☠️ Coincheck Hacked 🌐 Regulatory Roundup — Cryptos for the Rest of Us

Big losses this week for the market with Bitcoin trading back to the $8,000 range!

I was in Tokyo during the Coincheck hack and predictably the media was all over the story in the following days. It was refreshing to hear mature, balanced discussions regarding cryptocurrencies. There were experts explaining the difference between hot/cold-wallets and NEM/other cryptocurrencies.

It seems like the Japanese government’s approach to cryptocurrencies is leading to a great deal of public education. This contrasts with some Western mainstream media which I’ve seen devolve into simple ‘cryptos good’ vs. ‘cryptos bad’ debates which either spread mania or fear but nothing in-between.

Coincheck $530M NEM Hack

What’s the Story?

Major Japanese cryptocurrency exchange Coincheck was hacked to the tune of $530 million USD. The hack targeted Coincheck’s client holdings of cryptocurrency NEM.

How Did this Happen?

Coincheck were holding all of the NEM in a hot-wallet — one that is always connected to the internet. They also weren’t using multi-signature wallets that require more than one password to access. The hackers got access to the password for the hot-wallet and managed to drain the account over the course of a few hours.

Coincheck, who have over 70 employees, says the lack of engineering resource was the major reason for the vulnerability. Although not excusable, it’s an understandable reason given that demand has exploded over the last two months. Adding new cryptocurrencies to an exchange is a technical challenge that doesn’t scale and hiring many good engineers with cryptocurrency backgrounds quickly is virtually impossible. In hindsight, they should have slowed their pace of growth and not added cryptocurrencies they weren’t equipped to handle securely.

Given that Coincheck require Japanese residence to hold an account the event is contained to the Japanese market.

What Now?

Coincheck has stated that they will reimburse all client accounts from their own coffers. The FSA raided Coincheck this morning to make sure they have enough to do so. There’s been no official announcement yet but it’s within reason that Coincheck would have that much on hand — American exchange Coinbase said they booked $1 billion in revenue last year.

Coincheck has until Feb 13 to detail the incident and their updated security policies.

It’s likely that regulated exchanges in the future will be required to store the majority of client funds in offline cold-wallets and implement multi-signature signoffs. Even if it’s not a requirement it’s already seen as best practice.

It’s generally not a good idea to keep too much cryptocurrency on exchanges as they are vulnerable to hacks, bugs, and bankruptcy. Diversifying exchange use is also a good way to mitigate such counterparty risk.

Regulatory Roundup

🇮🇳 India — Not legal, not banned

The Finance Minister gave his budget speech yesterday and touched on cryptocurrencies.

The government does not recognise cryptocurrency as legal tender or coin and will take all measures to eliminate the use of these cryptoassets in financing illegitimate activities or as part of the payments system

While it looks like cryptocurrencies won’t be part of the financial system, they’re not outright banning them either. In other words, the current status quo continues.

🇰🇷 Korea — Bank-linked trading begins

The new regulatory system came into effect on January 30th requiring all account holders to link their accounts to their Korean ID and bank accounts. This means only Korean citizens can trade with the Korean exchanges now and effectively passes the compliance buck to the banks to conduct KYC and AML checks. The biggest losers? Foreigners living in Korea who can’t open accounts elsewhere either due to being non-resident in their home country.

🇭🇰 Hong Kong — Educate, not regulate

Hong Kong has stated that they will not ban cryptocurrencies but instead run a media campaign to educate the public about the risks involved in cryptocurrencies. The novel approach has already seen advertisements in public transport, social media, and on television, amongst others. It’s a welcome approach for the cryptocurrency community in Hong Kong, legal home to major exchanges such as Binance and Bitfinex.

👍 Facebook — Banning all Crypto/ICO ads

Not quite a country but big enough to warrant a mention! Facebook’s new advertising policy disallows the advertising of cryptocurrency related material including ICOs. This ban extends to all Facebook products including Instagram.

There are many companies who are advertising binary options, ICOs and cryptocurrencies that are not currently operating in good faith

They acknowledge it’s a broad ban and may revisit the policy down the line. This comes just after Mark Zuckerburg recently expressed a public interest in cryptocurrencies.

Like what you read? Follow me on Medium or sign up to my mailing list!

Extra Reading

Prodeum social

Cryptocurrency startup Prodeum pulls exit scam, leaves a penis behind — thenextweb.com 
 Cryptocurrency startup Prodeum, which sought to innovate the vegetable industry with Ethereum, has pulled an exit scam, leaving only a ‘penis’ behind.


Chinese Initial Coin Offering Ban May End In 2018 — — usethebitcoin.com 
 Cryptocurrencies and Initial Coin Offerings (ICOs) have been hardly punished in China with regulations. But apparently, new regulations prepared for 2018 would end the ban over ICOs. The information has been released by China’s People’s University Law School vice president Yang Dong.

H sswvbfz9ziaaddmi3qshjaub4faeml99xel8rc3k8

U.S. Regulators Subpoena Bitfinex, Tether : CryptoCurrency — www.reddit.com 
 This is a megathread for all news related to US regulators subpoenaing Bitfinex and Tether. All related posts on the frontpage will be removed in…


One Million People Are Waiting in Line to Join Robinhood’s Crypto Trading — Bloomberg — www.bloomberg.com 
 Eager to trade Bitcoin for free on Robinhood? Take a number and get in line…a very long line.