Key Highlights:
- South Korea’s police draft new rules including privacy coins in crypto seizure management for the first time.
- New guidelines introduce hot wallet systems to handle highly anonymous digital assets securely.
- Authorities push for better custody solutions as seized crypto holdings cross 54 billion won.
South Korea’s National Police Agency has created a new ordinance to plan how seized cryptos are handled. The proposal introduces detailed procedures for managing cryptos and also includes specific provisions for privacy coins.
The draft comes as authorities try to address gaps in the current system. These gaps became visible after a series of incidents include the mishandling or loss of confiscated cryptos. The updated framework lays down compliance needs at each stage of seizure and storage so that officials can have a clear direction.
South Korea Adds Privacy Coin to Crypto Seizure Laws
An important feature of the draft is the inclusion of a hot wallet management plan. This is particularly important for privacy coins, which operate differently from most common cryptos ike Bitcoin or Ethereum.
Even though most cryptos leave a public transaction trail on the blockchain, privacy coins are designed to evade such details. Information about senders, receivers, and transaction amounts can be hidden, which makes them harder to track. This anonymity has made privacy coins popular in certain criminal activities.
South Korean authorities have linked their use to cases such as the “Nth Room” scandal, where digital platforms were used to distribute exploitative content. Investigators have found their links with laundering funds tied to North Korean operations, especially in situations where traditional financial channels are restricted.
The technical nature of these assets has added to the challenge. Standard practice for seized cryptos involves transferring funds into hardware wallets and securing them using mnemonic phrases. These devices function as cold storage and are considered relatively secure.
Privacy coins, however, often require dedicated software environments. Wallets are created within specific programs, and private keys are stored digitally and not on physical devices. Officers have struggled to manage privacy coins within the limiting framework because of these discrepancies. In many cases, they rely on software wallets outside formal guidelines. This led to gaps and raised concerns about crypto safety. The new law aims to standardize these processes and reduce uncertainty.
Local media reveals that over the past five years, South Korean police have seized virtual assets worth approx 54.5 billion Korean won at current market prices. Bitcoin accounts for the majority, with holdings valued at around 50.7 billion won. Ethereum makes up about 1.8 billion won. The growing scale of these holdings has added to the urgency for a more planned management system.
Beyond these regulations, the agency is also trying to improve custody arrangements. Plans are in place to select a private firm to manage seized cryptos during the first half of the year. Previous efforts to appoint such a partner have failed. Bidding was held under three rounds last year; none resulted in a final agreement.
There were a number of reasons for that. In South Korea, many of the eligible firms are small or mid-sized and thought to lack the kind of stability needed to take on massive amounts of digital assets. There were also budget constraints. The allocation of 83 million won seemed insufficient when compared to the potential dangers of custody services.
For now, the draft remains under review. Once finalized, it is expected to plan how seized assets are handled across the country.
Also Read: South Korea Targets Big Crypto: New AML Squeeze Hits Major Exchanges
