On December 19, the South Korean cryptocurrency exchange Youbit filed for bankruptcy, disclosing that it had just suffered a hack that made off with about one fifth of the bitcoins stored on its platform. Youbit’s users can withdraw 75% of the value that’s left, but anything beyond that will have to wait until after bankruptcy proceedings.
The theft highlights some of cryptocurrency’s geopolitical ramifications. South Korea accounts for, on average, 20% of bitcoin’s daily trading volume. And while Youbit is a relatively minor player on the scene, over $100m in coins have been stolen in hacks on South Korean exchanges just this year.
No attacker has claimed responsibility, but the main suspects are state actors from North Korea, which is said to be accumulating a “war chest” of bitcoin. Is this a canny way to circumvent restrictions on normal, fiat currency trade? A poke in the eye of South Korea? Or is Kim Jong Un just another crazed crypto speculator? We don’t know enough at this point to say for sure.
Although there was no official response against North Korea, the hack did prompt internal action by the South Korean government. It announced it would be launching a new round of regulations on cryptocurrency, including bans on anonymous accounts and legislation enabling regulatory bodies to shut down exchanges.
This yet another reminder that, for all the libertarian dreams underpinning the idea of cryptocurrency, escaping government oversight altogether is an impossible task.
Lastly, the Youbit hack should serve as a cautionary tale about the dangers of storing cryptocurrency online. By keeping coins in a wallet on an exchange, users are placing themselves at the mercy of that exchange’s cybersecurity. And of course, these exchanges – smaller companies storing millions of dollars of pseudo-anonymous currency – are juicy targets, as evidenced by the frequency of heists like this one.
Once you trade fiat currency into cryptocurrency, best practice is to then transfer it off the exchange it to a more secure offline destination, such as a dedicated USB “hardware wallet” or even a “paper wallet.” This may seem like burying gold in the backyard, but better buried than stolen, I say.