Korea has gone from an afterthought in the cryptocurrency markets to one of its major hubs in a matter of months. Crypto trading has grown so feverish that the government raided the country’s major exchanges to check their books—and to cool down the red-hot trading activity.
The lynchpin in the Korean market is an exchange called Bithumb, which has raked in cash as its customers have swelled in the millions. It regularly accounts for over 80% of Korea’s ether-won trade. Business was so good that the exchange struggled to develop its infrastructure to keep up with demand.
The signs of Bithumb’s success are apparent in its offices. It occupies a 10-story building on Teheran-Ro, a boulevard lined with glittering towers housing the Korean offices of global titans like Google and Amazon. The thoroughfare is named after the capital of Iran, Seoul’s sister city, and has become the premier address for technology conglomerates, startups, and venture capitalists in the Korean capital.
Inside Bithumb’s headquarters, visitors pass by burly security guards before they are allowed entry. Employees get plenty of perks, like three to four flat screens on each desk, and fridges filled with energy drinks, teas, and alcohol. Little is known about Bithumb’s founder, Kim Dae-Shik, although Korean newspapers reported that the firm has recruited a former head of Alipay in Korea, Jung Won-Shik, to take the CEO role. Bithumb has not responded to queries from Quartz.
At a data center that Bithumb rents space from, the firm houses millions of dollars worth of top-of-the-line servers. “They have so much money to buy the latest and greatest stuff,” said a person who worked with the exchange and asked not to be identified. “They can throw money at servers. Spending $40,000 to $50,000 on a server is not a problem for them.”
Bithumb has a major challenge to accommodate the millions of customers rushing to trade cryptocurrencies on its platform. Customers were trading minute-by-minute as the famously volatile cryptocurrency markets fed their mania. Bithumb has close to 100,000 users trading on its platform at any given minute, said the person Quartz spoke with. “It’s a fact that so many South Koreans are trading on a minute-by-minute basis,” says the source.
Bithumb’s growth follows Korea’s rising importance to the cryptocurrency markets. Over the summer, trading volumes in Korean won exploded on cryptocurrency exchanges; at one point the won was the most popular currency pair in the ether and Ripple markets. These are two cryptocurrencies worth over $150 billion, both jostling for second place in the ranking of the most valuable cryptocurrencies on the market, after bitcoin.
Bithumb’s struggles to scale its operations mirrors the problems facing exchanges around the world. Often set up by founders without a background in developing serious financial platforms, cryptocurrency exchanges are struggling to build systems that can withstand the rapidly growing demand for access to the crypto markets. “They more or less got lucky in terms of growth,” said the Bithumb source. “And they know how to throw money at the problem.”
Large exchanges in the US like the Winklevoss twins’ Gemini, or the startup with “unicorn” valuation status, Coinbase, suffered regular outages and interruptions all last year. These platforms use homegrown trading and security systems that are a far cry from the sophisticated software that run the world’s major exchanges, and they now are cracking under the strain of millions of new users.
Security—or problems enforcing it—is another theme common to the world’s biggest cryptocurrency exchanges. Reuters has estimated that over $4 billion worth of cryptocurrencies have been stolen from exchanges since 2011. For Bithumb, the security concern is heightened by the fact that hackers linked to North Korea are suspected of targeting its funds. In June, it reported a loss of cryptocurrencies now worth over $80 million. The South Korean intelligence agency said it suspects North Korea was behind the heist, in an attempt to get around financial sanctions, according to the BBC.
If last week’s raids on Korean exchanges were the start of a nationwide crackdown on cryptocurrencies to protect ordinary investors, it hasn’t quite played out that way. In the aftermath of the raids, the justice minister announced an imminent ban on cryptocurrency trading, only to be publicly rebuffed by citizens.
An online petition opposing a ban amassed more than 200,000 signatures, crashing the presidential Blue House’s website, according to Reuters. “Please don’t take away our happiness,” the petition reads. One petition that garnered 30,000 signatures called for the justice minister to resign. The government issued a statement yesterday trying to calm Korea’s crypto-hungry citizenry, assuring them that no ban would take place without further consultation.
Exchanges like Bithumb are currently not accepting new deposits from customers. But one observer of the Korean cryptocurrency scene, who goes by Crypto Korean on Twitter, said he expects deposits to be reinstated soon. “People are super upset because they lost shitloads of money,” he said. “The backlash was too strong, so I think [exchanges] will commence [deposits] again later this month.”
For Bithumb, that would be a welcome return to business as usual. “Tech-wise, they are one of the better ones. They are not clueless, and they have money so they can scale,” said the source. “That tells you how much Koreans like their crypto.”