South Korea is in the middle of yet another crypto mishap with losses amounting to millions this time. The South Korean National Tax Service seized cryptocurrency worth around 8.1 billion won ($5.6 million) from 124 wealthy tax evaders during a recent enforcement drive.
However, a large portion of those funds was later put at risk after officials accidentally revealed sensitive wallet details.
The agency also posted the seized Ledger hardware devices and the handwritten notes with the seed phrases, which are the personal recovery words that provide complete control over the cryptocurrencies.
This could have compromised the seized assets, as anyone with the seed phrases has control over the money.
The case highlights the need for a higher level of awareness regarding the security of cryptocurrencies and the sad fact that most authorities are not completely ready for it.
How did the mishap happen?
The images that were published by the nation’s regulators proved to be a critical mistake. It contained high-resolution photographs, which clearly revealed the mnemonic recovery phrases.
Anyone in possession of a seed phrase gains full control over the associated funds, as it can be imported into a software or hardware wallet to authorize transfers without needing the original device.
In this particular case, an unknown person who viewed the disclosed photos by the law enforcement agencies sent some ether to one of the disclosed addresses in order to cover the gas fees charged by the Ethereum network for any transaction. The individual sent three different transactions, transferring approximately 4 million Pre-Retogeum (PRTG) tokens.
Pre-Retogeum (PRTG) is a digital currency used on a blockchain platform that enables users to purchase and sell power directly to one another via peer-to-peer energy trading.
At the time, the tokens were valued at about $4.8 million. However, reporting by The Block noted that converting holdings of that size into cash would likely have been challenging due to limited market liquidity and prevailing trading conditions.
South Korea’s crypto mishap not the first
This is not the first time South Korean authorities have run into trouble while handling seized crypto assets.
Back in November 2021, the Gangnam police station seized 22 Bitcoins as part of a hacking case.
Instead of storing the seized Bitcoins in a wallet provided by the government, the police stored the Bitcoins in a wallet provided by the accused itself.
Later on, the recovery phrase of the wallet was exposed to a third party, thus compromising security.
Authorities recently arrested two individuals allegedly linked to the foundation for using that phrase to drain the funds from evidence storage.
Today, those missing 22 Bitcoin are worth around $1.5 million, underscoring how critical proper crypto custody practices have become for law enforcement agencies.