Chronology of an Exchange Hack

6.7 billion yen ($60 million) in cryptocurrency has been stolen from Japanese digital exchange “Zaif”

Osaka-based cryptocurrency exchange “Zaif”, operated by Tech Bureau ( テックビューロ株式会社) was among the “Japan Crypto Sixteen”, those exchanges that are operating with a full license issued by financial regulator Financial Services Agency (FSA). On September 14, the Zaif exchange was hacked in a window of over two hours, and cryptocurrencies were stolen from its hot wallet. Tech Bureau detected server problems on September 17, confirmed the hack and sounded the alarm to authorities the following day. However, the exchange has had issues before.

Tech Bureau was established in 2014, and Zaif was approved with the first batch of cryptocurrency exchanges in September 2017. After February 2018, the time of the Coincheck incident, the FSA conducted on-site inspections twice, each time followed by the issuance of a business improvement order.
First, in March 2018, improvements in system risk and customer response were required, then in June 2018 the FSA demanded improvements of governance, compliance with laws and regulations, and protection of users, among others.

Chronology of events

The following chronology of events has been reported by the secretariat to the FSA’s sixth virtual currency study group, held on October 3:

• On Friday, September 14th, Zaif was hacked and virtual currency amounting to approximately JPY 7bn (of which JPY 4.5bn were customer funds) were stolen
• On Monday, September 17, the illegal outflow of virtual currency was noticed, and a halt imposed on deposits and withdrawals of three kinds of cryptocurrencies
• On Tuesday, September 18, a halt on deposits and withdrawals of another 8 types of virtual currencies was imposed (these had not been hacked)
• On Thursday, September 20, Tech Bureau accepted a JPY 5bn (USD 45m) offer of investment from Tokyo-based company Fisco (a JASDAQ-listed company also holding a virtual currency exchange license), for a majority stake in Tech Bureau
• On Friday, September 28, a temporary suspension of new account openings was imposed

FSA reponse

• On Tuesday, September 18, after the incident was reported to the FSA, a reporting order was issued on the same day
• On Thursday, September 20, the FSA started an on-site inspection
• On Tuesday, September 25, the FSA issued their third business improvement order
• On Thursday, September 27, Tech Bureau submitted their business improvement plan, which included steps to
  (1) Determine facts and root causes (including clear allocation of responsibility), formulation and implementation of measures to prevent future hacks
  (2) Prevent further of customer impact
  (3) Respond to customer losses
  (4) Review and implement concrete and effective improvement plans related to the previous two business improvement order

If you found value in this article, please “clap” (up to 50 times).

This article is part of our Tokyo FinTech Publication, please follow us to read more from our writers, like hundreds of readers do every day. Should you live in Tokyo, or just pass through, please also join our Tokyo FinTech Meetup.