Upbit and Bithumb Agree to Pay Record $2.5M for System Failures
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Highlights:
- Upbit and Bithumb will pay users 3.5 billion won for system failures during the martial law declaration.
- Financial regulators have demanded improved servers and emergency plans to protect cryptocurrency investors in South Korea.
- The former CEO of Bithumb has been jailed for bribery and market manipulation.
Upbit and Bithumb, two major South Korean cryptocurrency exchanges, will pay record-high compensation to users, according to local media reports. The payout will cover system failures that occurred during the martial law declaration in December. Combined, the two exchanges will pay over 3.5 billion won, or approximately $2.5 million. The compensation reported is the largest in the cryptocurrency history of the country.
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Upbit & Bithumb to Compensate Investors ₩3.5B (~$2.5M) Due to System Failure on Martial Law Day
– Both exchanges are in final negotiations with affected investors.
– Compensation amount may slightly increase after agreements are finalized.
– Other major exchanges like Coinone,…— BLOCKMEDIA(블록미디어) (@with_blockmedia) January 22, 2025
Upbit pledged to pay 3.14 billion won to 596 cases, according to reports submitted to the National Assembly. Meanwhile, Bithumb agreed to compensate 377 million won for 124 cases. The affected users are finalizing their negotiations with both exchanges. Once the discussions are complete, the final compensation may be slightly higher.
User Surges Overwhelm Exchange Systems
A spike in traffic following the martial law declaration was to blame for the system failures. The concurrent users of Upbit skyrocketed from 100,000 to over 1.1 million. Bithumb and Coinone also had over 500,000 concurrent users each. The surge resulted in numerous disruptions, rendering many users unable to log in or even trade.
The service outage lasted 99 minutes on Upbit. Coinone experienced 40 minutes of downtime, while Bithumb was down for 62 minutes. During the disruptions, users could not trade or withdraw funds. The price of Bitcoin fell from 130 million won to 88 million won, leading to losses for many investors.
Regulatory Authorities Intensify Oversight
Following the incident, financial authorities launched on-site inspections of the exchanges. The Financial Supervisory Service (FSS) is reviewing how exchanges are implementing improvement measures.
Authorities are also looking at how exchanges deal with complaints and compensation processes. An FSS official said they are keeping an eye on exchanges to make sure they follow their plans and efforts towards protecting users.
Meanwhile, Rep. Kim Hyun-jung also stressed the importance of imposing stronger investor protections. Specifically, she pointed out the widespread growth in crypto investors and the insufficient institutional protections in place. Kim called on exchanges and regulators to put in place practical measures to prevent this kind of incident.
Industry Ethics Under Scrutiny Amid Legal Actions
The failures of the system have also prompted questions about the management practices of cryptocurrency exchanges. Financial regulators are also investigating whether the industry as a whole has complied with the rules. Upbit is being investigated by the Financial Intelligence Unit (FIU) over alleged contraventions of anti-money laundering obligations. According to reports, Upbit may have violated customer identification requirements and other compliance standards.
🔔 JUST IN: Upbit Faces Suspension Over KYC and AML Breaches#CryptoNews
— Token Headline (@TokenHeadline) January 20, 2025
Upbit may receive sanctions from the FIU. Upbit could face a suspension of new customer registrations for up to six months. However, existing users would still be able to trade during that suspension period.
In addition, the authority has taken legal action within the industry. Former Bithumb CEO Lee Sang-jun was sentenced to 2 years in jail for his role in a bribery and market manipulation scheme. The court also sentenced Golfer Ahn Sung-hyun to four-and-a-half years for related offenses.
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