In the greatest heist of all time, somewhere between $400 million and $534 million dollars of NEM have been stolen. On Friday afternoon, at a press conference, the stunned team of Coincheck seemed dejected with such a big loss. This has raised questions about the security practices followed by the Japanese exchange.
History repeating itself: Mt Gox part 2
Just four years back, Japan witnessed the record-breaking cryptocurrency heist in the form of Mt. Gox. Japan-based Mt Gox was one of the biggest exchanges in the world. In 2014, it had been announced by the CEO of the exchange that about 800,000 bitcoins that had the worth of nearly half a billion dollars at that time, got hacked.
Japan may have thought that its days of being the focal point of greatest cryptocurrency heists are over. But, the country is yet again in the spotlight.
In last few years, Japan has taken a measured approach to cryptocurrencies by encouraging their use in a much-regulated environment. Japan has even earned praises for such a regulated approach. However, on January 26, the country got a big blow that yet another cryptocurrency hack of big proportions has occurred.
At 3 am, by the local time, someone withdrew all the NEM that has been held by the exchange in a single transaction. As for the origin and the identity of the hacker, it is not known at the time. However, what few details have come in the notice, it suggests a severe flaw in the security procedures of Coincheck.
The 500 million NEM that has been stolen were apparently stored in a hot wallet that had no multi-sig. This means, the exchange has learned nothing from the history of Mt Gox heist of 850,000 bitcoins in 2014, that has the similar setup.
At the press conference, when the questions were asked about the security practices of Coincheck, president Wakata Koichi Yoshihiro gave an awkward pause that was followed by him betting the question away and simply issuing an apology.
Taking recovery steps after the heist
Within a few hours of the attack, the NEM team contacted the cryptocurrency exchanges to blacklist the wallet address. This means the thieves are likely to find themselves in a difficult situation to shift their money.
The Financial Services Authority of Japan has confirmed that it is looking into the facts of the matter. Furthermore, Coincheck has also promised that it will compensate its customers whose NEM are stolen.
In spite of having a good dollar value, it is unlikely that the NEM hack will put a visible dent in the cryptocurrency market. However, it does raises some serious questions about Coincheck’s ability and if it is fit to operate a cryptocurrency exchange. Moreover, the company had reported earlier that it is approved by the Financial Services Agency but now it has come to notice that Coincheck is not registered with FSA. So, if Coincheck wants to pay its customers back, the only solution may be to allow it to continue trading.
Do you think regulators will allow Coincheck to stay in business? Will customers be able to trust it again? Let us know your thought in comments below.
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Sunil is a serial entrepreneur and has been working in blockchain and cryptocurrency space for 2 years now. Previously he co-founded Govt. of India supported startup InThinks and is currently Chief Editor at Coingape and CEO at SquadX, a fintech startup. He has published more than 100 articles on cryptocurrency and blockchain and has assisted a number of ICO’s in their success. He has co-designed blockchain development industrial training and has hosted many interviews in past. Follow him on Twitter at @sharmasunil8114 and reach out to him at sunil (at) coingape.com