Japan-based cryptocurrency exchange Coincheck has promised its users a 46 billion yen (£299 million GBP) refund after more than 56 billion yen worth of NEM coins were stolen in a hacking attack on the exchange earlier this month.
Coincheck is one of Japan’s largest digital currency exchanges, with more than 260,000 traders and currency owners believed to be affected by the security break-in.
The attack occurred early on Friday morning, with hackers breaking into Coincheck’s systems at approximately 02:57 Japan Standard Time. Coincheck staff discovered the loss eight hours later and alerted Japan’s Financial Services Agency and local police to the security breach.
Following the attack, the Tokyo-based exchange suspended digital currency trading. The breach was discovered last Friday, with the company freezing withdrawals and deposits of currencies in the wake of the attack.
The affected currency, NEM, dropped in value by approximately 11% as news of the security breach reached news websites.
Digital currency enthusiasts have criticized the exchange for keeping its assets in a “hot wallet” — a digital wallet that’s connected to the internet. Digital currencies are usually stored in a “cold wallet” to reduce hacking risks.
Japan has emerged as a major location for digital currency trading and usage, with more than 10,000 Japan-based businesses accepting cryptocurrencies such as Bitcoin, Ethereum and a range of others.
NEM, the digital currency affected in the attack, can reportedly be traced, potentially allowing users of the exchange to identify the location of their funds. The digital currency news website CoinTelegraph reported that NEM is creating a tagging system to identify the stolen funds.
A NEM spokesperson stated that NEM is “creating an automated tagging system that will be ready in 24-48 hours.” The digital tagging system is designed to “follow the money and tag any account that receives tainted money” in an effort to assist affected NEM currency holders.
Cryptocurrency enthusiasts believe that the tagging technology will limit the withdrawal and usage of the hackers, preventing them from doing anything but holding onto the stolen NEM tokens in order to prevent the funds from being traced.
Coincheck isn’t the only digital currency exchange to have been targeted by hackers. In late 2016, popular bitcoin exchange platform Bitfinex was hacked, with hackers stealing 120,000 bitcoins, at the time valued at $72 million.
In late 2017, North Korean hackers reportedly infiltrated a cryptocurrency exchange in South Korea, stealing at least £5.25 million worth of digital currencies. Later increases in the price of several cryptocurrencies caused the price of lost currencies to balloon to $82.7 million.
The Coincheck attack, which resulted in the loss of 56 billion yen worth of the currency, was even greater in scale than the infamous 2014 $400 million theft from Tokyo-based exchange MtGox.
Digital currencies such as bitcoin have become a popular target for hackers, as transactions made using the currencies are irreversible. As payments can only be refunded by the person receiving the funds, victims have no recourse in the event that their digital currency is stolen.