The government of South Korea published the results of the inspection of 21 crypto exchanges. The purpose of the audit was to identify how the exchanges fulfilled the regulator's instructions following the results of previous inspections carried out in June and July this year by the Korean Internet and Security Agency (KISA) together with the Ministry of science and technology.
KISA’s experts visited each exchange to check 85 items identified during earlier inspections conducted in the period from January to March 2018. Of these, 17 points required immediate intervention by the regulator, 6 positions were short-term measures and 11 were connected with the management of the wallets.
In general, it was found that, despite the fact that a number of exchanges had implemented short-term measures and measures to manage the e-wallet, most exchanges still had a lot of security problems.
One of the results of the inspection was the statement of the government that "in the management of virtual currency wallets, most of the vulnerabilities have not been eliminated.” This is confirmed by the figures: out of 21 inspected crypto exchanges, only 11 fulfilled the requirements raised by short-term measures. In addition, 8 of them have improved their currency wallet management systems. Local media claim that these include crypto exchanges Upbit, Bithumb, Korbit, Coinnest, Coinlink, Coinone, Coinplug and Huobi Korea.
It was also found that 12 companies did not have enough transactions to prevent data leakage and loss of funds from “cold” wallets.
We asked the President of South Korea Blockchain and CEO Kocal consulting company Andrew LIM about the possible consequences of such “disobedience” of cryptocurrency exchanges and lack of “honest” crypto exchanges on the Korean market:
“It's really not "disobedience". It's their ability to comply. Most of the exchange licenses were originally given to those with very little understanding of the market, the technology, the finance industry as well as the experience in creating a cryptocurrency exchange. The capital needed to be fully compliant; providing secure platforms and wallets; providing reasonable liquidity for investors; and understanding the need for professional market makers ... These are just some of the examples. "Honesty" you mentioned is relative in this space. If you mean having a fiduciary responsibility to their customers, they lack tremendously”.
The report also focuses on the situation with the hacking of Coinrail and Bithumb in June this year. "The leak of virtual currency due to the recent hacking of exchanges directly led to the damage of users,” — said KISA. To sum up, the Agency points out that after inspections on 85 positions, there are still “many exchanges with a low level of security”.
Next month, KISA plans to conduct a final review of the implementation of the recommended measures. In addition, the Agency added that any new cryptocurrency exchanges will also be inspected.