'Server shutdowns' at crypto exchanges rekindle concerns
An electronic signboard at a local cryptocurrency exchange, Bithumb / Yonhap
By Anna J. Park
Early Tuesday morning, Bithumb's trading signboard and its Bitcoin price showed errors while trading was frozen for nearly an hour. At 5 a.m., Bitcoin's price had been hovering at around 72 million won ($64,000), but the price suddenly leapt to 77.9 million won in just few minutes. The Bitcoin price was then disconnected for about an hour until 6:08 a.m., at which point it was displayed at a much lower price.
Bithumb notified customers at 5:51 a.m., nearly an hour after the crash happened, stating that excessive traffic caused a delay in trading, leading to the pricing errors. The cryptocurrency exchange said that it took emergency measures, and that trading would be soon normalized. It was the third time this month alone that Bithumb experienced its servers freezing leading to the price errors.
Upbit, another major cryptocurrency exchange here, also experienced a similar crash at around 10 a.m. Tuesday, due to a rush of traffic. As the number of users and trading volumes has soared amid the country's cryptocurrency frenzy, Upbit has experienced this type of system failure several times this year.
However, due to legal loopholes associated with virtual assets and digital coin exchanges, compensation for such incidents is unlikely to be paid.
Both Bithumb and Upbit's terms of use ― Bithumb's Article 21 and Upbit's Article 23 ― state that they cannot be held responsible for trading errors caused by server failures. Their terms of use also exempt the cryptocurrency exchanges from responsibility for server shutdowns caused by almost all exterior elements, such as DDoS attacks and data center problems.
The Fair Trade Commission (FTC) looked into the terms of use of 12 local cryptocurrency exchanges in 2018, as complaints became rampant due to the exchanges' extensive exemption clauses regarding the responsibility for any traffic-caused issues on their sites. The FTC ordered the exchanges to voluntarily correct any unfair clauses in their terms of use, yet these clauses still remain.
While their terms of use have been heavily criticized due to their lack of investor protection, market insiders say the reality of virtual assets is still subject to voluntary moves by individual coin exchanges.
“The government hasn't yet suggested any clear legal framework for cryptocurrencies. Thus, the coin exchanges enjoy legal exemptions amid ample loopholes,” one said on condition of anonymity.
A legal expert in the finance sector expressed surprise that local cryptocurrency exchanges haven't made any significant changes in investor protection, even though it's been three years since the FTC ordered them to do so.
“As the exchanges receive commissions from investors' trading, they're responsible for managing their servers well,” he said.
Another exchange, BITBUY KOREA, allegedly swindled money from hundreds of victims by luring investors into sending money to the exchange, then closing down the site. Over 670 victims are planning to file a complaint with the Seoul Eastern District Prosecutor's Office soon.