Announced Friday morning, OKEx has frozen all withdrawals, from bitcoin to altcoin withdrawals. OKEx is a leading digital asset exchange that has processed over $3.35 billion in volume in the past 24 hours, data suggests.
The company says that one of its "private key holders" is currently "cooperating with a public security bureau" due to ongoing investigations. The identity of the holder was not named, nor was the bureau he is working with. It was also not said where this executive is located.
OKEx says that it has been unable to contact this private key holder since they began cooperation with authorities, meaning the exchange is currently unable to sign transactions for withdrawals.
While withdrawals are disabled, OKEx asserts that the rest of its "functions remain normal and stable and the security of your assets at OKEx will not [be] affected."
Many see this as validation of the adage, "not your keys, not your bitcoin." This refers to the fact that many believe it is unwise to store funds on exchanges due to the risk of hacks, government regulation, or fractional reserves.
The inability OKEx has to access the private keys or security systems to withdraw funds seems to stem from its complicated security protocol.
Cryptocurrency trader "I Am Nomad" shared a screenshot of OKEx's security protocol notes shortly after the exchange froze withdrawals.
One line reads that "accessing any private key requires two people - the holder of the AES password, and the holder of the bank safety deposit box." As one of those individuals has been arrested for at least one of the private keys, withdrawals from the wallet the key unlocks cannot take place.
What isn't mentioned in this screenshot, is OKEx's hot wallet mechanism. Most exchanges operate on a two-tier system, where there are a limited number of funds connected on an easily-accessible "hot" wallet and a majority of the funds on a "cold wallet."
Jameson Lopp, editor at the BTC Times, also commented on OKEx's security protocol. He said that reading between the lines, he believes the company has a "single point of failure in their key management architecture, and it's currently failing."
As Chinese finance platform Caixin reported on Friday, two sources confirmed the individual in question is OKCoin founder Star Xu. Caixin further reports Xu has been detained by Chinese police.
UPDATE (Oct 16th, 9:47 a.m. UTC): Added information published by Chinese media platform Caixin which details that Star Xu has been detained by Chinese police. Updated the article title accordingly. The update is breaking; the BTC Times will add further information as it becomes available.