In a significant move to enhance security, Upbit has transitioned the majority of its customer assets to cold storage following a substantial cyber attack that resulted in a loss of 44.5 billion won (approximately $30 million) from a Solana hot wallet. This decision positions Upbit firmly among the most security-conscious platforms in the cryptocurrency landscape.

This strategic shift highlights a critical discussion within the industry regarding the need to balance immediate accessibility with the imperative to minimize vulnerabilities to attacks. Such measures reflect a growing awareness of cyber threats in digital asset markets.

With the rapid growth of digital currencies, Upbit’s actions represent a timely example of how exchanges are adjusting to maintain operational efficiency while prioritizing user safety.

Upbit’s Commitment to Cold Wallet Security

In the wake of recent evaluations, Upbit now manages around 99% of user assets in cold wallets, drastically reducing exposure from hot wallets to just 1%. This change is expected to decrease even more.

As of the end of October, Upbit reported that 98.33% of customer funds were securely stored offline, far exceeding the 80% threshold mandated by South Korea’s Virtual Asset User Protection Act.

This decision follows a troubling trend; the recent hack was not Upbit’s first major security challenge, occurring after a notable incident in 2019 where over 342,000 ETH was stolen.

The recent attack, involving various tokens over a short time span, forced Upbit to halt hot wallet transactions and urgently shift assets to cold storage. The exchange has assured users that all losses will be covered from its corporate funds.

Current statistics indicate that Upbit leads its competitors in cold storage implementation, with its hot wallet exposure significantly lower than other local exchanges, which range from 82% to 90% in cold storage.

Raising Industry Standards for Security

Upbit’s cold wallet strategy sets a new benchmark for security, surpassing major global exchanges. Coinbase and Kraken, two industry giants, store approximately 98% and between 95% to 97% of their assets offline, respectively.

Other exchanges in the Asian market, such as OKX and Gate.io, show similar practices. With this latest development, Upbit emerges as a leader in global cold storage adoption.

Experts suggest that this proactive approach also aligns with developing regulatory trends. The Financial Services Commission in South Korea is exploring new regulations that could mandate exchanges compensate users for losses due to hacks, paralleling banking industry standards.

Evaluating Liquidity Concerns Amidst High Security

While Upbit’s shift to enhanced security undoubtedly strengthens user trust, some analysts express concerns regarding the potential impact on liquidity. A significant reduction in hot wallet reserves may lead to slower transaction processing during market fluctuations.

The South Korean cryptocurrency environment remains largely isolated from international players, limiting arbitrage opportunities. This restriction can lead to delays, further aggravating price disparities, known colloquially as the “Kimchi premium.”

Recent withdrawal suspensions clearly illustrated the effects on liquidity, as users found themselves unable to access their funds, leading to widening price gaps between local and global markets. Nevertheless, Upbit remains optimistic that its upgraded systems will effectively manage liquidity during standard trading operations.

Cover image is sourced from ChatGPT; BTCUSD data referenced from TradingView.