The recent theft of roughly ¥58 billion worth of cryptocurrency holdings from a Tokyo-based virtual currency exchange — the largest-ever heist of its kind — makes the case for more steps to tighten oversight of such exchanges, including stricter security requirements, for the protection of investors. At the same time, care should be taken so that excessive regulations will not result in stifling the potential of cryptocurrencies to enhance the convenience in financial services.
The disclosure last weekend by Coincheck Inc., one of the nation's largest cryptocurrency exchanges, that a hack had illegitimately transferred ¥58 billion worth of its NEM virtual currency — all client assets — sheds light on the problems in the security of such exchanges. The amount stolen eclipsed the ¥48 billion that bitcoin exchange Mt. Gox lost in February 2014. Just three days after the theft was reported, the Financial Services Agency issued a business improvement order for Coincheck. Executives of Coincheck say the firm will use its own capital to reimburse ¥46.3 billion — reflecting the decline in NEM's unit value since the hack was reported — to all 260,000 customers who lost their money. However, the company has not specified any timeline or procedures for the reimbursement.
A cryptocurrency is a piece of electronic data bearing financial value and traded on the internet. Unlike legal tenders like the yen and the dollar, there are no public authorities like the government or the central bank that control cryptocurrencies. Their transactions are managed and recorded in a decentralized system using blockchain technology.