The Coincheck robbery in Tokyo, Japan this past week has now taken the top spot and has the dubious honor of being the largest cryptocurrency theft to-date. In an official statement released Friday, the operators of the pilfered cryptocurrency exchange, confirmed that approximately 523 million XEM (plural of NEM) coins were stolen, valued at more than $500 million dollars.
NEM fell to $0.78 from $1.01 on Friday but recovered to $0.97 on Monday, according to TipRanks Crypto Center.
Japan became the first country to regulate cryptocurrency exchanges last spring, requiring them to register with the FSA, Japan’s Financial Services Agency. Bloomberg’s Yuji Nakamura reports that Coincheck has been operating without an exchange license since the October deadline, taking advantage of a temporary grace period.
Serious security concerns are being voiced about Coinchecks’ use of a ‘hot wallet’ to store its client’s currency as opposed to the far more secure ‘cold wallet’ option. Hot wallets are connected to the internet and external networks, exposing them to hackers while cold wallets are offline. Coincheck company President Koichiro Wada cited technical difficulties and a shortage of staff as the reason the company chose the riskier hot wallet solution. In one of the most expensive examples of a missed opportunity on record, Coincheck Exchange also failed to implement NEM’s multi-signature smart contract system. This would have added an additional layer of security to the wallet.
On Monday, Japanese authorities announced that they would begin investigating all cryptocurrency exchanges in the country for security gaps and demanded that Coincheck implement far more stringent measures to protect its customers. The FSA also requested Coincheck submit a report detailing the events that led up to the hack. They also wanted to know what measures the cryptocurrency exchange will be taking to prevent a similar event from taking place in the future.
Nicholas Colas, co-founder of DataTrek Research spoke to CNBC’s “Squawk Box” on Monday about the hack saying, “I think [the attack] does highlight the fact that the industry still has a long way to go in terms of basic issues of security.”
While the Coincheck crypto-caper is the largest in history in terms of how much loot was lifted, it’s certainly not the first; in fact, it’s not even the first in Tokyo. Mt. Gox with its $450 million dollars’ worth of lost bitcoin wears that crown. In more recent robbery rankings, the DAO (distributed autonomous organization) hacker in June of 2016 walked away with a paltry $55 million in comparison.
In the near term, it’s likely that this latest loss will make an already volatile cryptocurrency market appear even more risky to potential investors. Genki Oda, President of BitPoint Japan agrees, “I have to admit that all cryptocurrencies will now be tainted in their minds, so there may be a mid-term negative impact.” However, in the long term these crimes will likely spur on further technical and security innovations that will aid in realizing the promise of a totally safe and truly trustworthy cryptocurrency market.