COINBIN

DESCRIPTION OF EVENTS

Coinbin was "the third-largest cryptocurrency exchange in South Korea." It has a slogan of "reliable cryptocurrency exchange". "Coinbin's goal [was] to 'contribute to the happy life of human beings through blockchain technology'." "Coinbin was established with the purpose of developing various businesses based on the block chain called the 2nd Internet Revolution."

"Coinbin acquired Youbit in 2017." "In the first half of this year, [CoinBin] acquired Yapian, which operated Youbit." "The biggest difficulty in the acquisition process has embodied the compensation plan for customers suffered hacking damage, and, was the one going to run, internally, was to inherit the power to hire staff morale has fallen by maintaining the continuity of the business."

"As an activity to strengthen security, we operate a 24-hour monitoring team composed of internal and external security experts. In particular, we introduced the security solutions of “Naru Security,” which possesses the best domestic network technology, and “Symantech”, a security company, to create a 'network'. Separation and e-mail security have been strengthened." "In addition, we are focusing on security by using additional OTP authentication and IMPERVA's external hacking blocking system."

"[T]he Hot2cold wallet developed by Genesis Khan is applied. This wallet stores more than 90% of customer assets in the cold wallet, while maximizing its usefulness with the hot wallet, and is characterized by strong security. For this purpose, overseas professional technicians are dispatched for two years of project execution, and if system and security problems arise, a professional team will also participate."

"In a cryptocurrency exchange, stability, security and speed are vital. Coinbin has improved the stability and security of transactions, and is in the process of additionally acquiring international security certifications ISO27001 and ISMS security certifications. In addition, we plan to open the world's first decentralized exchange with the fastest transfer speed by applying the Hot2cold wallet to ensure the safety of the coin wallet and introducing the highly scalable perpetual block chain."

"Company location: 6th floor, 499 Gangseo-ro, Gangseo-gu, Seoul (Gayang-dong, Daeha Business Office)"

"Coinbin, the South Korean cryptocurrency exchange that took over hacked exchange Youbit, has filed for bankruptcy owing users almost $30 million, correspondence from the company confirmed on Feb. 20." "Coinbean CEO Park Chan-gyu held a press conference at its headquarters in Gangseo-gu, Seoul." “We are preparing to file for bankruptcy due to a rise in debt following an employee’s embezzlement,” Park Chan-kyu, CEO of Coinbin, told reporters in its Seoul office. "Local media including English-language resource Business Korea subsequently reported."

"According to available information, the figure in charge of cryptocurrency management is at the center of the scandal, having previously served as CEO of Youbit. The latter ceased to exist in December 2017 after two major hacks made operations no longer possible." "CEO Park raised suspicions of embezzlement and breach of trust by Lee, the former CEO of Youbit. The former CEO of Youbit, Mr. Lee, worked as the head of operation at Coinbean after Youbit was acquired by Coinbean."

"Mr. Lee is known to claim that he has lost the private key (secret key) of the cold wallet (cryptocurrency wallet that is not connected online) that currently contains cryptocurrency. The amount of damage reported by the company is about 520 bitcoin (BTC) and 101.26 ether (ETH), and this amount alone is about 2.35 billion won."

"According to Coinbin, on October 21, 2018, General Manager Lee Jin-hee, who is in charge of the exchange system operation and management of coin deposits and withdrawals, deleted the cryptocurrency private key owned by Coinbean, resulting in 520 BTC (about 2.2 billion won) and 101.26 ETH (Ethereum). , about 150 million won), etc., were unable to find cryptocurrencies worth a total of 2.35 billion won."

"In a blockchain, the private key acts as a password. If you lose your private key, you cannot transfer the cryptocurrency in the wallet. In general, in order to prevent leakage and loss of private keys, cryptocurrency exchanges store them in cold wallets that are not connected to online access, hard wallet-type ledgers, or physical paper wallets. In addition, to compensate for the fact that if the private key is lost, it is prepared for emergencies such as secondary and tertiary backups."

CEO Park said, "Ex-CEO Jin-hee Lee is a cryptocurrency expert, and he has always talked about the importance of managing cryptocurrency wallets." He said that he plans to sue former general manager Lee on charges of breach of trust and embezzlement.

On the other hand, former general manager Lee said in his police report, "I have been responsible for inputting the transfer amount, transfer address, and password when transferring coins between wallets as the head of the department at Coinbean. However, access to the wallet server and backup management of wallet data files are I didn't know that another employee was in charge and that I had to back up my private key after depositing and withdrawing cryptocurrency."

"As a result, all cryptocurrency and cash withdrawals from the exchange were halted at 3:00 p.m. on the day. Cryptocurrency and cash settlements would be done in accordance with bankruptcy procedures, Coinbin said. “Park revealed the Coinbin employee in charge of cryptocurrency balances at the exchange, also the previous CEO of Youbit, had neglected his responsibilities and embezzled Coinbin funds.”

"The total funds missing currently amount to 29.3 billion won ($26 million), of which 2.3 billion ($2 million) is reported as lost."

As a special privileged investor and CEO, Park Chan-kyu was given authority to make a transaction on his own from the customer funds. Despite his many years of experience, he apparently messed this transaction up and accidentally sent the funds to the wrong wallet. The end result was that the Coinbin exchange declared bankruptcy and all customer funds were lost.

HOW COULD THIS HAVE BEEN PREVENTED?

The keys for the ethereum and bitcoin wallets of customers were left under the access of a single individual. Enforcing the setup of a proper multi-signature cold storage for customer funds would have meant that the transaction would have required the oversight and approval of at least three individuals to be executed. No single person should be trusted, regardless if they have managed other exchanges in the past or are well known in the community.

Check Our Framework For Safe Secure Exchange Platforms

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