fact that Bithumb was reportedly on the verge of implementing a system that would have prevented the gaffe — but instead chose to prioritise other matters.

The exchange’s promotions team had intended to send a total of $423 in Korean won to 249 customers who took part in a lucky draw-type giveaway. However, the team erroneously selected Bitcoin as the unit type when sending the rewards to this group of customers. As a result, each of the customers received thousands or millions of dollars worth of Bitcoin instead.

While Bithumb was able to freeze trading shortly after and convince the vast majority of the recipients to return the Bitcoin, a small number of customers liquidated their coins or traded them for other cryptocurrencies like Ethereum.

Bithumb told Chosun Ilbo it is yet to receive 125 Bitcoin, worth around $9 million, from a small group of recipients.

The exchange said it was prepared to write off these losses, South Korean media outlet TokenPost reported on February 8.

“The fact that a single error in setting an event reward unit can destabilise an entire crypto exchange soberly demonstrates the current state of our systems and processes,” Hwang Seung-wook, Vice President of Bithumb’s Exchange Business Division, wrote in an email to Bithumb employees. “Rather than blaming a specific individual for their mistakes, we will move to eliminate the lax processes that fail to prevent such errors.”

The error comes at a sensitive time for Bithumb, which is aiming to become the first South Korean crypto exchange to go public in the United States this year. Earlier this month, South Korea’s consumer protection watchdog announced the launch of a probe into Bithumb’s marketing claims.

Compensation plans

The incident sparked a massive Bitcoin price drop at the exchange, and Bithumb said it would compensate all users affected by this, too.

Customers who sold Bitcoin at “an abnormally low price at the time of the incident will receive the full amount of the sale plus an additional 10%,” the exchange said. Bithumb also said it would allow traders to buy and sell coins commission-free for seven days, beginning February 9.

Regulators say Bithumb’s internal system, which allowed employees to pay out loyalty points, Korean won, Bitcoin, and Ethereum without going through formal settlement processes, was to blame for the incident, Kookmin Ilbo reported.

The newspaper quoted unnamed sources as saying the incident revealed “structural vulnerabilities” at Bithumb.

The Financial Supervisory Service’s inspection of Bithumb reportedly began on February 7, with investigators asking the company to submit a list of employees who have permission to issue crypto payments.

The exchange reportedly plans to launch its fat finger fail-safe system by the end of March to ensure that future rewards cannot be paid out erroneously.

A separate system, which will detect and automatically block abnormal transactions, is also slated for launch by the end of May.

Tim Alper is a News Correspondent at DL News. Got a tip? Email him at tdalper@dlnews.com.