South Korea’s National Assembly lit into Bithumb CEO Lee Jae-won after the exchange mistakenly transferred 620,000 Bitcoin, a number more than 12 times its actual holdings.
That mistake, worth around $40 billion, triggered sharp questions about the exchange’s sloppy internal systems and how this kind of mess was even possible.
Appearing before the National Policy Committee on the 11th, Jae-won admitted that Bithumb only reconciles its internal ledger with actual crypto assets once per day. “The time it takes for Bithumb to align its virtual currency holdings and circulation volume is one day,” he said.
The exchange basically collects transaction data for 24 hours, then adjusts the real holdings the next day, meaning there’s always a full-day blind spot.
“We acknowledge that the system for cross-verifying the amount to be transferred and the held amount was not reflected in this incident,” Jae-won added.
Regulator blasts Bithumb’s outdated system and demands new laws
Meanwhile, the Financial Supervisory Service (FSS)’s chief Lee Chan-jin told lawmakers that real-time verification must become the standard.
“Even 5 minutes is not short but rather very long,” Chan-jin said, referring to Upbit, a rival exchange that reconciles holdings every five minutes. He called for lawmakers to include mandatory real-time systems in the next stage of digital asset regulation.
“Only when interlinked systems are in place where actual holdings and ledger balances align in real time can systemic safety be ensured,” Chan-jin told the Parliarment.
The core problem is that Bithumb stores all its data in internal ledgers, not directly on-chain. Unlike blockchain records that are distributed across users’ computers and take time to confirm, Bithumb’s ledgers work more like spreadsheets. That delay is what allowed them to send out 620,000 Bitcoin they never actually owned. And that’s a lot more than just a technicality.
Jae-won had earlier admitted that the company had no system in place to prevent that transfer in real time.
Bitcoin fire sale triggered price drop, liquidations, and lawsuits
In the 35 minutes before Bithumb froze affected accounts, 86 users sold about 1,788 Bitcoin. Some transferred proceeds to personal bank accounts.
Others used the crypto to buy different tokens, according to local reports. This unexpected dump tanked prices temporarily on Bithumb’s platform.
Jae-won acknowledged the two biggest areas of damage were the “panic selling” and the forced liquidation of over 30 users who had pledged Bitcoin as collateral. The CEO said, “We are considering two areas as targets for damage relief.”
The sharp price fall triggered automatic margin calls and liquidations for people who had no clue the platform was malfunctioning.
Chan-jin called the whole thing “catastrophic” for affected customers. Since Bitcoin has since bounced higher, anyone who has to return coins now might lose money. The government fears lawsuits may follow.
Bithumb says it has already fixed 99.7% of the errors internally by reversing ledger entries. It’s now talking directly with around 80 customers who cashed out, asking them to return the Korean won equivalent… voluntarily, for now.
The exchange is trying to avoid lawsuits, because under civil law, courts could demand that customers return the original Bitcoin rather than the cash.
In a public apology, Bithumb said, “Bithumb takes this incident very seriously and will do its utmost to prevent recurrence by redesigning the entire asset payment process and enhancing the internal control system.”
The company also claimed, “This incident is unrelated to any external hacking or security breach, and does not pose any issues with system security or customer asset management.”
Source: https://www.cryptopolitan.com/south-korean-mps-question-bithumb-ceo/
