Fraud-Hit Cryptocurrency Exchange Suffers Bank Problems

A major South Korean cryptocurrency exchange which has fallen victim to scams and fraud has been dealt a fresh blow after its banking partner failed to renew its contract.

Bithumb had been working with Nonghyup Bank until the bank called off the arrangement recently, citing problems with security.

The exchange has now been forced to call off all new participant sign-ups, and it has also prevented any further deposits from being made.

Bithumb, which is one of the world’s largest cryptocurrency exchanges and enjoys a large 24-hour trade volume of almost USD $400m, lost several million dollars’ worth of crypto after a major security breach back in June – an event which is believed to have contributed to its ongoing banking problems.

The exchange, which is based in South Korea and is believed to be the world’s sixth-largest cryptocurrency exchange overall, fell victim to the scam on 16 June.

It is believed that around USD $30m was stolen.

In response, Bithumb said that it was suspending its payment system and preventing any further deposits in the short term.

In order to reassure its users, it also promised that all of the cryptocurrency taken would be refunded to those affected. Additionally, it moved the cryptocurrency it stored from a hot wallet to a cold wallet.

The reason given by Nonghyup Bank for the decision was linked to fraud. “We have decided not to renew the contract because Bithumb still has problems in protecting consumers and information and preventing money laundering,” the bank said in a statement.

In response to the bank’s decision, Bithumb said in a statement of its own: “We are planning to iron out our different views on some legal expressions and start issuing virtual accounts soon.”

The decision is particularly difficult for Bithumb given the regulatory environment in South Korea. At the start of this year, the government there outlawed anonymous trading.

Without a banking partner, Bithumb will find it significantly more difficult to carry out the identity checks needed to satisfy these new requirements.

The wider South Korean cryptocurrency scene has also frequently been a target for hackers over the last few months.

This year also saw the hacking of another exchange based in the country, called Coinrail. In that incident, a sum of cryptocurrency totalling about USD $37m was stolen.

Coinrail was not part of the self-regulation body in South Korea – the Blockchain Industry Association ­– and that was given by some as a potential reason for its vulnerabilities.

“Coinrail is not a member of the group that promotes self-regulations to enhance security,” said an Association spokesperson, Kim Jin-Hwa.

“It is a minor player in the market and I can see how such small exchanges with lower standards on security level can be exposed to more risks.”

While Bithumb perhaps does not face the same issues of size as Coinrail, the ongoing problems they both face illustrate just how difficult cryptocurrency security continues to be for exchanges both large and small.

Nigel Frith

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