Japan cryptocurrency exchange to refund stolen $400m

Published On: January 28, 2018 02:56 PM NPT By: Agencies

A Japan-based cryptocurrency exchange will refund about $400m to customers stolen by hackers two days ago in one of the biggest thefts of digital funds. 

Coincheck said it would use its own funds to reimburse about 46.3bn yen to all 260,000 customers who lost their holdings of NEM, the world’s 10th biggest cryptocurrency by market capitalisation.

On Friday, the company detected an “unauthorised access” of the exchange and later suspended trading for all cryptocurrencies apart from bitcoin.

Coincheck said its NEM coins were stored in a “hot wallet” instead of the more secure “cold wallet” outside the internet because of technical difficulties and a shortage of staff capable of dealing with them.

The resulting 58bn yen ($530m) loss exceeded the value of bitcoins thatdisappeared from MtGox in 2014.

The major Tokyo-based bitcoin exchange collapsed after admitting that 850,000 coins – worth around $480m at the time – had disappeared from its vaults.

The high-profile demise of MtGox failed to douse the enthusiasm for virtual currencies in Japan, which became the first country in the world to proclaim it as legal tender in April last year.

Nearly a third of global bitcoin transactions last month were denominated in yen, according to the specialist website jpbitcoin.com.

As many as 10,000 businesses in Japan are thought to accept bitcoin and bitFlyer, the country’s main bitcoin exchange, saw its user base pass the 1 million mark in November.

Many Japanese, especially younger investors, have been seduced by the idea of strong profits as the economy has seen years of ultra-low interest rates offering little in the way of traditional returns.

Major Japanese newspapers on Sunday labelled the management of virtual currencies at Coincheck as “sloppy” and said the company had “expanded business by putting safety second”.

Local media added that the Financial Services Agency was expected to take action against Coincheck, which calls itself “the leading bitcoin and cryptocurrency exchange in Asia”, following the theft.

Japan started to require cryptocurrency exchange operators to register with the government last April.

Pre-existing operators such as Coincheck have been allowed to continue offering services while awaiting approval. Coincheck’s application, submitted in September, is still pending.

Politicians meeting last week at the World Economic Forum in Davos issued new warnings about the dangers of cryptocurrencies, with the US Treasury secretary, Steven Mnuchin, relating Washington’s concern about the money being used for illegal activity.

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