Virtual currency exchange coincheck loses 58 billion yen due to hacking

January 27, 2018

Tokyo- Some 58 billion yen's worth of cryptocurrency NEM has leaked out of major Japanese virtual currency exchange Coincheck due to hacking, the exchange's operator said Friday.

The operator, Coincheck Inc., did not disclose the numbers of affected customers and accounts, saying that it is now investigating the matters. The exchange suspended deposit withdrawals by customers for all virtual currencies it handles, including NEM and bitcoin.

The problem at Coincheck is the biggest ever involving any cryptocurrency in terms of the amount of money affected, eclipsing the 2014 case in which bitcoin exchange Mt. Gox lost some 47 billion yen.

At a press conference in Tokyo late Friday night, Koichiro Wada, president of the operator, offered an apology and showed an intention to speed up work to find the lost customer assets and determine the cause of the incident.

He said that the operator is considering compensating affected customers. Asked about a possible problem in the exchange's security system, Wada said, "We've done all we can to protect our customers."

The operator reported the incident to Tokyo's Metropolitan Police Department and the Financial Services Agency on Friday. No illegal remittances related to virtual currencies other than NEM have occurred, the firm said.

The operator said that unauthorized accesses to the exchange's system began around 3 a.m.Friday (6 p.m. Thursday GMT).

Around 11:30 a.m., the exchange confirmed a substantial decrease in the balance of NEM in customer accounts and subsequently suspended deposits related to NEM and trading in the cryptocurrency. Later, trading in other virtual currencies it handles, excluding bitcoin, was suspended as well.

The exchange currently has no idea when it can resume trading.

Coincheck was set up in August 2012 and launched its services in August 2014. It has recently made a television commercial featuring a famous Japanese comedian.

Following the growing use of virtual currencies, the revised fund settlement law went into force in Japan in April 2017 to introduce a registration system for cryptocurrency exchange operators.

The latest incident occurred as the Coincheck operator was waiting to be registered after submitting its application to authorities.

NEM, first issued in March 2015, is traded on three domestic exchanges including Coincheck, according to the Japan Cryptocurrency Business Association. Its total value stood at 232 billion yen at the end of August last year, about 3 pct of the figure for bitcoin.

Trying to obtain information about the incident, Coincheck customers gathered in front of the exchange operator's head office in Tokyo's Shibuya Ward on Friday evening. A man in his 20s said: "I feel anxious as trading suddenly stopped. I want to withdraw my funds early."

Coincheck had failed to introduce recommended security technology, it was learned on Saturday.

The exchange operator, Coincheck Inc., revealed Friday some 58 billion yen's worth of cryptocurrency NEM has been stolen from the major Japanese virtual currency exchange.

In 2016, an international body promoting NEM recommended that the highly secure "multisig" technology be adopted for the protection of trading in the cryptocurrency.

Coincheck director Yusuke Otsuka admitted that the company was aware of the recommendation. But he said, "We had something else to prioritize."

Furthermore, customer accounts on Coincheck appear to have been poorly managed.

Many virtual currency exchange operators manage customer accounts, or "wallets," in computers that are not connected to the Internet, in order to prevent hacking.

However, Coincheck has left customer accounts always exposed to the Internet.

The offline management of customer accounts is "technologically difficult," Coincheck President Koichiro Wada told a press conference on Friday night. "We lacked staff who can manage it," he said. Jiji Press