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17% of Bitcoin Reserves Stolen: Korean Exchange Youbit Declares Bankruptcy after Hack

Last Updated March 4, 2021 5:02 PM
Josiah Wilmoth
Last Updated March 4, 2021 5:02 PM

The company that operates South Korean cryptocurrency exchange Youbit filed for bankruptcy after the trading platform was breached for the second time this year.

Youbit Files for Bankruptcy After Second Hack This Year

Tuesday morning, the Seoul-based Youbit published an announcement informing users that a hacker had successfully breached the exchange’s hot wallet, absconding with 17 percent of its assets.

This was the second time that Youbit had suffered a hack this year. In April, the exchange suffered a theft of nearly 4,000 bitcoins in a cyber attack that South Korean authorities allege was perpetrated by North Korea, according to a Reuters  report.

Youbit said that it beefed up its security policies following the April hack and that the other 83 percent of the exchange’s funds were stored safely in a cold wallet. Nevertheless, Yaipan, the company that operates the exchange, filed for bankruptcy on Tuesday and halted trading on the platform.

According to the announcement, the exchange has marked down customer assets to 75 percent of their market value, and customers can withdraw them immediately. The company said it will repay the remainder of the funds at the conclusion of the bankruptcy proceedings, by which time it will have filed an insurance claim and sold the company’s operating rights.

Bitcoin Exchanges a Central Point of Failure

Although South Korea is one of the world’s largest cryptocurrency markets, Youbit was a small exchange and handled very little volume. Consequently, its collapse will have a negligible effect on the wider ecosystem. However, order-book exchanges represent a central point of failure in the market, and the rising price of bitcoin and other cryptocurrencies has made them increasingly attractive targets for hackers.

Although cryptocurrency trading is spread across the globe, a handful of exchanges account for nearly all of the volume in individual markets. Bithumb, for instance, processes approximately 70 percent of all cryptocurrency trades in South Korea. A successful breach against one of these major exchanges would cause a serious disruption in the regional market and could have a ripple effect throughout the global ecosystem.

However, users must exercise care when leaving funds stored with any centralized service. Last month, cloud mining service NiceHash fell prey to a hack, resulting in the theft of more than 4,700 bitcoins — worth approximately $86 million at the current exchange rate.

Featured image from Shutterstock.