The South Korean police are facing a significant crisis regarding the custody of cryptocurrencies, having reported the loss of 22 Bitcoins (BTC), valued at approximately 2.1 billion won, or $1.5 million. This incident, which occurred on February 13, 2026, was revealed by the Gangnam Police Station and raises critical questions about the effectiveness of their systems for managing seized digital assets.
The loss was discovered during a nationwide audit following a similar incident at the Gwangju District Prosecutors” Office, which reported the loss of 320 BTC worth about $48 million just weeks earlier. Investigators linked this larger loss to a woman identified only as “A,” who, along with her father, operated a Bitcoin gambling platform. Authorities uncovered that 1,800 BTC had been smuggled into South Korea, with some of it being stolen before law enforcement could secure it. Both incidents illustrate alarming patterns in the handling of cryptocurrencies by legal authorities.
Both the Gangnam Police Station and the Gwangju District Prosecutors” Office employed USB hardware wallets to store the seized Bitcoins. While these wallets offer a degree of security, they require a certain level of technical knowledge to manage private keys effectively. Analysts have suggested several reasons for the custody failures observed in these cases. For instance, authorities may have kept the confiscated USBs without transferring the Bitcoins to wallets under their control, potentially allowing the original owners to access the funds using backup methods. Moreover, if the wallets were created using computers connected to the internet, the private keys might have been compromised almost immediately.
To mitigate such risks, specialized custody firms utilize advanced security measures, including multi-signature wallets, hardware security modules, and strict separation between transaction verification and access. These methods significantly reduce the likelihood of theft, as they require multiple independent authorizations for any transaction. Unfortunately, South Korean authorities currently lack these robust systems, leaving seized cryptocurrencies vulnerable to loss.
This crisis in custody management has raised alarms about the institutional preparedness of South Korean law enforcement agencies to handle the complexities of digital assets. As interest in cryptocurrencies continues to grow, the need for effective and secure management practices becomes increasingly urgent.
The incident serves as a reminder of the importance of professional custody standards in safeguarding digital assets, especially in a rapidly evolving landscape where the risks of theft and mismanagement remain high.
