Tokyo based Coincheck hacked! One of the biggest crypto exchanges of Japan, Coincehck was hacked for a record haul. Exchange confirmed that around 523 million NEM coins were lost after the coins were sent illicitly outside the venue.
As per reports, this appears to be biggest hack in the history of the technology causing a loss of around $534 million. This is a big jolt to the investors who are still recovering from collapse of Mt. Gox four years ago.
After hours of speculation, Coincheck co-founder ‘Yusuf Otsuka’ in a press conference at Tokyo stock exchange revealed that it has identified a breach and therefore had halted all withdrawals, halted trading in all tokens except Bitcoin & stopped deposits into NEM coins from the site to contain the damage.
Coincheck executives admitted that they had kept vast majority of their funds in “hot wallets”, which become vulnerable when hackers breach company servers. To make matter worse, Coincheck did not implement NEM’s multi-signature smart contract system, which would have added an additional layer of security to the wallet. As per other reports, hackers were able to get their hands on the private key of the wallet where NEM coins were stored. Hackers then drained the money from the wallet through many unauthorized transactions.
NEM, the 10th largest crypto by market value fell by around 11% after the news of hack went viral. Subsequently, Bitcoin too felt the heat and fell by 2% followed by Ripple which had a dip of 8.4%.
However, after initial loss, Markets took less than a day to bounce back post the revelation of hack. The breach was later reported to Japan’s Financial Services Agency and Police.
Japan’s Financial Services Agency (FSA) said in its statement that, “We are looking into the facts surrounding Coincheck.” FSA has also revealed that Coincheck has not yet received the exchange license. The deadline was October but FSA extended a grace period to the company.
Paul Rieger, a member of the NEM Europe team, which developed the XEM token, told media houses that his organization was tagging the stolen XEM and sharing the addresses with exchanges. This will help exchanges in determining whether the account has stolen funds. But there is a possibility that not every account tagged will contain stolen XEM or every stolen token would be tagged.
Also, Coincheck has claimed that they are aware of the address where the stolen NEM coins are currently stored. During the press conference, Coincheck said that they are looking for options to compensate the customers for the stolen cryptos. However, it is not clear whether customers would be fully reimbursed.
Post the hack there was a speculation that NEM would activate a hard fork to recover the funds from the hacker, as Ethereum did following the DAO theft in 2016. However, ‘Long Wong’, President of the NEM foundation has said that he opposes a fork.
Though this massive theft may be similar to Mt Gox hack in 2014, it will not have major effect on the markets. If we compare both the hacks, hackers were able to steal $80 million more in the current theft as compared to Mt. Gox. However, in last 4 years digital coin market dynamics have changed significantly. In 2014, Mt Gox represented 5% of all the crypto assets in contrast Coincheck theft represents less than 0.25% of markets.