Japan to sanction Coincheck
January 29, 2018
Japan's Financial Services Agency has imposed a "business improvement order" on Coincheck, one of the country's biggest virtual currency exchanges, government spokesman Yoshihide Suga said on Monday.
"While examining the cause of the incident and taking necessary measures, we want the ministries and agencies concerned to urgently study what further measures we'd need," he told reporters.
At a briefing on Monday, the FSA said it would look into all crypto exchanges to detect security weaknesses. Japan's finance minister, Taro Aso, told parliament on Monday that the government would take "necessary administrative measures, including an on-site inspection."
Police were also going to look into the incident, the Kyodo news agency reported.
Read more: Bitcoin, cryptocurrencies - how do they work?
Read more: South Korea prepares cryptocurrency trading ban
Last Friday, $530 million (€427 million) worth of the cryptocurrency New Economy Money (NEM) – the 10th biggest worldwide - were lost when hackers managed to get hold of the virtual coins. It was more than the $480 million in bitcoin stolen from Japan's MtGox exchange in 2014.
Hot vs cold wallets
The hacker took advantage of Coincheck's lax security protocols. Customers' assets were kept in what's known as a hot wallet, which is connected to external networks.
A so-called cold wallet, however, is preferable, as they are not connected to the outside world and are thus less vulnerable to fraud.
Read more:Initial coin offerings - what are they?
Coincheck said it would use its own funds to reimburse around 90 percent of the coins lost.
Japan is a leading market for cryptocurrencies, with nearly one-third of all December transactions of the popular virtual currency bitcoin denominated in yen, according to specialist website jpbitcoin.com.
Roughly 10,000 businesses in Japan apparently already accept bitcoin as a payment method.
Virtual currencies have come under fire from traditional banks, politicians and authorities, who are all calling for more regulation and have warned investors to be careful of investing in cryptocurrencies.
In the wake of the MtGox scandal, Japan passed a law on cryptocurrencies that requires exchanges to be regulated by the FSA. It went into effect last year. Coincheck has not yet received a license, but was allowed to continue to operate.
ng/kms (Reuters, AFP)