More Arrests Made in Crypto Exchange Field as the Bitcoin Trading Platform Cleansing Continues


The problem of transaction volume fraud is a serious one among cryptocurrency exchanges. Many exchanges have been accused in the past of inflating the volume of their exchanges to attract customers and make a higher profit.

So far, most of these accusations have been limited to mere accusations and few official investigations have been opened regarding them.

This seems to be changing, however, as two executives from Komid, a South Korean cryptocurrency exchange, have received jail terms for their part in inflating the transaction volume of the exchange.

Hyunsuk Choi, the CEO of Komid, received a 3-year jail term, while Park, an executive at the exchange, was sentenced to 2 years on the 17th of January 2019.

The Scam

The numbers at the exchange were fabricated by way of fake accounts. The two men create five fake accounts and through them, were able to fake up to 5 million transactions. As a result of these false transactions, the two men were able to earn up to $45 million.

This practice, known as wash trading, is fairly common among exchanges but is becoming easier to detect.

One of the ways it has been detected in the past is through irregular trading patterns. The false trades tend to follow a time pattern and in some cases, similar volumes of trade appear to take place at the same time on an almost daily basis.

This marks the first time that a jail sentence is being handed out for this purpose. Despite the increase in efforts to combat wash trading, it still does damage to the reputation of the crypto industry.

“The crime has damaged customers’ confidence in the virtual currency exchange and has had a negative effect on the domestic virtual currency trading market,” said the judge presiding over the case.

The Extent of the Problem

There are conflicting reports about just how rampant the issue of wash trading is. Some believe that it is most common among smaller exchanges looking to get a leg up but no one can be sure.

According to a study by the Blockchain Transparency Institute, there is evidence of wash trading among 80% of pairs on 95% of exchanges. Even more alarming is that fact that there are allegedly firms that sell services to exchanges to help them inflate their transaction numbers.

Should this prove to be true, then there is a serious need for stricter regulation and investigation into wash trading and hopefully, more prosecutions.

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