Japan raps Coincheck after a $530 mln crypto currency theft

Japan raps Coincheck after a $530 mln crypto currency theft

TOKYO - Reuters
Japan raps Coincheck after a $530 mln crypto currency theft

Japan’s financial regulator said on Jan. 29 that it would inspect all crypto currency exchanges and ordered Coincheck to get its act together after hackers stole $530 million worth of digital money from its exchange in one of the biggest cyber heists on record.

The theft highlights the vulnerabilities in trading an asset that global policymakers are struggling to regulate and the broader risks for Japan as it aims to leverage the fintech industry to stimulate economic growth.

The Financial Services Agency (FSA) ordered ON Jan. 29 improvements to operations at Tokyo-based Coincheck, which suspended trading on Jan. 26 in all crypto currencies except bitcoin after hackers stole 58 billion yen ($534 million) of NEM coins, among the most popular digital currencies in the world.

Coincheck said on Jan. 28 it would return about 90 percent with internal funds, though it has yet to figure out how or when. 

The NEM coins were stored in a “hot wallet” instead of the more secure “cold wallet”, outside the internet, Coincheck said.

It also does not use an extra layer of security known as a multi-signature system.

The FSA said it ordered Coincheck to submit an incident report and measures for preventing a recurrence by Feb. 13.

If necessary, it will conduct on-site inspections of other exchanges, an official told a briefing.

The regulator said it has yet to confirm whether Coincheck had sufficient funds for the reimbursement.

‘Currencies are solid,exchanges are not’Japan started to require crypto currency exchange operators to register with the government only in April 2017, allowing pre-existing operators such as Coincheck to continue offering services ahead of formal registration.

The FSA has registered 16 crypto currency exchanges so far, and another 16 or so are still awaiting clearance.

Coincheck’s application was made in September.“It’s been long said that crypto currencies are a solid system but crypto currency exchanges are not,” said Makoto Sakuma, research fellow at NLI Research Institute.

“This incident showed that the problem has not been solved at all. If Coincheck screws up its crisis management, that could deal a blow to the current crypto currency fever.”

NEM fell to $0.78 from $1.01 on Friday but recovered to $0.97 on Jan. 29, according to CoinMarketCap. Crypto-currency related shares mostly rose in Tokyo, with GMO Internet, which offers crypto currency exchange service, gaining 5.7 pct.

Singapore-based NEM Foundation said it had a tracing system on the NEM blockchain and that it had “a full account” of all  of Coincheck’s lost NEM coins.

It added that the hacker had not moved any of the funds to any exchange or personal accounts but that it had no way to return the stolen funds to its owners.In 2014, Tokyo-based Mt. Gox, which once handled 80 percent of the world’s bitcoin trades, filed for bankruptcy after losing around half a billion dollars worth of bitcoins.

More recently, South Korean cryptocurrency exchange Youbit last month shut down and filed for bankruptcy after being hacked twice last year.

World leaders meeting in Davos last week issued fresh warnings about the dangers of crypto currencies, with U.S. Treasury Secretary Steven Mnuchin relating Washington’s concern about the money being used for illicit activity. 

Many countries have clamped down on exchanges.

South Korea will ban crypto currency traders from using anonymous bank accounts to crack down on the criminal use of virtual coins.

China has ordered some exchanges to close, with the aim of containing financial risks.

But Japan has taken a different tack, becoming last year the first country to introduce national-level regulation of crypto currency exchanges.

China, Japan, Asia, South Korea, cryptocurrency, crypto, digital currency, currency, bitcoin, Coincheck, FSA