Bithumb Incident Exposes Urgent Need for Crypto Market System Overhaul

Around 7 p.m. on the 6th of last month, Bithumb, Korea's second-largest cryptocurrency exchange, held a random box event for customers. The event was designed to pay between 2,000 won and 50,000 won to approximately 250 to 700 winners. However, the employee in charge made an error during the prize payment process, mistakenly entering "minimum 2,000 Bitcoin" instead of "minimum 2,000 won." Due to this simple mistake, what was supposed to be 620,000 won in total prize money was paid out as 620,000 Bitcoin—equivalent to approximately 62 trillion won at the time, based on Bitcoin's price of around 98 million won per coin.

Some winning customers immediately sold their erroneously received Bitcoin, causing Bithumb's Bitcoin price to diverge from other exchanges and plummet. As Bitcoin prices crashed on Bithumb, even customers unrelated to the event panic-sold their holdings at low prices, sending the price down to as low as 81 million won at one point. Only after one winning customer posted online about immediately selling 2,000 Bitcoin did Bithumb realize the overpayment. The exchange blocked deposits, withdrawals, and trading roughly 40 minutes after the incident began and started recovery efforts.

This Bithumb overpayment incident should not be dismissed as a one-time accident caused by simple input error. Bithumb is Korea's second-largest cryptocurrency exchange after Upbit and ranks around 50th globally—a mid-tier exchange. According to its third-quarter report last year, Bithumb held only 175 Bitcoin in its own reserves and approximately 42,000 Bitcoin entrusted by customers. The core question is this: how could Bithumb, a mid-tier global exchange holding only about 43,000 Bitcoin including customer deposits, generate and distribute 620,000 Bitcoin?

Bitcoin is known to be secure because its blockchain foundation makes forgery virtually impossible. However, when Bitcoin is traded within an exchange, transactions occur as ledger entries that simply change numbers in internal databases without blockchain verification. Blockchain verification is skipped because the process takes at least 10 minutes to an average of one hour per transaction. This physical limitation makes blockchain-verified day trading or real-time transactions practically impossible. Therefore, exchanges execute trades at lightning speed based on internal databases and use blockchain verification only when coins actually move during deposits and withdrawals.

This incident demonstrates that exchange ledger trading systems, which bypass blockchain verification, are vulnerable not only to simple mistakes but also to insider manipulation. Moreover, when virtual assets that exist only on paper flood the market—as in this Bithumb case—they can shock actual market prices, potentially destroying confidence in cryptocurrency scarcity in an instant.

To prevent incidents similar to the Bithumb overpayment in the future, individual exchanges must strengthen internal controls while financial authorities must build more sophisticated systems for the cryptocurrency market. First, individual exchanges should establish real-time asset reconciliation systems that continuously compare the number of virtual assets they actually hold against the numbers recorded in their databases. They must also strengthen internal control systems to require multi-party approval, where multiple employees independently authorize large asset transfers.

Financial authorities must enhance supervision and monitoring of individual exchanges' internal controls. Ultimately, they should work toward building a cryptocurrency market system where independent institutions divide core functions—similar to the stock market, where Korea Securities Depository maintains original share records, all stock trades are executed only through Korea Exchange (KRX), and customer deposits are separately held at Korea Securities Finance. Without strengthened internal control systems at individual exchanges and financial authorities' efforts to overhaul the cryptocurrency market, restoring and maintaining trust in virtual asset markets will be difficult.