Korean Crypto Exchanges Now Liable for Some Customers’ Financial Losses

There is some risk in crypto. That comes in terms of financial risk as well as security risks. Cryptocurrencies are very secure for individuals to use but advanced hackers can sometimes breech exchanges. Further, software problems at the exchanges can cause problems for some users. These events are rare and they aren’t unique to cryptocurrencies but they are scary for some.

So far, crypto exchanges have virtually no legislation. Some governments, including the United Kingdom, have explored regulating the taxation of crypto. Other governments are looking at other means of regulation including protecting users from loss due to hacks and software problems. The saga most recently played out in South Korea.

What Happened

Korean crypto exchange Bithumb suffered an estimated £10M loss due to a hack in March – and that wasn’t the first time. Bithumb consequently promised to reimburse its users for their losses though there was nothing requiring them to do so.

To be clear, there still isn’t anything requiring them to do so – though the Korean government did chime in. The Fair Trade Commission, a Korean Antitrust regulator, sent a “corrective recommendation” to major exchanges, according to the Korean Herald. The recommendation wasn’t a government order but suggested that crypto exchanges hold themselves accountable. Bithumb and four other unnamed exchanges did so. We do not know how many exchanges received the recommendation.

The change was subtle enough – in the case of Bithumb, they added a section to their terms of use agreement. The new section says that “the company” is responsible for losses due to hacks or software downages. However, it says that the exchange is not responsible for losses due to downages in cases of natural disasters. Further, the exchange takes care to express that they are not responsible for financial losses due to fluctuating price.

What Does This Mean Outside of South Korea?

The potential for government interference in crypto has long been a point of contention. So far, however, it hasn’t really played out other than in the case of exploratory tax regulation. That is, outside of some Pacific countries that outlaw cryptocurrencies entirely.

This is for a number of reasons including legal and financial difficulties in governments attempting to regulate decentralized non-fiat currencies. Further, many governments still don’t take cryptocurrencies seriously enough to explore taxing the gains made on them, similar to how stocks are treated, or regulating them.

This has been a source of comfort for many crypto users who joined from the “cypher-punk” movement largely responsible for the creation of Bitcoin. However, governments have been increasingly exploring regulation and taxation of cryptocurrencies as usership grows and institutional investors become involved. Further, as one government gets involved, others take interest to see how they approach crypto.

Most Bitcoin users probably wouldn’t mind if other governments followed South Korea’s example in this case. After all, the government didn’t get directly involved – it simply made a recommendation. Further, exchanges guaranteeing loss of funds lost through hacks and software problems wouldn’t be the worst thing. After all, you wouldn’t put up with that kind of thing from your bank. The likely worst-case scenario is that crypto exchanges take this assurance upon themselves without legal enforcement like they do with KYC Compliance. Few crypto users would begrudge that.

Regarding Bitcoin UK: Bitcoin UK doesn’t offer its own wallet to its users, and doesn’t hold users’ crypto. So there’s really not a lot of risk to our users.