Exchange loses big over airdrop miscue

Computer glitches are never fun, but when they result in the loss of money, they can be completely debilitating. Coinnest, a cryptocurrency exchange out of South Korea, has a major nightmare on its hands after a computer error accidentally released a serious amount of crypto through an airdrop to its clients. According to the company, approximately $5.3 million in Bitcoin Core (BTC) and other digital currencies were lost.

Coinnest only wanted to airdrop We Game Tokens (WGT) when the fiasco happened. In addition to receiving the crypto assets, some users also reported having received Korean won in the process. After asking politely that users return the funds they had been sent erroneously, some did – about 50% of the won had been returned by January 19.

The incident created ripples that were felt across the crypto markets. An unspecified number of users who had received BTC, and not WGT, immediately began to sell their holdings, which caused BTC’s price to plummet to $50 on the exchange before returning to its normal price as quickly as it had dropped.

Coinnest was able to repair the glitch on its server that caused the disruptions, but didn’t specify what had occurred. It added that it will roll back all affected transactions to restore the company’s assets.

The troubles don’t end there, however. Coinnest is stating that the coins never existed because of a computer error. In automatically rolling back the transactions, it is setting a dangerous precedent that could have ramifications on how exchange holdings are viewed from a legal and financial perspective. Consider an armored car that accidentally loses $50,000 when the door malfunctions. It cannot arbitrarily state that those bills are invalidated and that they never existed.

The company has been involved in some questionable activity in the past. Last year, Coinnest CEO Kim Ik-hwan, as well as three other executives from Coinnest and another, unidentified exchange, was arrested by police in South Korea on suspicion of embezzlement of around $940,000 of customer funds.

After the arrest, the company took action and removed its former CEO. It stated in an announcement at the time, “In order to resolve customer anxiety and sincere vocation requirements, the Coinnest Board of Directors has removed the involvement of executive management from the point of the last investigation and has been switched to a specialized management system.”

I suspect this won’t be the last time we hear about problems with the exchange.