The scandal to hit South Korea has been the fall of TERRA. However, before this was the hacking of Korea’s top cryptocurrency exchange Upbit. Upbit was hacked for $50 million worth of Ether in late 2019. This beat the news of Bithumb’s hacking of $13 million in EOS and $6 million in XRP in March 2019. Upbit ended up suspending all functions (withdrawal/deposits) for two weeks. Below you will find the complete breakdown of the hacking of Upbit. We will also go into what Korean cryptocurrency exchanges need to do in 2023 and beyond to avoid hacks in the future.
Korea’s top cryptocurrency exchange Upbit’s hot wallet was hacked in late 2019. In total, 342,000 ETH was transferred to an unknown wallet address. Upbit quickly shut down Upbit to avoid further damage. Upbit covered all losses themselves and no investor’s assets were lost. Cryptocurrency in Korea, which was a trending topic was now trending for different reasons. There was a massive sell-off of all cryptocurrencies due to the fear that hackers could hack other cryptocurrency exchanges. The capitalization of all digital assets dropped by more than $190 billion in days.
Since the hacking of Upbit, Upbit has focused a lot on security. They worked with their partner Chainalysis, a blockchain monitoring platform to improve their KYT (Know-Your-Transaction) to check real-time transactions and flag any suspicious crypto activities.
Since Hackers seem always to be ahead of the game, what cryptocurrency exchanges need to do is set up an insurance fund. This will assure the public and their users that EVEN if the exchange gets hacked, their funds will be safe. Upbit and other cryptocurrency exchanges in Korea must allocate a percentage of their trading fees into an insurance fund (stored in a cold wallet). Therefore if another hacking incident happens, the damage will not be as bad.
The last few years saw a rise in third-party insurance service providers that offer insurance funds to compensate users on cryptocurrency exchanges. Cryptocurrency exchanges like Coinbase and Binance have chosen to use these third-party service providers like Aon and the Federal Deposit Insurance Corporation. One of the main concerns for cryptocurrency holders is the fear of not being protected if a cryptocurrency exchange gets hacked. Third-party insurance services will allow cryptocurrency exchanges in Korea to give their customers protection across the crypto industry.
It is important for Korean cryptocurrency exchanges to establish a line of communication with other exchanges worldwide. This will help in tracking and freezing suspicious transactions. Hackers usually split the stolen funds and send them to different exchanges across the globe. Exchanges need to have a system to communicate with other exchanges. Then they will have the ability to suspend wallets they feel are red flags and being to recover the funds. The good news is that Korean cryptocurrency exchanges like Upbit, Coinone, Korbit, and Bithumb already created a hotline for major exchanges to monitor suspicious transactions. Therefore, this will go a long way in creating a worldwide database for suspicious transactions and wallets.
Bithumb said their hacking was due to an insider. This makes it even harder for cryptocurrency exchanges to secure their funds. The security teams for these major cryptocurrency exchanges can be over 20 members. Blockchain developers in Korea are in high demand. While many would have decent pay working for these cryptocurrency exchanges, the one-time large payoff for hacking the site could be too tempting. Remember, a hacking incident could range from $10-$50 million in stolen cryptocurrencies.
Blockchain itself is a new technology. Korea loves new and innovative technologies, so research into Blockchain in Korea has taken off in South Korea. In reality, there are very few Blockchain developers. The top ones have already started their own companies and have millions of dollars. There are many fakes out there masquerading as Blockchain developers. Therefore it isn’t easy to recognize them unless you are a Blockchain developer.
This is why many companies are developing AI that can detect suspicious transactions. These AI solutions can find errors in nodes and smart contracts. In time these AI solutions will replace Blockchain security specialists and offer a great level of protection against hackers. Furthermore, consider AI a major role in many Cryptocurrency Exchanges in 2023.
Remember, hacking has been around ever since computers were created. However, hacking is a problem in the Blockchain space because the transactions are irreversible. The Blockchain does not discriminate between legit transactions and those done with stolen digital currency. In addition, as technology advances, it might be possible to have a system in place to allow for the reversal of transactions. Instead of just trying to stop illegitimate transactions from taking place. Therefore, maybe the solution lies in a central body that investigates claims and ultimately has the power to undo a transaction made on the Blockchain. But then again, this takes away from what makes Blockchain special.
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