Bithumb’s Bitcoin blunder adds burden to users as legal action favors civil recovery

Just days after mistakenly giving out billions of dollars worth of Bitcoin to users during a promotional event, South Korean cryptocurrency exchange Bithumb is weighing ways to recover the remaining funds.

According to a rough translation, the company is reportedly reaching out to customers who received Bitcoin, particularly those who “immediately destroyed them,” to persuade them to “get back in touch and coordinate their ways.” report From the state-run news agency federation.

This incident originated from a promotional reward event on December 6 in which approximately $43 billion in BTC was distributed due to incorrect input of the reward amount in Bitcoin rather than Korean Won.

Most of the accumulated assets were quickly frozen or canceled, but some were withdrawn or sold by users before the error was corrected. investigator’s investigation And it raises questions about recovery and responsibility.

While the development raises questions about fairness and calls into question the industry’s maxim that “code is law,” legal experts say the strongest path forward for exchanges may lie in civil remedies, while criminal liability could become more complex.

“From an asset recovery perspective, Bithumb is on solid footing. There was no contract promising hundreds of bitcoins, the promotion clearly envisaged a small KRW reward, and the Unjust Enrichment Act was designed for cases where people receive value without a legal basis to hold on to it,” said Joshua Chu, lawyer, lecturer and co-chairman of the Hong Kong Web3 Association. decryption.

In such cases, recipients may attempt to invoke the “change of position” defense described by Chu, where they can argue that “they relied on the apparent credit in good faith and irreversibly spent or moved the funds.”

But since Bithumb was able to resolve and recover the funds, flagging the error publicly and freezing many accounts, “the real battleground will be whether each recipient was effectively made aware of the mistake before taking action on the windfall,” Chu said.

But criminal liability will be met with a higher standard.

“In reality, unlike the hack, prosecutors will be very cautious because this case started as a result of Bithumb’s own mistake, because a viable prosecution would require clear evidence that a specific recipient knew or should have known that they were exploiting an obvious flaw,” Chu explained.

For some, this episode raises disturbing questions. Who benefits from finality when mistakes happen on a centralized platform?

In early January, the South Korean Supreme Court affirm Bitcoin stored on exchanges can be treated as property subject to confiscation in criminal cases.

That means prosecutors can try to characterize a particular withdrawal as abuse, but they would have to prove that the user knew it was an obvious mistake, Chu said.

Earlier this week, Bithumb CEO Jaewon Lee made the following announcement: compensation plan This includes a payment of 20,000 won to affected users, a full refund and a 10% bonus for those who accidentally sold their Bitcoin at a low price, and a week of transaction fees. Lee confirmed that 99.7% of overpaid bitcoins were recovered and the remaining shortfall was covered using company funds.

patchwork policy

Local observers said the incident exposed wider gaps in supervision and internal controls across South Korean cryptocurrency exchanges.

“This incident can be seen as having significantly damaged trust in the internal control system,” said Heo Si-won, a researcher at Four Pillars, a Korean cryptocurrency analysis company. decryption.

“Korean exchanges are not directly supervised by financial regulators due to ambiguity in regulatory jurisdiction,” Heo said, adding that this means systems such as verification of payment obligations are not mandated.

“The real-time asset verification framework is also not standardized,” he said. “Each exchange applies different standards, but most individual investors are not aware of this.”

Policymakers are already moving to strengthen the framework that governs exchanges, with discussions underway to “limit major shareholder stakes in cryptocurrency exchanges to 15-20% due to inadequate internal control systems,” Heo said.

“Korea has been gradually promoting cryptocurrency-related legislation under the name ‘cryptocurrency.’Virtual Asset User Protection Act“It is currently in the first stage of legislation,” he said. “In the second stage of legislation, it is expected that provisions related to internal control and the reserve certificate system will be significantly strengthened.”

Mr. Heo explained that what happened at Bithumb is likely to accelerate efforts to pursue these provisions.

He added that the “aggressive” move signals “a willingness to intervene in the exchange’s internal ownership structure, even at the expense of industry contraction” and is having “significant resonance.”

Bithumb did not return immediately detoxification Request for comment.