Japanese Cryptocurrency Coincheck Faces Lawsuit over Withdrawals

Posted in: Archive
February 16, 2018 8:01 AM UTC
Author: Lewis Gray

Investors have opened legal proceedings against embattled Japanese cryptocurrency exchange Coincheck.

The Tokyo based platform was the victim of a major hack last month, with a reported loss of $530 million worth of XEM. The platform quickly closed both fiat and cryptocurrency withdrawals following the breach, in an attempt to prevent further possible loss. Whilst Yen withdrawals reopened on Tuesday, cryptocurrency withdrawals, leaving users in the lurch.

This week, seven affected investors publicly voiced their concern by filing a lawsuit at the Tokyo District Court, calling upon the exchange to reopen all withdrawals. They also demanded that Coincheck pay an annual 5 percent interest on the value of frozen funds (worth a reported $183,000 at the time) until it resumes withdrawals, Reuters reports.

The hack shook the crypto world last month and was described as “the biggest theft in the history of the world” by Lon Wong, president of NEM.io Foundation. Revelations since the event have pointed the finger at poor security measures, with the exchange both failing to use multi-signature wallets and secure cold storage. Instead, all NEM funds were stored in a single hot-wallet, an online account that presented an easy target for the hackers. Only owners of XEM were affected, and Coincheck has since promised to repay the 260,000 users in full, with further details expected shortly. According to local Bloomberg source Yuji Nakamura, the exchange will prioritize repaying users affected by the breach over reopening withdrawals for other cryptocurrencies.

The hack has drawn attention from officials in Japan, with the nation’s Financial Security Agency reportedly inspecting other exchanges this week. It’s a move that could prevent a second costly disaster, and comes as Taro Aso, Japanese Finance Minister lays out the groundwork of an approach that will:

“[A]ppropriately weigh the balance between promotion of innovation and protection of users in (supervising) cryptocurrency exchanges.”

Whilst no details have been announced regarding the identity of the Coincheck hackers, one individual has allegedly been questioned after attempting to trade a small amount of the stolen funds. After leaving the exchange, the stolen funds were split to multiple different wallets – which are all being monitored. This was possible due to a flagging system within the NEM protocol, which allows transactions to be traced in real-time, identifying wallets connected to malicious activity. According to the NEM.io foundation, this “helps make stolen XEM tokens effectively unusable.”

With the legal proceedings underway, the affected investors showed no plans to stop investing in cryptocurrency, emphasizing that the breach was caused by poor exchange security and not an inherent flaw in the technology. One plaintiff told Reuters that “I think their value will increase” and that he would “look for a safer place to invest.” Today’s lawsuit will be followed by a second on Feb. 27 , which will claim compensation for any lost value of the frozen cryptocurrencies whilst locked on the platform.

Featured image from Shutterstock.

Last modified: May 20, 2020 9:05 PM UTC

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