The price of virtual currency bitcoin surpassed 9 million won (US$8,246) for the first time ever, creating the investment frenzy. As South Korea's cryptocurrency exchanges have experienced a series of traded breaks or connection failures, there is growing concerns over investors’ losses.
On November 21, Coinone, South Korea's second largest cryptocurrency exchange, and Upbit, a new cryptocurrency exchange launched by South Korean fintech company Dunamu which owns the popular trading app Kakao Stock, went down with server connection failure at the same time. Accordingly, the domestic cryptocurrency exchange market turned chaotic. Coinone saw its overseas server experience temporary connection failures, while Upbit failed due to a considerable number of investors trying to access it as Bitcoin Gold, the new cryptocurrency fork of the bitcoin blockchain, went public.
The two exchanges normalized their services in a few dozen of minutes after the incident. However, investors went through much turmoil because they could gain and lose hundreds of thousands of won in seconds in the digital currency exchanges. Investors were even more shocked due to the fact that it happened only nine days after some of them failed to sell digital tokens, or coins, at the right time and lost thousands of won to hundreds of millions of won as Bithumb, the largest cryptocurrency exchange in South Korea, caused a server connection failure for two hours on November 12.
Experts pointed out that the cryptocurrency exchanges don’t provide a financial company level of security or server safety but only generate consumer distrust, though the daily digital currency trading volume in the Bithumb alone already surpassed that in the Kosdaq in August this year. They said the exchanges could brace for traffic congestion and high traffic volumes that were the main cause of the current connection failures in advance but they have sitten on its hands on the matter.
An official from the industry said, “It is somewhat predictable that price surges caused by the new listing of coins and favorable factors reported by foreign media can lead to traffic congestion and high traffic volumes. Nevertheless, the exchanges don’t expand their servers beforehand and deals with such incidents in the manner of “Mend the barn after the horse is stolen.”
Some also say that such error incidents have happened frequently as cryptocurrency exchanges make a tidy profit from commissions but are low on infrastructure investment. The Bithumb charges 15 percent of trading costs for commissions. When its daily trading volume is conservatively estimated at 1 trillion won (US$919.96 million), the daily operating profit reaches 1.5 billion won (US$1.38 million) in the Bithumb alone. An official from the industry said, “Recently, some are commissioning foreign specialized companies to expand their servers, upgrading its technology, but others are still obsessed with attracting customers only. One company is having a class action suit but is still seeking to attract customers through online advertising.”
In addition, China’s largest cryptocurrency exchange OKcoin is to launch in South Korea next month.
As foreign cryptocurrency exchanges are trying to push into the domestic market with fewer restrictions, the domestic market has become more filled with those which don’t have proper facilities. Under the given condition, the Ministry of Strategy and Finance and the Financial Services Commission formed a task force in November last year but they just had a few rounds of meetings and failed to work on detailed legislation.