South Korea Issues Rules for Privacy Coin Seizures

• South Korea sets first formal rules for handling privacy coins in seized crypto cases.
• Police mandate hot wallet storage on dedicated servers with sealed private keys.
• Past Bitcoin losses and theft incidents drive an overhaul of the custody framework.

South Korean law enforcement has introduced its first formal guidelines governing the seizure and management of privacy-focused cryptocurrencies, shifting how authorities handle digital assets that are difficult to trace and store.

The new directive, issued by the Korean National Police Agency (KNPA), addresses operational gaps that emerged after several incidents involving lost or mishandled seized crypto assets. By defining procedures for handling privacy coins and clarifying storage requirements, officials aim to reduce risks associated with asset custody while improving consistency across investigations.

New Rules Target Storage Challenges for Privacy Coins

The updated administrative rules on the management of seized virtual assets include specific provisions for privacy coins such as Monero. These assets differ from conventional cryptocurrencies because their transaction data, including sender, receiver, and transfer amounts, can be concealed. This feature has historically complicated both tracking and storage.

Under the new guidelines, authorities are required to store privacy coins in software wallets, also known as hot wallets, rather than hardware devices. The KNPA stated that such wallets must be created on dedicated servers, with private keys sealed to prevent unauthorized access or loss.

Previously, police practice centered on storing seized cryptocurrencies in hardware wallets. However, officers handling privacy coins were often forced to rely on software wallets without formal guidance, resulting in inconsistencies in asset management. The new directive formalizes these procedures and is intended to reduce confusion in field operations.

Past Incidents Prompt Policy Update

The policy revision follows a series of incidents involving the loss or compromise of crypto assets. Authorities cited the loss of 22 Bitcoin by the Gangnam Police Station and a separate case in which assets held by the National Tax Service were stolen after a mnemonic phrase was exposed. These cases highlighted vulnerabilities in existing custody practices and prompted a review of internal procedures.

Over the past five years, South Korean police have seized approximately 54.5 billion won in digital assets. This total includes about 50.7 billion won in Bitcoin and 1.8 billion won in Ethereum, according to official data.

In addition to updating storage rules, the KNPA is working to establish a more structured custody framework. Authorities plan to select a private-sector custodian within the first half of the year, although previous bidding attempts have failed. 

Related: South Korea to Enforce 20% Ownership Cap on Crypto Exchanges