Whether it's a bubble or a transformation of the industry, nothing has possibly ever attracted as much attention as cryptocurrency has in the past few months. This attention has increasingly started to result in unsavory activities, including criminal hacks, heists, and much more. Coincheck is the latest of the cryptocurrency exchanges, having suffered one of the biggest hits in history as the company lost over $500 million in what some are calling a historic hack. Reports from Japan suggest that the country's Financial Services Agency raided Coincheck offices earlier on Friday hauling out documents and computers as evidence.
This the first time that the FSA has raided a cryptocurrency exchange. The agency said that this first of its kind swoop was to monitor Coincheck’s response to the hack in real time. The exchange was ordered to set up a risk management system and report to the authorities by February 13. "The investigation is being conducted to protect the current users," Finance Minister Taro Aso said. "We have launched an on-site inspection to ensure preservation of clients' assets."
The FSA will look into the company's finances, its ability to pay back to over 260,000 victims, to see how the hack took place, and if there were proper security measures in place. The company had promised to reimburse all customers who lost their coins at a rate of 88.549 yen per NEM. The refund amount has been fixed at 46.3 billion yen ($422 million, around 90% of the original loss).
The Singapore-based NEM Foundation behind the coin said that it is monitoring the stolen funds. "None of the stolen funds have been sent to any exchanges," the firm said. "As long as those funds are off public exchanges they will be very difficult to liquidate, especially in large amounts."
Cryptocurrency troubles - regulation coming?
While policymakers around the world are struggling to regulate cryptocurrency, Japan probably takes the most heat. Following restrictions in China and South Korea, the country saw a rise in cryptocurrency trading. The Coincheck raid by the FSA investigators is one of the first steps taken by the country to regulate the as-yet highly unregulated industry.
Following the notorious Mt Gox hack in 2014, the country started to pass regulations that would control exchanges. Japan also started to require cryptocurrency exchange operators to register with the government early in 2017. However, since Coincheck was already operating before these rules were passed, it wasn't yet registered with the government. The company did submit an application to the FSA for a license and was awaiting a decision.
This is potentially also the reason why FSA raided Coincheck's offices because the agency allowed an exchange to continue operating without license and is facing criticism in the country.
Since the hack, several other currencies, including Bitcoin, Ethereum and Litecoin have suffered losses after some massive peaks in the past few months. The dips, however, started before the Coincheck theft. "It’s been long said that cryptocurrencies are a solid system but cryptocurrency exchanges are not," Makoto Sakuma, research fellow at NLI Research Institute, told Reuters.
"This incident showed that the problem has not been solved at all. If Coincheck screws up its crisis management, that could deal a blow to the current cryptocurrency fever."