South Korea’s police keep losing the Bitcoin they guard, so Upbit now holds it, covering 100% of losses

South Korea’s National Police Agency has started moving seized crypto into Upbit Custody, run by exchange operator Dunamu, after police and prosecutors lost Bitcoin they were holding as evidence. Dunamu has agreed to cover 100% of losses on assets in its care.

According to a November 9 report by local newspaper Segye Ilbo, police headquarters has directed investigative departments nationwide to adopt the external custody system. Authorities have also distributed operational guidelines and started training officers to ensure that cryptocurrency transfers and storage procedures are handled correctly.

The new arrangement represents a significant change in how South Korean law enforcement manages digital evidence. Previously, individual investigative teams were responsible for purchasing hardware wallets, safeguarding recovery phrases and overseeing transfers. The revised framework places these responsibilities under a dedicated institutional custody provider.

Upbit custody introduces stronger protection for seized crypto

Under the new arrangement, seized crypto assets will be transferred to Upbit Custody and stored in offline cold wallets until they are returned to their rightful owners, provisionally released or handed over to prosecutors during criminal proceedings.

Cold wallets remain disconnected from internet networks, reducing their exposure to remote hacking attempts. Dunamu will also maintain physical storage devices at separate secure facilities, adding another layer of protection to the custody infrastructure.

The platform incorporates several security technologies, including multi-party computation (MPC), distributed key generation (DKG) and multi-signature authentication. These mechanisms distribute control over wallet access and require multiple authorizations for certain transactions, reducing dependence on a single individual or private key.

The changes are particularly important because cryptocurrency ownership depends on access to private keys and recovery phrases. Unlike conventional financial accounts, digital assets can be transferred without the physical storage device if someone obtains the necessary recovery information.

Upbit will provide police investigators with technical assistance when transferring different cryptocurrencies across blockchain networks. The company will also cover transaction fees and operate a 24-hour support service to assist departments with custody procedures.

Additionally, the agreement reportedly requires Dunamu to compensate law enforcement for 100% of losses involving assets held under its custody. However, privacy-focused cryptocurrencies such as Monero will remain outside the arrangement because they are not supported by the service. Such assets will continue to be stored separately using hardware wallets.

Dunamu Won the one-year police custody contract

The nationwide implementation follows Dunamu’s selection as the final contractor for South Korea’s police cryptocurrency custody project on August 7, 2026.

The company, which operates the Upbit exchange, secured the agreement through an open competitive procurement process conducted by South Korea’s Public Procurement Service. It received a technical evaluation score of 94.14 points, the highest among participating bidders.

Dunamu had initially emerged as the preferred negotiation partner on July 8 before completing technical discussions and securing the final agreement. The contract covers an initial period of one year.

The selection reflects growing interest in using specialized private-sector infrastructure to manage digital assets held by government institutions. It also follows concerns that law enforcement agencies lacked consistent procedures for protecting cryptocurrency evidence.

In its August announcement, a Dunamu representative said the company supported the project’s public-interest objective of protecting national assets. “We will do our utmost to enhance public security and the stability of digital policing infrastructure,” the representative said, pointing to the company’s security technology and internal control capabilities.

The arrangement also highlights the increasing importance of institutional cryptocurrency custody as governments handle larger volumes of digital assets connected to investigations.

Previous Bitcoin disappearances triggered the security overhaul

The decision to introduce external custody comes after several incidents exposed weaknesses in South Korea’s previous evidence management practices.

One major case involved a 2021 investigation by Gwangju police into an illegal gambling website. During the investigation, authorities attempted to seize 1,798.3 Bitcoin. However, someone obtained access to a mnemonic recovery phrase associated with the assets and transferred a substantial portion of the holdings.

Investigators ultimately managed to secure only 320.8 BTC, highlighting the consequences of inadequate recovery-phrase protection.

Another incident involved the Gwangju District Prosecutors’ Office, where approximately 320 Bitcoin transferred into official custody were reportedly lost following a phishing attack. The assets were subsequently recovered.

Seoul’s Gangnam Police Station also experienced a major security failure involving 22 Bitcoin held in a hardware wallet. The disappearance was discovered during a nationwide inspection of cryptocurrency evidence management in February 2026.

According to South Korean media reports, the missing Bitcoin had been transferred out of the wallet in May 2022, although the physical storage device remained in police possession. Investigators later arrested two suspects in connection with the alleged theft.

These incidents demonstrated that possessing an offline wallet does not automatically guarantee asset security. Protecting recovery phrases, controlling access permissions and monitoring transfers are equally important.

South Korea’s latest custody reform therefore seeks to address more than the technical risks associated with storing digital assets. It also introduces centralized oversight and professional support into a process previously handled by individual investigative teams.

As the transition progresses, the effectiveness of the new framework will depend on how consistently police departments follow the updated procedures and how reliably the custody provider maintains its security guarantees.