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When Coincheck was hacked for a record of $ 530 million (at the time) in January of this year, in the middle of the end of 2017 and at the beginning of 2018 the ICO frenzy.
The sum was surprising and even surpassed the infamous Mount. Gox hack of 2014, where over 850,000 BTC – $ 460 million and 6% of the total BTC in circulation at the time – were stolen from the main Bitcoin platform. It is important to note that in today's prices, the Monte. The value of Gox is worth about $ 3 billion in stolen BTC, but it is still considerably larger through a contemporary prism.
To really put into perspective how massive these losses are, both Coincheck and Mt. Gox rank among the greatest hits of all time, cryptocurrency or not.
While Mount Gox has just filed bankruptcy following the hack, Coincheck has remained surprisingly in business and has even been recently approved as a license grant from Japan's Financial Services (FSA). Both Gox and Coincheck, were and are, based in Japan, and the necessary registration and regulation of trade by the Japanese FSA were inspired by the Mount. Gox hack.
Brief history of Coincheck
Coincheck was founded in 2014 in Japan and was one of the most popular cryptocurrency exchanges in the country. Offering a wide range of digital resources including Bitcoin, Ether, LISK and NEM, Coincheck has been an emerging stock exchange that has joined the Japan Blockchain Association.
Since it was founded in 2014, Coincheck has not been subject to the new registration requirements for trade with the Japanese FSA, which launched a post-Monte facility. Gox -, and in the end it was a factor that contributed to its poor security standards that led to the hack.
Coincheck was led by President Wakata Koichi Yoshihiro and Chief Operating Office Yusuke Otsuka in the period before the hack.
The Coincheck Hack
On January 26, 2018, Coincheck published details that were limiting NEM deposits and withdrawals, along with most other methods of buying or selling cryptocurrencies on the platform. The speculation arose that the exchange had been hacked and the NEM developers issued a statement saying they were not aware of technical problems in the NEM protocol and that any problem was the result of the security of the exchange.
The Coincheck Post blog announcing the suspension of NEM coin services
In addition, NEM developers reiterated that exchanges use their Smart Signing Multisig Contract app to provide an additional level of security that requires multiple exchange managers to sign large transactions.
Coincheck later held a high-profile conference in which he confirmed that the hackers had escaped with 500 million NEM tokens that were then distributed to 19 different addresses on the network. With a total of about $ 530 million at the time, NEM was around $ 1, so Coincheck's etching was considered the biggest steal in the history of the industry.
Coincheck was forced to disclose some embarrassing details about the security of the exchange, mentioning how they stored all of the NEM in a single hot portfolio and did not use the security of the multisig NEM contract recommended by the developers.
Coincheck CEO and President Koichiro Wada and COO Yusuke Otsuka at the Coincheck press conference
The use of large sums with hot wallets is notoriously a bad practice of security. Most exchanges today use a hybrid hot / cold portfolio system, with most of the value stored in cold wallets and protected by multisig.
The fact that Coincheck was not officially registered with the Japanese FSA also emerged following the hack. During their conference, Coincheck's representatives showed deep remorse for the loss and pledged to register with the FSA following the incident. The following day, Coincheck announced that it would reimburse all 260,000 users affected by the hack and received explicit support from its community for choosing it.
At the same time, the NEM developer team tagged all the stolen NEMs in the hack with a message that identified the funds as stolen so other exchanges would not accept them. However, NEM announced that they were ending the stolen NEM hunt for unspecified reasons several months later, and speculation persisted that hackers were close to cash stolen funds on the dark web.
Later
Trade in Japan formed a self-regulatory cryptocurrency initiative following the accident and the Japanese FSA issued numerous corporate improvement orders to Coincheck.
The mainstream media largely covered hacking and compared it with similar failures in cryptocurrency trading in the past to meet adequate security standards. At the time, most of the media coverage of cryptocurrencies was focused on their dark nature, their dramatic volatility and lack of security. The Coincheck hack fueled this narrative considerably while the stolen sum was astounding and the cryptocurrency used – NEM – was unknown to most in the mainstream.
NEM quickly devalued as a result of the hack and the price declined even further in 2018, in line with the extended bear market in the broader sector. Currently, NEM is trading at around $ 0.07, a crash from ATH over $ 1.60 at the beginning of January.
The Monex Group acquired Coincheck in April 2018, which then revised the cryptocurrencies that Coincheck would have offered once re-launched and managed the reimbursement of users affected by the hack. The Japanese FSA has since increased its assessment of the cryptocurrency trade in the country, but it remains surprising that Coincheck has managed to get a license and move on after such a disaster.
Coincheck resumed NEM trading in mid-November and joined the Japan Network Security Association. The exchange is now open to new registrations.
Compare with Mount Gox Hack
The extension of the Coincheck hack was matched only by a few other hacks, in particular the Monte. Gox hack. While nominally Coincheck is the biggest hack in the history of the industry, the effects of Mt. Goxes have had a far more significant impact since the stolen funds consisted only of Bitcoin and caused continuous market correction, as well as an ongoing dispute with the stolen funds and the founder. In addition, Mount Gox wasted 6 percent of the total Bitcoin circulation at that time in a market that was much less mature than today.
Read: The history of Mount Gox Hack: the biggest Bitcoin robbery
The current value of the Monte. Gox hack – at $ 3 billion – far exceeds the value of about 36.5 million dollars of Coincheck now with a considerable margin.
The accumulation of cryptocurrency exchange hack over the course of 2018 has been quite extraordinary. Ciphertrace's Q3 AML report highlights how hackers stole $ 927 million in the first three quarters of 2018. In addition, the report reveals some intriguing insights into the ease with which hackers can liquidate stolen funds through unregulated crypto-cryptographic exchanges.
According to the report, 97% of Bitcoin criminals were trading in non-regulated countries with weak AML laws. While the report only analyzed Bitcoin, the uncertainty about where the NEM stolen from Coincheck went can be illuminated by the trend in the recycling of stolen crypts through small unregulated exchanges at discounted prices in Bitcoin or more cryptocurrencies focused on 39, anonymity as Monero and ZCash.
The South Korean National Intelligence Agency said that North Korean hackers may have been behind the Coincheck robbery, but there is no way to confirm whether North Korea was directly responsible.
Lessons learned
Despite the relapses, Coincheck is now fully operational and registered with the Japanese FSA. It is hoped that the lessons learned in 2018 will serve as a fundamental improvement in security practices between exchanges in 2019.
Regardless of the trend of centralized cryptocurrent exchanges, it is always good practice to keep control of your private keys and never trust third parties with their value. As Nick Szabo has accurately prognosticated:
"Trusted third parties are security holes."
As decentralized exchanges and P2P markets continue to develop, users can only hope that reliable third parties are no longer necessary components of the future digital resource exchange landscape.
