Cape Times

Coincheck told to get its act together after $530m hack

- Taiga Uranaka and Thomas Wilson

JAPAN’S financial regulator said yesterday that it would inspect all cryptocurr­ency 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 cyberheist­s 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) yesterday ordered improvemen­ts to operations at Tokyo-based Coincheck, which on Friday suspended trading in all cryptocurr­encies except Bitcoin after hackers stole 58 billion yen (R6.41bn) of NEM coins, among the most popular digital currencies in the world.

Coincheck said on Sunday that 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”, which operates on platforms not directly connected to the internet, Coincheck said. It also does not use an extra layer of security known as a multisigna­ture system. The hack has drawn into focus Japan’s approach to regulating cryptocurr­ency exchanges. Last year, it became the first country to regulate exchanges at the national level – a move that won praise for boosting innovation and protecting consumers, and that contrasts sharply with crackdowns in South Korea and China.

Inspection­s The FSA said it ordered Coincheck to submit a report on the hack and measures for preventing a recurrence by February 13, and that it would, if necessary, conduct on-site inspection­s of other cryptocurr­ency exchanges.

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

But the regulator does not have any rules banning the use of “hot wallets” by exchanges, nor does it set requiremen­ts on how much should be kept in “cold wallets,” an FSA official said at a briefing.

In response to FSA’s order for improvemen­ts, Coincheck said in a statement that it would promptly strengthen its customer protection and governance, and develop its risk management systems.

Japan started to require cryptocurr­ency 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 cryptocurr­ency exchanges so far, and another 16 are still awaiting clearance. Coincheck’s applicatio­n was made in September.

“It’s been long said that cryptocurr­encies are a solid system but cryptocurr­ency 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 current cryptocurr­ency fever.”

NEM fell to $0.78 from $1.01 on Friday but recovered to $0.95 late yesterday afternoon, according to CoinMarket­Cap. Crypto-currency related shares mostly rose in Tokyo, with GMO Internet, which offers cryptocurr­ency exchange services, gaining 5.7 percent. – Reuters

 ?? PHOTO: AKIO KON/BLOOMBERG ?? A chart tracking the value of Bitcoin on cryptocurr­ency exchange Coincheck’s Bitcoin Wallet app. The firm said it would use its own capital to reimburse customers who lost money in Friday’s $530 million theft.
PHOTO: AKIO KON/BLOOMBERG A chart tracking the value of Bitcoin on cryptocurr­ency exchange Coincheck’s Bitcoin Wallet app. The firm said it would use its own capital to reimburse customers who lost money in Friday’s $530 million theft.

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