Exchange Distributed 620,000 Bitcoins It Didn’t Hold, Highlighting DEX Advantages
Virtual asset exchange Bithumb mistakenly distributed 620,000 bitcoins worth over 60 trillion Korean won to 249 event winners, sparking heightened interest in the structural differences between centralized exchanges (CEX·Centralized Exchange) and decentralized exchanges (DEX·Decentralized Exchange). Bithumb’s actual bitcoin holdings amounted to approximately 40,000, meaning it distributed bitcoins it did not even possess.
According to financial authorities on the 11th, the Financial Supervisory Service is investigating whether Bithumb properly conducts consistency verification — a process ensuring that book balances match actual balances. Bithumb only recognized the error in bitcoin distribution dozens of minutes after it occurred, raising concerns about inadequate consistency verification.
CEXs like Upbit and Bithumb store users’ virtual assets and mediate trading. Investors create accounts, deposit fiat or virtual assets, and trade through the exchange’s internal system. Unlike on-chain transactions, where every trade is recorded on the blockchain, CEX transactions are only reflected in the exchange’s internal ledger.
Subsequently, exchanges reconcile their ledger balances with actual balances, similar to banks or securities firms. Bithumb performs this reconciliation once daily, while Upbit and Korbit do so every 5-10 minutes.
Bithumb distributed 620,000 bitcoins to 249 event winners on the 6th, a quantity approximately 14 times its actual holdings (around 46,000 bitcoins). This was possible because CEXs do not record transactions on the blockchain in real time. Until on-chain reflection, the distribution is merely a promise in Bithumb’s internal ledger, not an actual transfer.
Bithumb canceled 99.7% of the distributed bitcoins before on-chain reflection. The remaining 1,788 bitcoins were traded before cancellation, forcing Bithumb to purchase 1,788 bitcoins externally to reconcile its ledger. Failure to do so would have triggered regulatory sanctions, halting normal operations.
CEXs offer speed and convenience due to centralized control over records and withdrawal permissions. However, internal control failures, system errors, or hacks can lead to massive incidents. CEXs like Mt. Gox, Bitfinex, and FTX collapsed due to hacking or operational failures, while last year, a newly listed coin on Coinone experienced drastic price fluctuations from a system error.
DEXs do not hold customer assets. Users create personal wallets and deposit assets there. Trades are executed via smart contracts on the blockchain, eliminating intermediaries. Unlike CEXs, DEXs cannot distribute unheld assets, as all transactions occur directly between parties on-chain.
However, DEXs face limitations. Lower liquidity can hinder smooth trading, and the process of creating personal wallets and executing smart contracts is complex and challenging for some users.
