Japan might be leading the race to become a global giant in cryptocurrencies, but it also is gaining news for all the wrong reasons as well. Japanese exchanges have been found vulnerable to hacks and security glitches pretty often and things don’t seem to be improving. In a recent hack, Japanese cryptocurrency firm Tech Bureau Corp said it said its Zaif Exchange was compromised to hackers and has nearly lost US$60 million worth of crypto assets.
Hack despite business improvement orders by regulators
In hacks, exchanges and companies are usually surprised by the attacks as they themselves are not aware of the vulnerabilities. But in case of this hack, it looks more of a negligence then unawareness. Tech Bureau the company that runs Zaif exchange was already slapped with two business improvement orders by the Japanese regulators this year.
In its statement, the company said its Zaif exchange was hacked over a two-hour period on Sep 14. It detected server problems on Sep 17, confirmed the hack the following day, and notified authorities, the exchange said on Thursday.
In this theft, virtual currencies worth about ¥6.7 billion, including Bitcoin, Monacoin and Bitcoin Cash, were stolen from the exchange’s “hot wallet”. About ¥2.2 billion worth of the stolen currency was its own while the remaining ¥4.5 billion belonged to customers, it said.
Following the hack, Tech Bureau said it had agreed with JASDAQ-listed Fisco Ltd to receive a ¥5 billion (US$44.59 million) investment in exchange for majority ownership. The proceeds from the investment would be used to replace the digital currencies stolen from client accounts. However, Fisco said in a statement the ¥5 billion in “financial assistance” may change in value if the amount affected by the theft changes upon further investigation.
Documents seen by Reuters on Thursday showed Japan’s Financial Services Agency would conduct emergency checks on cryptocurrency exchange operators’ management of customer assets, following the theft. FSA officials were not immediately available for comment.
Japanese Exchanges vulnerability despite regulatory checks and encouragement for improvements
Japan already has some of the most vulnerable cryptocurrency hacks to its name. It all starts with 2014 with Mt. Gox. Mt. Gox was a bitcoin exchange based in Shibuya, Tokyo, Japan. Launched in July 2010, by 2013 and into 2014 it was handling over 70% of all bitcoin (BTC) transactions worldwide, as the largest bitcoin intermediary and the world’s leading bitcoin exchange. In February 2014, Mt. Gox suspended trading due to hack.
In January this year, Japan faced another big hack as Tokyo-based cryptocurrency exchange Coincheck said on Sunday it would return about 46.3 billion yen ($425 million) of the virtual money it lost to hackers two days ago in one of the biggest-ever thefts of digital money.
Considering the demand, growing interest in cryptocurrencies and the vulnerabilities countries exchanges were facing, Japan’s regulators started ramping up their scrutiny on the industry with on-site inspections. This was done as a measure toward forcing cryptocurrency exchanges to adopt a stronger cybersecurity posture and more-secure consumer protection measures.
By taking these steps the regulators in Japan were considered to be setting a template for Cryptocurrency Regulation for other countries to follow, but with this hack, it seems the regulators will have to tighten the grip further. We will have to wait and watch how the regulators in Japan react to this news.
Will Japanese regulators tighten their grip on this vulnerable exchange that has already been issued notices? Do let us know your views on the same.
Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Follow him on Twitter at @KoinKing1 or connect with me on linkedin.