News S. Korea battles a “beehive account” boom

S. Korea battles a “beehive account” boom

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South Korea is abuzz about “beehive accounts”—complicated, umbrella accounts that are run by small crypto exchanges to mask the identity of individual traders.

Thanks to this burgeoning financial service there, some  205 crypto exchanges have sprung up to serve South Korea’s population of 52 million people, according to Korean news agency Yonhap.

In January, 2018, alarmed by the prospect of crypto being used for money laundering and other illegal schemes, South Korea banned the use of anonymous bank accounts. But during the past 18 months, small crypto exchanges have proliferated by offering investors beehive accounts, which manage investor’s money via the exchanges’ own corporate bank accounts. That, of course, masks the names of the underlying investors, Yonhap reported.

So why hasn’t the Government burned down the beehives? It tried—but in October, a Korean court ruled that it was inappropriate to order cryptocurrency exchanges to shut down their corporate accounts. And from that point on, scores of new exchanges have flooded the market, wooing prospective traders (who were initially skeptical about whether they could easily withdraw their money, once it was in a beehive account) with Lambos and other autos.

Meanwhile, authorities there are increasingly concerned that these smaller exchanges may be especially vulnerable to cyber attacks and fraud.

In May, a phishing scam targeted the Upbit exchange. And last year exchange Bithumb lost $31 million to hackers. Some of the attacks were thought to come from North Korea, which has become known for crypto jacking as a way to get money, something desperately needed in the Hermit Kingdom, due to international sanctions.

But so far, only five  exchanges have increased their liability to users in line with demands from regulators, Yonhap reported in another story this week. A bill has been proposed to tighten online security rules for all exchanges; its status is pending. In the meantime, Koreans are making a beeline for beehive accounts.

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