Police skills to probe Cryptopia theft in doubt
A law expert is questioning whether police have the skills to resolve the $23 million theft from Christchurch-based trading exchange Cryptopia.
University of Auckland Associate Professor Alex Sims, a commercial law expert, said information about the probe had not been handled well and regulatory authorities were ‘‘struggling’’ to deal with cyber theft.
‘‘No-one seems to have a clue what’s going on. But this hasn’t come out of the blue. There has been a lot of dialogue in recent years about the security of cryptocurrency and where to store the digital wallets.
‘‘Cryptocurrency is a legitimate business. It’s not a scam. But our regulators are really struggling compared with the US, Japan and European countries which have set up secure custodial services,’’ Sims said.
Cryptopia had held investors’ digital wallets, when they should have been held by the investors or with a safe custodial service, and any money kept in trust by the exchange, she said.
Sims said cryptocurrency and the underlying blockchain technology were here to stay.
‘‘It would be like someone in 1900 saying we should outlaw cars because someone got run over. If you outlawed New Zealand cryptocurrency exchanges people will just use overseas exchanges.’’
She made the comment as Cryptopia’s sole director, Pete Dawson, apologised for his silence regarding the probe.
‘‘Our team is giving police technical assistance and their advice to is maintain radio silence in case we inadvertently say something that might interrupt their investigation,’’ he said.
Dawson said overseas reports had misinterpreted further transfers of some of the stolen cryptocurrencies, which can be traced through different exchanges.
Other overseas reports said police had said Cryptopia could be operating again this month, but an official police spokesperson said there had not been any indication of when it might restart business.
A New York-based analyst, Max Galka of Elementus, said the thieves had been busy liquidating the stolen tokens by converting them into other cryptocurrencies via an international exchange called Etherdelta.
BitPrime, another exchange based in Christchurch, recently assured stakeholders it did not hold or manage customer funds.
‘‘Holding customer funds increases the risk, which can turn out disastrously,’’ BitPrime chief executive said.
‘‘Our own cryptocurrency reserves are held by an institutional custodian in cold storage, with US$100 million worth of insurance coverage. If you use a centralised exchange, ensure you withdraw all your funds to your own wallets as soon as possible.
‘‘If the coins are not in a wallet that you control the private keys for, in effect, then they’re not really your coins.’’ Ross CarterBrown
Another New Zealand-based exchange called Vimba gave similar advice. ‘‘When you keep crypto on an exchange you don’t actually have ownership of those coins. We highly recommend you to move it into a personal wallet that you control.’’ Carter-Brown said investors would be unable to claim all tax losses because until their digital coins were cashed up they could be classed as income.
He has also written about what might happen when cryptocurrency investors die.
‘‘Traditionally, gaining access to a bank account is relatively straightforward after a family member passes,’’ he said.
‘‘In the case of Bitcoin, it is much more complicated as there are wallets, passphrases and security boundaries.
‘‘If your family isn’t aware of the existence of your crypto holdings, it will be lost forever.
‘‘Keep your wallet passphrase somewhere secure like a deposit box or a locked safe and provide instructions on how to get to it in your will.’’