South Korea’s Biggest Cryptocurrency Exchange Upbit Raided

The Upbit Raid is Not Great For Crypto, As you Can See on the Price Charts

A few sources have reported that South Korea’s biggest cryptocurrency exchange Upbit was raided for alleged fraud.^[1][2]

This story was apparently reported by Chosun and Yonhap (South Korean news sources) according to Reuters and Cointelegraph respectively (see the citations).

According to the more detailed Coindesk article:

South Korea’s largest cryptocurrency exchange, is being investigated by local police and ten investigators for alleged fraud, local news outlet Chosun reports today, May 11. Upbit is a crypto-only exchange run by a subsidiary of Korean tech giant Kakao, and currently the fourth largest crypto exchange globally by 24-hour trade volume.

Chosun reports that police believe the exchange has faked its balance sheets and deceived investors. South Korea’s Financial Supervisory Commission (FSC) reportedly sent ten investigators to the exchange’s head offices in Seoul at 10 am this morning, and will access the company’s computer system to audit the exchange’s virtual currency holdings.

It is unclear of what will come of the charges, how legitimate they are, and to what degree Upbit refutes the claims or will fight back.

Unfortunately this move came in the middle of a correction that saw Bitcoin struggling to hold $9k after failing to breach $10k last weekend.

Also unfortunate for those of us in the United States, this happened while most of us were sleeping.

Also unfortunate, and perhaps most unfortunate of all, is that if this ends up being a valid charge, it puts one of the most important crypto exchanges in the world in jeopardy… which means that there is potential for some MtGox level problems.

Looking back on 2014, one might note that crypto was attempting a recovery when the MtGox controversy went down. One might also note that there was questions about their balance sheet in that incident as well.

Both Gox and this event are important reminders of the problem of centralization in the otherwise un-centralized cryptocurrency space. Once trust is placed in the hands of a few humans as opposed to the many and algorithms, all it takes is a few bad choices by a few people and everything can go wrong. Consider, you can’t raid a decentralized exchange and there is no central figure to cook the books and run off with the cash.

The crypto community has been learning the above lesson for the past decade, and to be fair in that time decentralized exchanges and stable coins have been worked on.

That said, until the space moves toward either better regulated central players or moves toward full decentralization, we will always be one fraud charge, raid, or hack away from a 2014-like event. That isn’t fun to think about, but history has shown it is the case over and over.

1. S. Korea’s Largest Crypto Exchange Upbit Investigated By Police, Markets React. Cointelegraph.com
2. Prosecutors raid South Korea’s biggest cryptocurrency exchange: Yonhap. Reuters.com.