[Exclusive] Police Holding Hundreds of Billions in Virtual Assets Establish First-Ever Dark Coin Guidelines

No Guidelines for 'Dark Coins' Frequently Used in Crimes
Hot Wallet Regulations Included in Police Directive for the First Time
Seized Coins Over the Past Five Years Valued at 54.5 Billion Won

The police have established guidelines related to "dark coins" for the first time while overhauling their asset management system amid a series of virtual asset seizures and losses by government and investigative agencies. Unlike ordinary virtual assets, which allow third parties to review transaction histories, dark coins are highly anonymous and have been used in crimes such as the "Nth Room" case.

According to a comprehensive report by The Asia Business Daily on March 17, the Korean National Police Agency recently completed a draft of an internal directive specifying step-by-step compliance requirements for virtual asset seizures. For the first time, this includes a "software wallet (hot wallet) management plan" necessary for managing seized dark coins. Since dark coins are designed to be difficult to trace, they require a separate wallet, unlike ordinary virtual assets that are typically stored in hardware wallets (cold wallets) such as USBs.

Dark coins are characterized by their emphasis on anonymity, unlike typical virtual assets whose transaction histories are made public on the blockchain. During transmission, information about the sender, recipient, and transaction amount can be concealed, making dark coins tools for crimes or money laundering. A prominent example is the case of Jo Joo-bin, operator of the "Doctor’s Room," who produced and distributed sexually exploitative videos of minors on Telegram. Additionally, North Korean authorities, whose financial channels are blocked by sanctions, utilize dark coins as key assets when hacking virtual assets or attempting money laundering.

When investigative agencies seize virtual assets, they use cryptographic phrases such as mnemonic codes generated after initializing hardware devices. The seized assets are transferred to the relevant wallet address, then sealed and stored. For dark coins, dedicated software must be installed on a PC or server to create a wallet within the program. There is also a difference in that secret keys are stored as files or text strings rather than on physical devices.

Up to now, the police have made it a principle to store seized virtual assets in hardware wallets. However, it has been difficult to manage dark coins, as they are often hard to store in hardware wallets or are not handled by conventional exchanges. With no separate guidelines in place, frontline units have had to store dark coins in software wallets, effectively operating outside of regulations. The new directive will specify these rules to reduce confusion on the ground.

The National Police Agency also plans to complete the selection of a private custody (outsourcing) company within the first half of the year. Although bids were held three times last year to find such a custodian, all failed. Many of the domestic companies qualified to manage and store virtual assets are small or medium in size, and were deemed unsuitable in terms of stability. The police budget for outsourcing risk management is only 83 million won, which was also cited as a problem.

Investigation Paradigm Shift..."Asset Management Must Also Change"

If the market value as of the early morning of March 17 is applied to the virtual assets seized by the police over the past five years, the estimated amount is about 54.5 billion won. By type, this includes about 50.7 billion won in Bitcoin (BTC) and about 1.8 billion won in Ethereum (ETH). These figures are based on cases with confirmed verdicts, and the actual amount seized could be higher in cases where suspects refuse to disclose wallet passwords. Since virtual asset prices are highly volatile, actual valuations may vary depending on the assessment date.

As the movement of criminal proceeds and funds from physical assets to virtual assets becomes more pronounced, changes in the way investigative agencies manage seized assets have become inevitable. A police official stated, "In the past, assets were stored in a warehouse, but now we are in an era where wallet addresses and secret keys must be managed," adding, "As the investigation paradigm shifts, field investigators hope for systematic guidelines and the necessary support to accompany them."

Experts advise that a "public custody" system is needed to prevent future security incidents. While agency-level guidelines are important, they emphasize the necessity of establishing a more specialized management system.

Hwang Sukjin, Professor at the Graduate School of International Information Security at Dongguk University, stated, "Managing wallets individually at each police station can leave gaps, and if a wallet is exposed, mnemonic codes can be used to infer or hack private keys based on transaction records. The government should entrust integrated management to professional custodians."

Kim Hyungjoong, Special Professor at the Graduate School of Information Security at Korea University, emphasized, "Unlike physical evidence, virtual assets are highly susceptible to theft and carry significant management responsibility due to price volatility. The regulations should be completely overhauled so that, rather than superficial checks by internal personnel, responsibility for storage is entrusted to professional firms or regulated exchanges."

This content was produced with the assistance of AI translation services.