After a virtual currency exchange shut down on Tuesday, South Koreans have been questioning the safety of local platforms. Photo Courtesy of EPA-EFE/Yonhap
SEOUL, South Korea, Dec. 21 (UPI) -- Hacking attempts on South Korea's cryptocurrency exchanges are likely to grow more frequent, according to local experts.
After local exchange Youbit shut down this week, hit by two hacking incidents this year, security experts are questioning the soundness of the country's numerous virtual currency platforms.
"Next year, there will likely be more indirect hacking attempts targeting exchange personnel, in addition to direct attacks on servers," Moon Jong Hyun, director of ESTsecurity said.
10 virtual currency exchanges received a warning from authorities last month, after failing most parts of a security check-up. Their access control systems and security measures for privacy protection and passwords were found to be in poor condition.
The fundamental problem is that anyone can set up a cryptocurrency exchange, an expert told DongA Ilbo.
South Korea currently does not have regulations that restricts individuals or businesses from jumping into the market. Most of them register as telemarketing companies which means they are not subject to legal requirements regular banks or stock exchanges fulfil before they begin operating.
"Many digital currency platforms rush into profit from the transaction fees so security comes as an afterthought," the expert said.
Digital currency exchanges charge between 0.05 to 0.15 percent on every transaction which is ten to thirty times higher than the rate charged by stock exchange firms.
"There are rumors Bitthumb (Korea's largest bitcoin exchange) will make billions in profit this year as it sees an average of $4.6 billion in daily transactions," an exchange employee told Chosun Ilbo.
Financial soundness is another concern, as the lack of regulations mean there are no requirements on minimum capitalization. Out of 14 major platforms investigated by Chosun Ilbo, five companies were found to have starting capital ranging from $924 to $46,210- far less than the amount most venture companies start off with.
After losing 17 percent of its assets, Youbit on Tuesday announced investors will receive 75 percent of their holdings. This was met with some skepticism as a number of investors claim they weren't properly compensated after the first bout of hacking in April which carried off 4,000 bitcoins which are now worth about $73 million.
Authorities launched an emergency meeting Wednesday following Youbit's collapse, ordering a three-day investigation into 13 companies to electronic transaction laws have been violated.
Last week, the government proposed various measures restricting banks from engaging in cryptocurrency trade as well as enhancing investor protection.
However, critics say that it is up to investors to calculate the risks before deciding to buy highly speculative assets outside the government's scope of regulation.
South Korea is the world's third largest market for digital currencies, after Japan and the U.S. Some 2 million people own a form of cryptocurrency such as Bitcoin and Ethereum which are both trading at a premium in local exchanges.