Japanese digital currency exchange Coincheck has abruptly frozen withdrawals after confirming a major security breach involving NEM cryptocurrency.
$400 Million Compromised
Coincheck confirmed on Friday that more than $400 million worth of NEM was lost after the tokens were routed “illicitly” outside the platform. The loss was originally reported at more than $700 million, possibly reflecting NEM’s fluctuating value throughout the day. Company officials said 500 million NEM tokens went missing. The incident has since been reported to Japanese authorities.
In a series of tweets, the Japanese exchange confirmed that it had halted withdrawals of NEM cryptocurrency. However, the restrictions appear to have been extended to other digital currencies as well, with the notable exception of bitcoin.
“All withdrawals from the platform are currently restricted, including JPY. Thank you for your understanding. We are doing our utmost to resume normal operations as soon as possible,” the company said on its blog.
Coincheck has yet to confirm whether it has located the funds, and no perpetrator has been identified. The broker says it is now working to secure client funds across all digital assets.
The president of the NEM Foundation Lon Wong has apparently confirmed the theft, calling it the biggest the world had ever seen.
Although cryptocurrencies are legal tender in Japan, Coincheck is not registered with the country’s Financial Service Authority, raising concerns over whether the lost funds will be insured if the tokens cannot be retrieved.
NEM, the world’s tenth largest cryptocurrency by market cap, was down by as much as 18% Friday. At press time, prices had declined more than 7%, according to CoinMarketCap.
The selloff quickly spread to other cryptocurrencies, with bitcoin and Ripple XRP also reporting declines. The total market capitalization for all coins touched a session low of $506 billion, but has since recovered to around $549 billion.
Bigger than Mt Gox
The security breach is said to be the biggest in the history of blockchain, with the dollar amount likely greater than the amount stolen from Mt Gox in 2014. However, the impact on the cryptocurrency market will be much smaller given the immense growth of the digital asset class over the past 12 months.
Digital currency exchanges are prime targets for hackers and cyber criminals given the huge growth in coin valuations. Recent evidence suggests that criminals are also targeting ICOs in their attempt to capitalize on record inflows into blockchain startups.
Meanwhile, it has been reported that the U.S. Trrasury’s undersecretary for terrorism and financial intelligence has been pressuring Asian regulators to step up their oversight of digital currencies. Many blockchain firms and ICOs have already gotten the memo, and are introducing new KYC/AML standards into their platforms.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.