Japanese Police Launch Probe Of Biggest Cryptocurrency Heist In History

Monday, January 29, 2018
By Paul Martin

by Tyler Durden
Mon, 01/29/2018

Japan’s new cryptocurrency regulations were put to the test last week when CoinCheck – a popular, if unlicensed, Tokyo-based crypto-exchange – became the target of “the biggest heist in crypto history.” As we reported last week, hackers made off with more than 500 million NEM tokens, worth $400 million before news of the hack triggered a 20% devaluation in what was until recently the tenth most popular cryptocurrency. That sum makes it bigger than Mt. Gox at the time of its implosion in February, 2014.

To save face, Japan’s financial regulator said on Monday it would inspect the country’s cryptocurrency exchanges; it also ordered Coincheck to review and repair its security systems, which, as Reuters pointed out, were irresponsibly lacking.

The exchange apparently hadn’t bothered to implement what’s called multi-signature security – the same flaw that led to the Bitfinex hack about 18 months ago.

Meanwhile, local media reports cited by Bloomberg say Japan’s Metropolitan Police Department has spoken to employees at Coincheck, has requested full access to the company’s servers, and will be conducting a full investigation. The police will also be analyzing records in Coincheck’s servers to identify the source of the hacking.

Coincheck – which halted withdrawals and trading in all cryptoassets except bitcoin last Friday following the hack, sending the market lower – said it would return 90% of its customers’ assets with internal funds, though it has yet to disclose how or when it will do this.

Japan started requiring exchange operators to register with the government in April 2017, and allowed pre-existing operators like Coincheck to continue ahead of being formally registered. So far, 16 exchanges have been registered by the FSA, Japan’s financial regulator.

Here’s Reuters, on what caused the hack, and what regulators are asking of Coincheck:

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) on Monday ordered improvements to operations at Tokyo-based Coincheck, which on Friday suspended trading in all cryptocurrencies except bitcoin after hackers stole 58 billion yen ($534 million) of NEM coins, among the most popular digital currencies in the world.

Coincheck said on Sunday it would return about 90% of losses 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 multi-signature system.

The Rest…HERE

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