The hacking of Japanese crypto exchange Coincheck in January was one of the largest security breaches in the history of the industry. A total of 523 million NEM coins were stolen, with a market value of a cool $534 million. The subsequent investigation identified clear security failings on the part of the exchange, leaving Japanese authorities with little choice but to intervene. It’s been a challenging few months, but this week Japan’s regulators have reaffirmed their commitment to support the nascent crypto sector.
The President of the NEM Foundation Lon Wong described the Coincheck hacking as “the biggest theft in the history of the world.” Hyperbole perhaps, but the incident trumped the infamous Mt Gox hack by around $50 million – not chump change by anyone’s standards. It soon emerged that the funds were being stored on a hot wallet, not the far more secure multi-sig wallet generally preferred by crypto exchanges.
Japan’s Financial Services Authority (FSA) acted swiftly and decisively after the Coincheck incident. They performed full inspections at Coincheck and fourteen other exchanges, forcing nearly half to upgrade their security and operating systems. Since then there have been moves to improve registration processes, improve human resources at exchanges and develop security controls to mitigate the risk of price manipulation and money laundering. The FSA have also suggested they will transition crypto regulation from the Payment Services Act to the more stringent Financial Instruments and Exchange Act (FIEA), improving consumer protection whilst requiring that crypto platforms meet higher standards.
All told, Japan’s authorities have taken a strong-hand approach to the industry, and some observers have questioned whether this signals the end of the country’s support of crypto. So these latest comments will help to reassure traders and investors that regulators will not seek to control the development of crypto. The Commissioner of Toshihide Endo commented that the agency has “no intention to curb” the crypto sector.
