Coincheck Cryptocurrency Exchange Takes a $500 Million Hit from Hackers

Japanese cryptocurrency trading platform Coincheck is the latest target of hackers: this time hackers confiscated 523 New Economy Movement (NEM) tokens, wiping out almost the entire supply.

The most surprising part of this scenario is not the hacking itself—by some estimates, the number of high profile bitcoin hacks alone numbered in 2017—but the response coming from Coincheck. They have promised to refund the majority of the lost digital currency—a total of 46bn yen—which in the end will cover an estimated 260,000 customers. Bitcoin took a 7.3 percent loss the day that the hacking began, rebounding to a 3.3 percent loss by Sunday, now trading at $11,733.20. Still, it seems NEM took the biggest hit, with a drop of roughly 13 percent. NEM is a product of the NEM blockchain technology of the NEM.io foundation, based in Singapore.

Reparations policy towards users affected by the illicit transfer of the cryptocurrency NEM from Coincheck https://t.co/uaYAwj4QcM

— Coincheck (@coincheck_en) January 28, 2018

Yusuke Otsuka, Coincheck Chief Operating Officer, shared details of the total loss: “It’s worth 58 billion yen based on the calculation at the rate when detected,” he reported at the Tokyo Stock Exchange, adding with reassurance, “We know where the funds were sent. We are tracing them and if we're able to continue tracking, it may be possible to recover them.”

Deposits of all supported currencies except JPY are currently suspended. We apologize for this inconvenience and appreciate your understanding. https://t.co/4OCB0LPDuz

— Coincheck (@coincheck_en) January 28, 2018

The message now remains clear: digital currency hacking will continue for the foreseeable future. The best strategy, therefore, is for trading platform providers to act quickly to put out fires, reassure its traders, and go above and beyond to recover as much of the lost amounts as possible—in this case, if all goes as planned, Coincheck will give back roughly 90%.

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Is Coincheck’s Priority Protecting Its Customers or Its Image?

Beyond the positive and proactive efforts of Coincheck—between 3 a.m. Friday, when the security breach was detected, to Sunday, the company temporarily froze all withdrawals and deposits (except for bitcoin) to monitor NEM—some argue that the motivation behind Coincheck’s quick response may have been a public relations (PR) stunt designed to help the image of the company which boasts of being “the leading cryptocurrency exchange in Asia,” as well as housing an exchange supporting the “No. 1 Bitcoin trade volume in Japan.”

Within the past two days, while this scenario has been playing out, the Japanese media have been putting Coincheck under the microscope, with claims that it “expanded business by putting safety second,” as well as using unflattering terms like “sloppy” in reference to its business practices. In fact, the future of Coincheck is uncertain thanks since the Japanese government in April 2017 made its strongest regulatory action (and no doubt designed to reverse the dangerous trend of irresponsible and speculative trading) to date with the announcement that all any cryptocurrency exchange operators would have to register with the country's Financial Services Agency (FSA), a measure designed to weed out fake and disreputable companies.

Measures like this seem to be winning support—the Australian government is also discussing a similar bill: although traders and investors resent regulation from the government about their own activities, they do seem to welcome it as a process of vetting the legitimacy and intentions of exchange operators. If governments can regulate digital currency trading platform companies in a way that resembles in some part its regulation of traditional currency market exchanges, they will eventually begin to ease up on cryptocurrencies.