Bithumb Wins Lawsuit Against Investor Claiming to Have Lost $355,000 Due to Hacked Account

  • Korean exchange Bithumb wins lawsuit against investor claiming to have lost funds from his account due to Bithumb's negligence. 
  • Claimant had alleged that $355,000 worth of ether was stolen from his Bithumb account due to poor security measures. 

Cryptoasset exchange Bithumb recently won a lawsuit settlement against a digital currency investor who had sued the South Korean company for his losses of about $355,000 due to an alleged hack of his Bithumb account.

$355,000 In Cryptocurrency Allegedly Stolen From Hacked Account

According to the Korea Economic Daily, the 30-year-old investor who had filed a lawsuit against Bithumb is a civil servant named Ahn Park. The outcom of the case, which was announced on December 24th, was that the alleged loss of 400 million Korean won (appr. $355,000) from Park’s account on November 30th, 2017 was not due to any reasons for which Bithumb may be held responsible.

In court documents, Park had claimed that within a few hours of him making a large deposit on the South Korean exchange, a hacker had managed to gain access to his Bithumb account. After obtaining access to the account, the unidentified hacker had allegedly exchanged the fiat currency held in Park’s account for ether (ETH).

As described by Park in court papers, the unnamed hacker conducted four separate outgoing transactions from the victim’s Bithumb wallet to other crypto address(es). After the transactions, Park’s account balance was reportedly reduced to only 121 won (11 cents) in ether. As mentioned, Park had argued that Bithumb’s management team failed to provide adequate security measures to protect his account from malicious hackers. Park further alleged that Bithumb’s support team did not fulfill its obligations as a “financial services” firm.

10 SMS Messages Reportedly Sent To Park Regarding Outgoing Transfers

Moreover, the claimant alleged that cybercriminals might have obtained his private passwords and other personal information during a hack that occurred in October 2017. The damaging security breach had reportedly resulted in hackers gaining access to financial data that belonged to over 30,000 Bithumb customers.

According to Yonhap News, there were at least 10 SMS alerts that were sent to Park’s cellphone, in order to inform him of the outgoing transactions from his Bithumb account.

However, the claimant stated that he never received any of the SMS messages and that “it was difficult to rule out the possibility of being hacked.” Park also claimed that Bithumb’s operations as a cryptocurrency trading platform are similar to the types of services provided by firms in the traditional financial services industry. Therefore, Bithumb must follow the same security guidelines that apply to e-commerce businesses.

Judge Rules Against Park's Arguments

Notably, the judge ruled against Park’s arguments, noting that: 

In general, [digital] currencies cannot be used to buy goods and it is difficult to guarantee their exchange for cash because their value is very volatile. [Digital currencies] are mainly used for speculative means, [so it] is not reasonable to apply [South Korea’s] Electronic Financial Transactions Act to a defendant who brokers [digital] currency transactions without the permission of [Korea’s financial regulator,] the Financial Services Commission (FSA).

As CryptoGlobe reported, Bithumb was hacked in June 2018, and approximately $30 million in cryptocurrencies was reportedly stolen due to the security breach. However, Bithumb was able to resume operations again as several crypto industry participants helped the exchange recover around $17 million worth of stolen funds.

In October, Hong Kong-operated digital asset exchange Changelly announced that it managed to help Bithumb recover over 1 billion XRP that had been stolen due to the hack.

ErisX Tells Regulator's Why Ethereum Futures Would Create Better Markets

  • Nasdaq and Fidelity Investments-backed ErisX exchange sends explanation letter to CFTC.
  • Letter explains that regulated Ether-based futures contract would create more efficient crypto markets.

ErisX, a US-based digital asset exchange, has filed a comment letter with the US Commodity Futures Trading Commission (CFTC) - after the federal regulator requested more information regarding Ethereum (ETH)’s current market.

Submitted on Friday, February 15, ErisX’s letter asserted:

The introduction of a regulated futures contract on Ether would have a positive impact on the growth and maturation of the market.

As covered, ErisX is a newly launched cryptoasset exchange that received $27.5 million in starting capital from multi-trillion dollar investment manager, Fidelity and Nasdaq Ventures, which is Intercontinental Exchange’s (ICE) VC investment division.

Consistent With CFTC's Efforts

In December 2018, ErisX’s management revealed its plans to offer bitcoin (BTC), litecoin (LTC), and ether (ETH) spot trading and it also noted that it was seeking regulatory approval - in order to list cryptocurrency futures at a later point this year. Explaining why such futures contracts would help investors, ErisX’s letter noted that “listing and trading Ether futures compliantly on CFTC regulated markets is consistent” with the financial regulator’s efforts to create “open, transparent, competitive, and financially sound derivative trading markets.”

The letter from ErisX further mentioned that regulated crypto-based futures would “prohibit fraud, manipulation, and abusive practices in connection with derivatives and other products subject to the (Commodity Exchange Act) CEA.” According to the CFTC, bitcoin can be considered a commodity as it has been designed to potentially replace existing fiat currencies (as a medium-of-exchange). Because of bitcoin and ethereum’s decentralized nature, they are arguably not securities, the CFTC has clarified on several occasions.

Explaining the differences between the Ethereum and Bitcoin protocol, ErisX’s letter has stated: 

Ethereum built upon some of the architectural principles of Bitcoin to extend [its] functionality of [a] distributed, (cryptographically) secured, (blockchain-enabled) record-keeping system to include new computational capabilities for the execution of arbitrary code.

"Unregulated Exchanges And Brokers" Trying To "Fill The Gap"

Per ErisX’s analysis of current trends in the global Ethereum (and larger digital asset) market, there is still not a proper regulatory framework in place. This, according to ErisX, has discouraged several large enterprises from entering the fragile crypto ecosystem. At present, ErisX believes there’s a trend emerging in which “unregulated or lightly regulated ‘exchanges’ [and] ‘brokers’ [are trying] to fill the gap, many of them off-shore.” However, ErisX cautioned there may be certain risks associated with this type of market such as increased volatility and liquidity fluctuations.

As noted in ErisX’s letter:

Not unique to Ether, but [current crypto markets could suffer due to] the current fragmented global market structure of trading platforms and ‘exchanges’ with significantly varying degrees of regulatory oversight and operational transparency and integrity.

By introducing standardized, CFTC-regulated Ether-based financial products, ErisX argues the crypto space might receive a more positive response from institutional investors - which could potentially lead to “more robust, liquid, and resilient markets.”