Japanese cryptocurrency exchange Coincheck, following one of the biggest hacks in the history of cryptocurrency, has published that it will comply with an order from Japan’s Financial Services Agency, to improve its business operations.
On Friday, January 26th, 2018, Coincheck was hacked, which resulted in the loss of over USD 530 million worth of NEM (XEM) tokens.
The center of the problem was that Coincheck was keeping the currency in a “hot” cryptocurrency wallet, which means that the method of storage was connected to the internet.
By contrast, U.S.-based Coinbase keeps about 98% of its holdings offline in “cold” storage. The hack is among the largest one of cryptocurrency since the launch of bitcoin.
Coincheck has subsequently restricted deposits and withdrawals of most of the currencies pending investigation, as well as the resolution of the problems.
We sincerely accept the terms of the order, as well as the vow to re-examine our business practices while simultaneously we strive to make all facts that are involved in this case clear, discover the cause of the breach, safeguard our customers, and develop stronger and more effective measures for system risk management, as well as prevention of similar events in the future.
The exchange has also announced a reparations policy on January 28th, which will reimburse 523,000,000 XEM to 260,000 users.
The hack has caused an immediate 20% drop in the price of XEM to $0.79, but it has since then been recovering those losses and more, rising to $1.07 within 24 hours.
Just like Bitcoin, NEM is a cryptocurrency that is built on top of the blockchain technology. Unlike Bitcoin cryptocurrency, which uses Proof of Work (PoW), NEM uses Proof of Importance (PoI) in order to build consensus on the blocks, PoI uses “harvesters” in a variety of the Proof of Stake (PoS) model, as opposed to miners used for PoW methods to generate tokens and it also does not require particular computing or energy requirements to arrive at consensus.
XEM is the name of the cryptocurrency which is associated with NEM harvesting, and it is those tokens which are stolen from Coincheck.
The Vice President of the NEM Foundation, named Jeff McDonald, told the Bitcoin Magazine the following:
Coincheck contacted us immediately after the event, so we knew about the issue and we also made a plan to mark the stolen coins before the news had even be published in the media. The NEM technology is fully intact, so there is also a need to hard fork the code.
McDonald said that NEM immediately reached out to the exchanges, as well as identified ten different accounts where most of the XEM tokens went.
All of the tokens have been tagged, so anyone that is considering buying these tokens can see that they were stolen from the Coincheck exchange and should not accept them.
Had Coincheck used the NEM multi-signature wallet, this could not have happened at all. A third-party examination would have revealed the problems, but Coincheck was the only one exchange in Japan that was not FSA licensed and it illustrates the value of good governance and oversight in this space.
Now, Coincheck is expected to produce a written report, summarizing the actions that it will take to improve security, as well as customer support by Tuesday, February 13th, 2018.