South Korea’s cryptocurrency exchanges have been under relentless assault.
Financial reports show over 1.15 million hacking attempts targeted just four major exchanges (Upbit, Bithumb, Korbit, Gopax) through November 2024, more than double the previous year’s count and a sharp escalation from 2022. This surge highlights how South Korea’s vibrant crypto market has become a prime target for cybercriminals. In fact, global crypto heists hit about $3.4 billion in 2025, with North Korea’s Lazarus Group blamed for a lion’s share of those thefts.
Seoul officials have openly acknowledged the threat. When Upbit, South Korea’s largest exchange, suffered a hack resulting in roughly ₩44.5 billion (~$36M) in losses in November 2025, authorities quickly pointed to North Korea’s state-backed Lazarus hackers as the likely culprits. The scale of this heist demonstrates the sophistication of these attackers and their focus on Korean platforms.
Upbit’s ₩44.5B Hack: Lazarus, Weak Signatures & Hot Wallets
South Korea’s Upbit exchange serves as a stark cautionary tale. On November 27, 2025, the exchange detected anomalous hot-wallet withdrawals totaling about $30–36 million. Within hours, the exchange froze all deposits and withdrawals and swept nearly all remaining funds into offline (cold) wallets. Investigations later revealed why the breach was so devastating: an audit uncovered a flaw in Upbit’s signature-generation software. Security analysts note Upbit’s wallet code was producing “weak or predictable” signature data, a rare bug that, in theory, lets attackers reconstruct private keys from public transactions. In short, a failure in Upbit’s cryptographic “wallet infrastructure” made the hack possible.
The response was rapid. Upbit’s parent company suspended transactions and initiated a comprehensive security audit. Cybersecurity experts praised the quick damage-control: “They froze deposits and withdrawals and moved remaining hot wallet assets to cold storage” as soon as the breach was discovered. However, the incident rattled investors and spurred urgent reforms. Upbit’s operators and regulators publicly attributed the attack to the Lazarus Group, highlighting the national security angle. In effect, the hack exposed that even Korea’s top exchange had gaping vulnerabilities, and underscored the urgent need for industry-wide hardening.
20 Breaches Drive Stricter Penalties & No-Fault Rules
Seoul regulators wasted no time responding. In January 2026, the Financial Services Commission (FSC) unveiled a draft bill to heavily penalize hacked exchanges. The proposal requires exchanges losing funds to hackers to pay fines up to 10% of the stolen amount, far exceeding the prior cap of about $456,000. For instance, Upbit’s $36M loss could trigger a $3.6M penalty. Discussions also include a harsher option: fines up to 3% of annual revenue, potentially amounting to $36M for a platform like Upbit with roughly $1.2B in yearly revenue. These measures aim to compel exchanges to prioritize security investments or face severe consequences.
To underscore the issue’s scope, the Financial Supervisory Service disclosed 20 security incidents involving customer funds at Korean exchanges from January 2023 through September 2025. Six occurred at Upbit (totaling ~$2.2M in losses), and four at Bithumb (~$610K lost), with others scattered across platforms. These frequent, albeit often smaller, breaches indicate persistent probing by hackers. Observers note that regulators are considering “no-fault” compensation rules, mandating automatic reimbursements for victims.
Concurrently, the Financial Security Institute is revising its 2026 security standards to encompass crypto platforms explicitly, incorporating requirements for compliance, blockchain and smart-contract audits, cold wallets, and additional safeguards. The clear directive: exchanges must soon undergo audits as stringent as those for traditional banks.
Digital Financial Security Act: Korea’s Proactive Crypto Defense
Beyond fines, Seoul is sketching an ambitious regulatory overhaul. In December 2025, the FSC announced a proposed “Digital Financial Security Act” to unify cybersecurity rules across banks, fintech firms, and virtual asset providers. The Act would enforce robust defenses for all crypto exchanges, including mandated cold storage ratios, routine penetration testing, and enhanced monitoring for suspicious activities. It also strengthens law enforcement capabilities, such as tracking cross-border flows and imposing stricter KYC/AML protocols on crypto transactions. This shifts the focus from reactive measures to proactive system hardening. Still in draft, the Act references the Upbit breach as a key motivator, aiming to embed strong security as a legal mandate.
If enacted, these measures would mark a major shift in South Korean crypto policy. They move beyond basic licensing rules (passed in 2021-22) toward a systemic defense strategy. Industry insiders say such laws could become models: clear, enforceable crypto-security standards that other countries may copy. (The draft even envisions stablecoin oversight as part of the framework.)
Of course, implementation will be complex. Observers note the compliance burden could hurt smaller startups. But proponents argue the payoff, a safer market and stronger investor trust, is worth the cost. In this light, the Digital Security Act is a proactive bet that stricter rules will restore confidence in Korea’s crypto markets.
Experts Say Korea’s Defenses Still Lag Gold Standards
South Korean experts stress that much still needs to be done. Independent security analyst Gina Kim observes that exchange defenses have “improved a lot” in recent years, but she warns they “still appear to fall short of industry gold standards.” In other words, hackers keep finding weak spots.
Financial professionals now say there’s no more margin for error: only “strict liability” and ongoing monitoring will force exchanges to bolster their infrastructure. In practical terms, investors should assume only the best-secured platforms are safe bets.
2026 Outlook: Tougher Rules, Higher Costs, Zero Tolerance
Looking ahead to 2026 and beyond, the tenor is cautious. The final form of the new laws and standards remains in flux, but the trend is clear: tougher rules are coming. Exchanges that can’t adapt, by upgrading hot-wallet security, insurance pools, or even multi-factor cold storage, risk massive fines or worse.
For now, the legislative timeline is not fixed, but regulators have signaled a sense of urgency. The real question for 2026 will be whether these policies meaningfully deter attacks or simply drive them to the next weak target. Given the stakes, most experts agree: Korea’s crypto sector must enter the new year ready for an all-out security arms race.
Author: Ayanfe Fakunle
The editorial team at #DisruptionBanking has taken all precautions to ensure that no persons or organizations have been adversely affected or offered any sort of financial advice in this article. This article is most definitely not financial advice.
See Also:
Korea’s Crypto Crash: 80% Volume Drop and ₩160T Exodus
North Korea’s Crypto Heists: Fueling a Rogue Regime in 2025
Hong Kong’s Digital Rulebook: Building a Regulated Crypto Hub
Is the Lazarus Group Behind the $1.5 Billion Bybit Crypto Heist?
