Coincheck hacked in ¥58 billion cryptocurrency heist, four years after Mt. Gox

by Kazuaki Nagata

Staff Writer

Echoing the Mt. Gox fiasco nearly four years ago, Tokyo-based cryptocurrency exchange Coincheck disclosed Friday it had been hacked and lost about ¥58 billion ($532 million) worth of its holdings, sending clients into a panic about the fate of their virtual assets.

If confirmed, the heist would surpass the ¥48 billion ($390 million) lost in the collapse of bitcoin exchange Mt. Gox in February 2014 and go down as the largest cryptocurrency theft since the advent of bitcoin.

Coincheck Inc., one of Japan’s major cryptocurrency exchanges, said it discovered a significant drop in the balance of its NEM virtual currency at around 11:25 a.m. Friday after about ¥58 billion of it was illegitimately transferred.

In a blog post at 12:07 p.m., customers were notified that their NEM deposits had been suspended and that they would be updated when more information was available. But the operational halt only widened, and the startup subsequently froze all withdrawals at 4:33 p.m.

It then froze all trading in virtual currencies except bitcoin at 5:23 p.m.

“We are deeply sorry for troubling people with this issue,” Coincheck CEO Koichiro Wada said at a nearly 1½-hour news conference that lasted into Saturday morning.

Coincheck COO and cofounder Yusuke Otsuka said the firm is looking into what happened but remains unsure of how it was hacked and how many customers were affected.

Coincheck said it reported the incident to the police and the Financial Services Agency.

Whether the company will be able to recover the lost digital tokens is unclear, and how to compensate clients if it can’t is an issue under consideration, Otsuka said.

Asked whether the firm had sufficient security measures in place to protect its clients, an official said they were doing their best but admitted they might have come up short.

For instance, Coincheck’s website says that bitcoins are to be stored offline when they are not being traded. Wada said its bitcoins were indeed stored offline but that the more than 5 million NEM coins that were stolen were not.

Upon seeing the news, worried Coincheck users braved the frigid weather to gather at the company’s headquarters in Tokyo’s Shibuya district to get more information.

“I came here because I knew people were gathering and the media were also here. I thought I might be able to get some information,” said a 27-year-old man from Nerima Ward who wished to stay anonymous.

He said he started investing in virtual currencies last May and had entrusted about ¥7 million to Coincheck. He also invested about ¥2 million in NEM.

“(Coincheck) needs to tell us what is happening now,” he said before the news conference got underway.

Due to the surging interest in blockchain technology and the collapse of bitcoin exchange Mt. Gox in 2014, Japan made legal revisions in April to tighten regulations on virtual currency exchanges.

Cryptocurrency exchanges are now required to register with the government and submit annual reports, and the FSA can conduct on-site inspections and issue business improvement orders.

According to its website, on which it calls itself “the leading bitcoin and cryptocurrency exchange in Asia,” Coincheck was founded in 2012 and had 71 employees as of July last year.

Coincheck is not a registered operator but has applied to become one.