Coincheck, one the largest digital currency exchanges in Japan, announced a temporary restriction preventing all users from withdrawing or depositing any currency other than Bitcoin. Unable to even withdraw yen from their account, investors experienced a sense of panic that echoed throughout the market.

As Coinsquare Discover previously reported, several major digital currencies including Bitcoin, Ripple, and NEM, experienced price dips on January 26, 2018, amidst news that Coincheck halted digital currency withdrawals.

Now, it would appear that the source of Coincheck’s drastic action was a breach involving the theft of millions of dollars worth of digital currency.

Millions stolen in NEM

Reports state that the sum supposedly stolen from Coincheck amount to a total of 500 million NEM. NEM, currently the 10th digital currency in terms of market cap, was valued at around $1~ USD per coin at the time of the attack.

NEM’s value relative to the amount stolen places the amount lost by investors in a range of approximately $500 million USD (over $600 million CAD). This would mean that the amount lost as a result of the Coincheck breach surpasses that lost in the Mt Gox scandal, which involved over $450 million USD (over $550 million CAD) worth of Bitcoin being stolen from the Japanese exchange in 2014.

While the Mt Gox incident was seen as catastrophic at the time, the overall market cap of digital currencies in 2018 is far greater than it was back in 2014. With a market cap now over $500 billion USD, this loss is not as devastating for the market as it would have been a few years ago.

However, these events are still devastating for individuals that lost their holdings. While the company allegedly states an intent to refund investors, it is currently unclear how they intend to do so.

It is also likely that the effects of this breach will have an impact on the global discourse regarding the safety of digital currencies. It is currently believed that Coincheck was not registered with Japan’s Financial Services Agency, meaning investors were not insured by the Japanese government.

Ripple safe, cause of breach unclear

Costin Raiu of Kaspersky Lab tweeted that an unknown address received 110 million USD worth of Ripple from the exchange. However, Coincheck assured investors that only NEM was breached. According to Warren Paul Anderson of Ripple, the amount sent to the exchange was not compromised but rather relocated by Coincheck as a preemptive measure.

Currently, the source of the breach is unconfirmed. Cointelegraph reports that Coincheck did not make use of a multisig wallet to store their NEM. While other currencies were stored on a multisig, a much safer security measure taken to protect wallets, the same can not be said for NEM.

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Update: Bloomberg reporter Yuji Nakamura tweeted breaking news that Coincheck intends to compensate all losses to its NEM holders at a rate of 88.549 JPY (Approx 0.81 USD) from its own capital. The date for reimbursement has not yet been confirmed. NEM was valued at approximately $1 USD at the time of the breach. 

 

Image credit: Coincheck

 

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