Coincheck resumed operations and refunded $430 million to its hacked users in mid-March. Regulators also began cracking down on scam and illegal foreign ICOs selling to the Japanese public, including out chasing out Macau-based Blockchain Lab in February and reportedly Binance in March, which the CEO refutes. (Photo Illustration by Chesnot/Getty Images) In this photo illustration, Bitcoin course's graph is seen on the Coincheck cryptocurrency exchange. One reason Coincheck was the target of a hack, Higashi notes, is that its wide offerings of non-mainstream altcoins, each with their respective characteristics and specifications, bring security risks of their own as it’s difficult to secure every framework. They ensured that exchanges were managing customers’ funds with basic security measures, criticizing a handful of exchanges including Coincheck for poor internal controls. “But due to the Coincheck hacking, the FSA turned the strategy from growth to monitoring.”Īfter the hack, the FSA were focused on two things: investigating exchanges to prevent another hack and cracking down on scams and illegal ICOs.
The Japanese government had wanted to promote fast growth of the cryptocurrency business, becoming first movers in regulation, says Katsuya Konno, chief financial officer of Japanese exchange operator Quoine. More on Forbes: How The $500 Million Coincheck Hack Exposes Deeper Security Flaws In Corporate Japan Only then were regulators forced to face the music, as the issue became highly publicized in local and foreign media. 26, the Coincheck hack: The exchange’s users lost $530 million worth of NEM tokens in the second largest crypto heist in Japan after Mt.Gox in 2014.
“It’s not that Japan is an ICO haven, but there is no enforcement, and we will see massive issues in the future," Higashi says. But that’s mostly because they were toeing a gray line, Higashi says. Japanese regulators appeared either positive or neutral about cryptocurrency, giving the country a default reputation as a haven compared to hardline countries like China.
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Coincheck, which marketed itself as being user-friendly and convenient for impatient beginners, had been managing users’ funds on a hot wallet -an online crypto account that transfers funds faster-rather than a more secure cold wallet, which is stored offline like a vault and much harder to hack. On top of that, he adds, exchanges have prioritized convenience over security to win over users.
In February, seven plaintiffs-two companies and five individuals-filed a lawsuit against Coincheck seeking the reimbursement of 19.53 million yen in lost virtual currency and further compensation for interest lost due to the hack.Īs many as 10,000 businesses in Japan are thought to accept Bitcoin, and bitFlyer-the country’s main bitcoin exchange-saw its user base grow beyond one million in November.More on Forbes: Japan's Financial Regulator Is Pushing Crypto Exchanges To Drop 'Altcoins' Favored By Criminals
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The firm had failed to upgrade its systems to keep up with the rapid expansion of the cryptocurrency market, he said. The 2014 hack prompted Japan to issue new regulations, requiring exchanges to obtain a government licence, but Coincheck was allowed to continue operating while the Financial Services Agency was reviewing its application.Īuthorities raided Coincheck’s office last month and have slapped the company with sanctions.Ĭoincheck chief operating officer Yusuke Otsuka said last week that the company’s system was breached after several staff members opened emails containing malware.
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