Massive Japanese cryptocurrency hack won't be the last, Wall Street analyst says


Japan's financial regulator said it will be inspecting all cryptocurrency exchanges following the theft of nearly $500m in digital currency from the Coincheck exchange's wallet on Friday 26 January.

On Friday 26th the trading platform Coincheck stopped all exchanges of cryptocurrencies, excluding Bitcoin, after discovering that hackers had stolen the equivalent of 58 billion yen (roughly 378.4 million pounds) in NEM coins. It follows the collapse of Mt. Gox in 2014, which declared bankruptcy after hackers stole 850,000 Bitcoins, worth $460 million at that time.

Following the hack of Japanese digital currency exchange Coincheck, the country's financial watchdog has sent the exchange a business improvement order to ensure the industry's security.

The FSA has registered 16 cryptocurrency exchanges so far, and another 16 or so are still awaiting approval while continuing to operate. On the other hand, South Korean authorities have been discussing whether to ban cryptocurrency exchanges.

What's more worrying to both investors and regulators alike is the frequent hackings here. But Coincheck CEO Koichiro Wada said that for NEM coins, the company kept the currency in a "hot wallet" connected to external networks, making it more vulnerable to fraudulent external access.

The Financial Services Agency (FSA) said in a statement that it had ordered Coincheck to investigate the cause of the incident, "properly" deal with clients, strengthen risk management and take preventive measures.

Security firm SecureWorks said in December it had uncovered a spearphishing campaign targeting employees at cryptocurrency firms in a bid to steal bitcoin.

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Coincheck revealed the theft of NEM - a popular cryptocurrency - last week. In 2014, the Mt Gox exchange filed for bankruptcy after losing approximately half a billion United States dollars worth of bitcoin.

"Due to the nature of NEM's architecture and its advanced API, we are now reaching out to exchanges and exploring three different options".

Coincheck "did not store the important things separately", he said.

Coincheck has apologized and promised to reimburse customers for their NEM losses. Otsuka said no date has been set for the payments or for a restart of transactions on the exchange.

It may be more useful to think of them as assets, rather than digital cash.

NEM, the cryptocurrency stolen in the Japanese hack was down 10.91% at $0.932 in early trade on the Bitstamp exchange. Last year, the government officially recognized bitcoin as a form of currency and started licensing exchanges.