$500m Crypto Heist Puts Bitcoin, Digital Currency Security Issues In Spotlight Again

$500m Crypto Heist Puts Bitcoin, Digital Currency Security Issues In Spotlight Again

Bitcoin, and the crypto-economy that it presides over as the king of the digital currencies, is enduring a tough January.

The price of bitcoin, and the thousands of other “alt” currencies that contribute to the crypto-economy’s current $550+ billion valuation, has been as stable as the self-proclaimed “genius” of Donald Trump since the turn of the year, bucking its trend of extreme volatility, and confusing the supposedly hundreds of millions of people who have signed up to crypto exchanges in the hope of making a quick profit from another of its outrageous spikes in price.

Instead, new investors have had to endure not only a placid and becalmed market, but also the constant threat of digital currencies and exchanges being outlawed, by countries such as South Korea and China, where so many of the currencies are mined, or heavily criticised in highly public places by leading political figures, such as Theresa May, for one.

Events took another turn for the worse on Friday morning at 2.57am, when hackers succeeded in infiltrating the digital wallet of a Japanese cryptocurrency exchange, Coincheck, and made off with almost $500 million’s worth of digital tokens – making this one of the largest financial thefts in history.

The heist has placed a firecracker under Japanese regulators, as Coincheck had still been waiting for license to trade from Japan’s Financial Services Agency, and was, in fact 4 months past its deadline to receive such a license.

Japan is actually one of the few countries to have attempted to regulate bitcoin and digital currency exchanges, but authorities will be left red-faced again, after news emerged that the exchange “lacked basic security protocols”, according to Bloomberg, despite the fact that it was using television advertising to attract new customers.

Customer funds, it has emerged, were being kept in a doubtfully named “hot wallet”, connected to external networks, plus Coincheck did not have any multi-signature security in place; where more than one sign off is required before funds can be moved. Coincheck defended its position by blaming “the difficulty of the technology and a lack of staff able to carry out the task”, at a hastily convened press conference. Not exactly a confidence booster.

The Coincheck theft will likely go down as the largest crypto-currency related theft ever, larger even than the 2014 Mt. Gox heist, which also occurred in Japan – in Tokyo.

Bitfinex lost $65 million to hackers back in 2016, and famously tried to reimburse its clients, with some success and Coincheck’s senior management have promised to attempt to do the same thing, using its own capital, the exchange has said. They plan to return around $426 million, according to CNN, at a roughly 20% discount to the trade price at the time of the theft.

The digital currency stolen is tied to the NEM blockchain project, and was trading at 94 cents when the hack – which was not discovered for eight hours, occurred. Around 260,000 investors are affected, it is thought.

Although the Coincheck heist deals another blow to the reputation of crypto, which had enjoyed such a stellar year in 2017 that it seemed investors were prepared to forgive past indiscretions, it should be remembered that financial crime occurs every day in the world of fiat currencies too.

2018 is often talked about as the year that everyone, from the hedge fund manager to the plumber and the hairdresser, started buying bitcoin. To fulfil that prophecy, crypto will have to start reversing the trend for negagtive newsflow, and dwindling prices.

Don’t be surprised if it does just that. Don’t be surprised if it doesn’t.

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