On the morning of January 26, 2018, a cryptocurrency exchange by the name of Coincheck froze its services. Following the freeze, Coincheck administration announced they had become victims of the largest cryptocurrency hack in history. About 500 million NEM tokens in total were stolen, amounting to over $400 million USD.
This has overshadowed the Mt. Gox hack, an infamous event among cryptocurrency traders that occurred in 2014. A sum of approximately 340 million dollars in Bitcoin were stolen during the Mt. Gox hack. This event does not bode well for traders attempting to capitalize on the rise of cryptocurrency. Hacks of this scale can often cause fear and panic among traders, causing them to trade their coins for US dollars.
Security is a concern for many companies in the cryptocurrency field. Most of these companies are start-ups just getting on their feet, and don’t have the kind of security budget required to deter constant hacking attempts. However, this hack isn’t all bad news for traders.
The hack has drawn the attention of Japanese authorities, and last year they became the first country to begin regulating cryptocurrency exchanges. This may begin to shift the public perception on cryptocurrency, and more people will begin to see coins as a legitimate investment.
The Financial Security Agency of Japan has ordered Coincheck to give a full report of the hack, as well as disclose what measures are being taken to prevent another hack from occurring. The exchange also announced it would return $425 million USD to their users.
Coincheck is setting a precedent for how cryptocurrency exchanges should handle hacks in the future, and more exchanges will likely reimburse hacks to remain competitive. Despite this, Coincheck still faces potential federal punishment.
Coincheck used a currency storage system known as a “hot wallet” instead of a “cold wallet.” Cold wallets are not connected to the internet, and by extension are less susceptible to hacks. The company knowingly utilized the less safe technology, citing insufficient staff as the reason for their use.
Article By: Frank Marino-Moore