A South Korean cryptocurrency exchange, Coinone, has been ordered to pay compensation for losses following a customer account’s hacking.
The Seoul Southern District Court on September 27 found Coinone partly responsible for the incident and ordered an award a lot less than the damages the plaintiff had sought.
Per an account of the incident published in IT Chosun, the customer going by the name Mr. A – joined the exchange plaform in April 2017. As of November last year, his holdings were valued at about 58 million won ($48,300). Most of his funds was stolen on December 23, 2018 and the customer was left with holdings valued at just around 5,982 won.
Trades that were associated with the theft were executed through an IP address in the Netherlands. The customer filed a lawsuit for 58 million won in losses, claiming that the exchange should be blocked transactions from abroad and that it should have blocked any transfer request of over 20 million won.
“The exchange has not set minimum safeguards,” Mr. A argued, according to the newspaper.
Coinone, which is ranked 70th largest exchange in terms of reported volume by CoinMarketCap, argued that it is not required to block foreign addresses. Regarding the 20 million won limit, Coinone said that this threshold was only a government guideline related to anti-money laundering and not a stern obligation to the customer.
The court agreed with most of what Coinone argued, and did not hold the exchange responsible for the hack itself, saying that the firm did not have to track transactions by IP addresses. It said the exchange would only have to block an IP address if it knew prior that it was being used for illegal purposes.
However, the court said that the transfer limits need to be observed, as the 20 million won limit was set to prevent money laundering as well as to protect customers from exchange fiascos. The court additionally said that it is reasonable for customers to expect the caps to be in place and implemented. It ruled that that plaintiff should be awarded 25 million won.
IT Chosun quoted the court saying,
“It is a mistake for the exchange to fail to meet the daily withdrawal limit.”
The customer may only have received partial compensation, but reports suggest the award is a first of many and that the ruling shows that crypto exchanges can now be held responsible for losses.