South Korea's National Police Agency Partners with Upbit Custody for Cryptocurrency Management

Introduction

In a significant shift in asset management strategy, South Korea's National Police Agency has initiated a collaboration with Upbit Custody to handle the secure storage of cryptocurrencies confiscated during criminal investigations. This decision follows numerous incidents where Bitcoin, previously managed directly by police departments, went unaccounted for, prompting the need for enhanced oversight and secure storage practices.

Transition to Upbit Custody

As reported by Segye Ilbo on November 9, all investigative units have been directed to transition to Upbit's external custody services. To facilitate this transition, police departments have begun distributing detailed operational guides and conducting training sessions for officers to familiarize them with these new procedures.

New Custodial Framework

Under this newly adopted framework, all digital currencies seized from investigations will now be stored in secure offline wallets managed by Upbit Custody. The funds will remain in cold storage until they are either returned to rightful owners, provisionally released, or handed over to prosecutors as part of ongoing legal proceedings. This outsourcing of cryptocurrency storage will see Upbit Custody assume full responsibility, shifting away from the prior model where individual police departments were tasked with managing their own hardware wallets and digital assets.

Security Measures

The selected custody service leverages advanced security protocols, including multi-party computation and distributed key generation, to ensure that control over cryptographic keys is decentralized and does not rest with a single person. Transactions conducted via the custody service will employ multi-signature technology, which adds an extra layer of verification by requiring multiple approvals, thus making unauthorized transfers exceedingly difficult.

Support and Limitations

Additionally, Upbit will assist police with technical guidance for transferring cryptocurrencies across different blockchain platforms and will cover transaction fees involved in these transfers. They are also set to offer a 24/7 support hotline for law enforcement officials engaged in corporate seizures.

However, not all cryptocurrencies will be included in this new custodial framework. Privacy-centric coins such as Monero will still be manually handled using separate hardware wallets, reflecting ongoing challenges in managing these types of assets.

Accountability and Background

As part of the terms of engagement, Upbit has committed to compensating the police for any losses of cryptocurrencies while under its custody, a move aimed at reinforcing accountability. This nationwide initiative follows Upbit's selection as the ultimate contractor for the police's custody needs on August 7, after a competitive procurement process that began in July. Upbit received a favorable technical evaluation and successfully negotiated a one-year contract with law enforcement.

Addressing Past Incidents

This overhaul comes in the wake of several high-profile incidents where cryptocurrencies under police supervision went missing, leading to varying degrees of disciplinary action among investigative officers. For instance, during a 2021 operation against an illegal gambling operation, police in Gwangju lost access to a substantial portion of 1,798.3 Bitcoin due to weakness in managing mnemonic recovery phrases, which are critical for securing access to crypto wallets. Moreover, the Gwangju District Prosecutors’ Office faced its own trials when Bitcoin held in its custody was temporarily lost to a phishing scam, though some assets were later recovered.

Conclusion

Reflecting on these issues, police officials have thus emphasized the importance of moving to a more robust custodial arrangement, ensuring that similar mishaps do not recur as the service commences its nationwide rollout.