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South Korean Bitcoin Exchange Suffers $5 Million Hack, Issues Bitfinex-Like Tokens

Last Updated March 4, 2021 4:56 PM
Joseph Young
Last Updated March 4, 2021 4:56 PM

South Korean bitcoin exchange Yapizon was hacked earlier this week, losing more than US$5 million worth of user funds and bitcoin.

According to the exchange’s official statement translated by CCN.com, four hot wallets of the exchange were hacked by an unknown group of hackers. The Yapizon legal team noted that approximately 37 per cent of user funds were hacked and exactly 3,816 bitcoins were stolen from the exchange.

Users of Yapizon outraged over the exchange’s decision to spread losses from the theft equally amongst all bitcoin accounts. Considering that the exchange lost 37 per cent of its bitcoin reserves, the exchange announced its plans to deduct exactly 37 per cent of user balances.

Yapizon’s deduction of funds across all user accounts remains highly controversial, due to the difference in the financial status of Bitfinex. In August, Bitfinex lost $72 million worth of bitcoin after a major hacking attack. To recover the funds of their investors, the exchange issued Bitfinex tokens, which the company purchased overtime to compensate their traders. Ultimately, Bitfinex purchased all of the remaining Bitfinex tokens, effectively recovering the balances of every user affected by the hack.

The South Korean exchange is issuing a similar token to Bitfinex tokens called Fei, which would allow traders to reclaim their losses by obtaining company profits. According to the Yapizon management team, 1 per cent of Fei is equivalent to 1 per cent of Yapizon’s profit. Therefore, users will be able to recoup their funds as company profit in the long run.

However, the calculations of Yapizon’s Fei distribution is not clear. The exchange stated that users will be credited with one token of Fei per $78 of loss. Therefore, a user who has lost $100,000 from the hack would be credited with $1,282 Fei tokens.

Yapizon further noted that the company generates around $1.8 million of profit per year. Thus, users would have to wait over two years to have their funds recovered. This time period is substantially longer than that of Bitfinex, which completely recovered the balances of users within eight months that was significantly larger than that of Yapizon, by at last 14x.

“As seen in the security breach of Ethereum investment fund DAO that resulted in the loss of 3.6 million ETH and the hacking attack of Bitfinex which ultimately led to the loss of $70 million, Yapizon can certainly recover from the recent hacking attack. Yapizon entered the cryptocurrency industry four years ago and it is expanding services and operations rapidly across the region. From January to March of this year, Yapizon generated over $325,000 in profit and the company projects a total profit of $1.8 million by the end of 2017. If customers trust in Yapizon and its practices, the company believes it can make up for the losses of all customers relatively soon,” said the Yapizon team.

As of the now, the exchange remains closed to all users until further notice. The exchange stated that Fei tokens will be issued to users in the upcoming days.

Featured image from Shutterstock.