Hackers appear to have a fancy for cryptocurrency, and what better place to steal it from than a cryptocurrency exchange? Recently, this is what happened to Coincheck, a Japanese cryptocurrency exchange.
The value of digital currencies siphoned off in the hack is reported to be $530 million.
The exchange has since come under scrutiny by the government authorities and has also been raided. About 260,000 investors who had invested through Coincheck have been promised that their money will be returned to them.
The value of this refund could total around $425 million.
One of the Largest Cryptocurrency Exchanges
Coincheck’s website would have you believe that it is one of the largest exchanges for trading in Bitcoin and other cryptocurrencies in Asia.
This may be true because Japan has legalized cryptocurrencies and Bitcoin as legal tender.
Many transactions are permitted to be paid through Bitcoin. Some estimates put the value of Bitcoins traded in Japan against the Japanese Yen to be as much as a third of the value of the currency traded worldwide.
Japan has a legislation in place to regulate the transactions in cryptocurrencies.
This is even as countries with large economies, like China, are against giving recognition to cryptocurrencies.
The Federal Agency Steps In
The Japanese government has quickly reacted to the hack on Coincheck. The Federal Financial Services Agency (FSA) has stepped in to repair the situation arising out of this attack.
The point to be noted is that there is proper legislation in Japan, enacted in 2017, that requires every cryptocurrency exchange to register with and obtain a license from the FSA.
Though Coincheck had also made an application for the grant of a license, it had not been issued one but was permitted to carry on its business until the license was formally approved and issued.
So, technically, on the day the hack occurred on the exchange, it did not hold a license.
FSA Raids Coincheck
Subsequently, the FSA officials have conducted a raid on the premises of Coincheck. It has been reported that the purpose of the raid was to check if the exchange had the capacity to repay the investors.
Meanwhile, the top management of the cryptocurrency exchange held a media briefing and offered their apologies for the hack. They also made a commitment to refund the amount of $425 million owed to 260,000 investors as soon as possible.
According to them, the process of receiving the applications from the investors for the refund has already started and will be completed within reasonable time.
The exchange says it will refund the investors in Japanese Yen and will do so out of its own resources. The numbers being floated are 88.549 Yen per coin owned by the investors. Around 523 million coins were stolen in the attack, according to the same sources.
The understanding is that one of the reasons the cyber criminals succeeded in the hack was that the cryptocurrencies were digitally stored in a system that was accessible online 24/7.
Incident Reminds People of the Previous Big Heist in Japan
Incidentally, this Coincheck hack was not the first of its kind to hit the Japanese cryptocurrency ecosystem.
Experts are quick to point out that Mt. Gox, another cryptocurrency exchange based out of Japan, lost more than $400 million worth of cryptocurrencies in 2014 which was huge at that time and the total value of the stolen cryptocurrency was lost as far as the investors were concerned.
There has been an ongoing legal battle in a Tokyo court over the incident.
Perhaps the Japanese government was also aware of this and wanted to quickly do some damage control exercises. Mt. Gox filed for bankruptcy following the 2014 incident.
The FSA wanted to be sure the same does not happen again with Coincheck leaving the investors high and dry. This was likely the reason for the raid.
The FSA has also given Coincheck until February 13 to submit a report explaining how the hack exactly occurred.
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