Business 27 December 2018

Ed Drake

Bithumb ‘not responsible’ for compensating $335K hack victim, says court

South Korean cryptocurrency exchange Bithumb has escaped without liability following legal action brought by a victim of a $335,000 hack on the platform, in a landmark ruling for the cryptocurrency sector, The Korea Economic Daily reported.

Bithumb user Ahn Park brought the action against Bithumb after losing KRW400 million ($335,000) from his account, on the same day he opened an account with Bithumb.

Funds were taken from his account within a matter of hours, and exchanged for ETH, which was then sent to another wallet address through four separate transactions. When Ahn returned to his account, he was left with around $0.11.

Ahn raised an action in South Korea’s civil courts for recovery of the funds, suggesting Bithumb had similar obligations to its users as banks and other financial services companies. He claimed, “Considering that Bithumb offers similar services to the financial sector, it requires a high degree of security measures required by financial institutions.”

However, in a ruling that will like cause concern for crypto investors, the court disagreed, and held Bithumb was not liable for compensation in this case.

Defending, the exchange said it was not liable because it was not a financial company within the definition of the Electronic Financial Transactions Act.

“According to the Electronic Financial Transactions Act, Bithumb is not responsible for compensation because it is not a financial company, an electronic financier, or an electronic financial assistant,” Bithumb told the court. “Since we have strengthened our security policy since the leak of personal information, we have fulfilled our obligation to be an observer.”

The judge agreed with this position, saying that cryptocurrency was “mainly used as speculative means, so it cannot be regarded as an electronic means of payment.”

Despite a high profile data breach in April 2017, the judge said there was no evidence Ahn Park was affected by this breach, and that his data may have been compromised in other circumstances, such as through a phishing scam.

The case will be good news for crypto exchanges, which now have further precedent to backup refusing to pay compensation to customers after their funds have been hacked. For crypto investors, it’s a glaring reminder of the need for vigilance in avoiding cryptocurrency scams.

Note: Tokens on the Bitcoin Core (SegWit) chain are referenced as BTC coins; tokens on the Bitcoin Cash ABC chain are referenced as BCH, BCH-ABC or BAB coins.

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