CoinZest Accidental Airdrop

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CoinZest

CoinZest launched a large cryptocurrency exchange platform in South Korea. However, one promotion gone wrong caused a massive loss as the exchange distributed and allowed the withdrawal of $5.3m worth of crypto-assets. Attempts at recovery of the funds were unsuccessful and the platform later shut down.

This exchange or platform is based in South Korea, or the incident targeted people primarily in South Korea.

About CoinZest

"Founded in 2018, Coinzest is a centralized cryptocurrency exchange located in South Korea. It provides users with Crypto to Crypto and Crypto to Fiat trade services, as well as other financial/investment tools." "CoinZest is an exchange registered in South Korea that launched in June 2018. Accordingly, the exchange recently celebrated its 1 year-anniversary."

"The exchange provides information on its parent company (Zest C&T Co., Ltd) and its CEO (Jeon Jonghee, Kim Seungyong) on its website." "Over 50 coins are already listed on the Coinzest exchange, all of which are traded in 71 different markets. The platform allows for extensive market analysis through its user friendly interface that is equipped with numerous chatting tools and indicators."

"CoinZest has added to the recent spell of bad news for Korean exchanges when it was revealed that they accidentally airdropped millions of dollars’ worth of cryptocurrency to their users after a promotional campaign backfired. After realizing their mistake, CoinZest conducted a ‘rollback’ on their servers that undid the airdrop and returned the tokens to the exchange, but not before those who got wise had made hasty withdrawals. This mistake added to the news earlier this week that a CEO and an executive of another Korean exchange, Komid, had been given jail sentences for falsifying trading volume."

"CoinZest were involved in a promotion with gaming blockchain project Wager Games, where they intended to hand out hundreds of WGT tokens to their customers, but a “computer error” led to them mistakenly dishing out over $5 million worth of Bitcoin, Ethereum, and other cryptocurrencies instead. CoinZest’s servers were taken temporarily offline as developers raced to resolve the problem by restoring databases to their pre-error state. They also contacted customers who had withdrawn the airdropped tokens, asking them to return them, but this seems to have fallen on deaf ears, as it is reported that some $2.6 million worth is yet to be returned. Whether the customers have any legal right to return the money is as yet unknown and something that, presumably, CoinZest will investigate."

"The CoinZest error is the first known case when an exchange has accidentally put crypto into user accounts. In February 2018 the Zaif exchange temporarily offered customers the opportunity to buy Bitcoin for free due to a computer glitch, although all transactions were cancelled upon discovery of the error. CoinZest’s case is different as up to half the funds may already have been moved on, which presents a huge logistical problem if they wish to reclaim any or all of those funds."

"CoinZest has blamed a “computer error” for the mishap. The exchange’s servers temporarily went offline as developers attempted to resolve the problem, looking to restore databases to their pre-error state, and contacting customers who have made Korean won withdrawals on the funds. The exchange says it has already recovered half of the funds, but, per most recent reports, some USD 2.6 million is yet to be returned."

"Of course, the right thing to do would have been to return the crypto to the exchange. But, those of us who have had our crypto wallets clogged up with valueless airdropped coins that we neither want nor asked for might just be raising a glass to those who withdrew before the servers were reset."

This exchange or platform is based in South Korea, or the incident targeted people primarily in South Korea.

The background of the exchange platform, service, or individuals involved, as it would have been seen or understood at the time of the events.

Include:

• Known history of when and how the service was started.
• What problems does the company or service claim to solve?
• What marketing materials were used by the firm or business?
• Audits performed, and excerpts that may have been included.
• Business registration documents shown (fake or legitimate).
• How were people recruited to participate?
• Public warnings and announcements prior to the event.

Don't Include:

• Any wording which directly states or implies that the business is/was illegitimate, or that a vulnerability existed.
• Anything that wasn't reasonably knowable at the time of the event.

There could be more than one section here. If the same platform is involved with multiple incidents, then it can be linked to a main article page.

The Reality

This sections is included if a case involved deception or information that was unknown at the time. Examples include:

• When the service was actually started (if different than the "official story").
• Who actually ran a service and their own personal history.
• How the service was structured behind the scenes. (For example, there was no "trading bot".)
• Details of what audits reported and how vulnerabilities were missed during auditing.

What Happened

The specific events of the loss and how it came about. What actually happened to cause the loss and some of the events leading up to it.

Key Event Timeline - CoinZest Accidental Airdrop

Date	Event	Description
January 23rd, 2019	Main Event	Expand this into a brief description of what happened and the impact. If multiple lines are necessary, add them here.

Technical Details

This section includes specific detailed technical analysis of any security breaches which happened. What specific software vulnerabilities contributed to the problem and how were they exploited?

Total Amount Lost

The total amount lost has been estimated at $5,300,000 USD.

How much was lost and how was it calculated? If there are conflicting reports, which are accurate and where does the discrepancy lie?

Immediate Reactions

How did the various parties involved (firm, platform, management, and/or affected individual(s)) deal with the events? Were services shut down? Were announcements made? Were groups formed?

Ultimate Outcome

What was the end result? Was any investigation done? Were any individuals prosecuted? Was there a lawsuit? Was any tracing done?

Total Amount Recovered

There do not appear to have been any funds recovered in this case.

What funds were recovered? What funds were reimbursed for those affected users?

Ongoing Developments

What parts of this case are still remaining to be concluded?

General Prevention Policies

The CoinZest case is worth platform operators studying, though obviously there is no sure-fire way to prevent balances being wrong. Hot wallets should of course be insured or based on company funds, and our industry insurance fund would be one of few models that would be able to cover such an event. A multi-sig on cold storage provides an increased opportunity to detect the imbalance before funds are released. Exchange platform users are under the obligation to return funds in cases like this, with multi-sig minimizing damanges and the insurance fund covering what ultimately can't be collected.

Individual Prevention Policies

No specific policies for individual prevention have yet been identified in this case.

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

Policies for platforms to take to prevent this situation have not yet been selected in this case.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

No specific regulatory policies have yet been identified in this case.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.