Failure in Bitcoin Managing

Financial Services Agency is going to issue a business improvement order to Coincheck, a Bitcoin wallet and exchange service in Tokyo, which ¥58 billion worth of cryptocurrency was stolen by hacker last week. Concerning insufficient security that caused a great loss of customers’ asset, FSA requires measures for preventing recurrence and fundamental system reinforcement, indicating possible activation of business suspension order.

It was last Friday when Coincheck reported possible false outflow of NEM coins to FSA. Coincheck temporary suspended withdrawal of all kinds of coin and started investigation. After the suspension, the price of NEM dropped by 20% in only five hours. Worried about bankruptcy, the customers gathered in front of the building of Coincheck in Tokyo Friday evening, demanding detailed information.

Coincheck has been managing NEM coins in hot wallet, which was vulnerable to hacking, because it was connected to internet. If it had been kept in cold wallet separated from internet, false access of hacker must have been blocked. “We could not deal with it because of technological difficulty and scarcity of manpower,” told President of Coincheck Koichiro Wada. Coincheck is going to refund the stolen coin owned by 260 thousand of customers.

Coincheck did not establish another important security system called multi-sig. While Bitcoin wallet has private key for maintaining security, there still remains a possibility of being broken by hackers. So, cryptocurrency exchanges have introduced a security system called multi-sig, which would manage private keys separately. But, Coincheck did not apply that system.

Payment Services Act revised in 2017 introduced license system for criptocurrency exchanges, demanding them separated control of customers’ asset from coins owned by the exchange. FSA started investigation of Coincheck on how it had been dealing with the coins or the hacking had been taken place. The agency recognizes that impact of the incident would not small for the customers.

Enthusiasm on Bitcoin has abruptly been spreading to individual investors in Japan. They frequently exchange the information of Bitcoin in some cafes in Shibuya or other places in Tokyo, talking about their financial achievement without hard labor. Current volatility of Bitcoin can cause uneasiness or distrust on cryptocurrency. Two major business groups for cryptocurrency in Japan are considering voluntary regulation to cool their enthusiasm down.