By CCN.com: Zaif, a Japanese crypto exchange that was hacked in September 2018, is preparing to resume its operations in Japan according to the official document released by the exchange.
The document released by Zaif on April 19 stated that all users affected by the hack will be compensated fully. The company said that users have the right to seek the return of the crypto assets deposited with the exchange that was lost during the security breach.
About $60 million worth of bitcoin, bitcoin cash, and monacoin were lost during the hack.
Taking Responsibility For the Hack and User Funds is Good For Crypto
Based on the roughly translated document of Zaif, as a part of a deal to fully compensate all users affected by the hack, the company sold a large portion of its ownership to Fisco for $44.5 million.
“After that, on condition of financial support of approximately 5 billion yen, transfer of Zaif business from Tech Bureau Co., Ltd. to us was decided. In addition, we have asked customers via the Internet and by telephone etc. for the procedures for consenting to business succession,” the document read.
The company took responsibility for the hack, secured a deal to compensate users that lost funds during the breach, and established a roadmap to reopen.
Throughout the past two years, many investors have lost a significant amount of money from exchange hacks because small exchanges with a focus on profitability are unable to compensate users in the event of an unexpected security breach.
Zaif may have been pressured to take the right steps in protecting user funds due to the strict regulatory frameworks and a national licensing program implemented by the Japanese financial authorities, similar to the way the Financial Services Agency (FSA) has dealt with Mt. Gox.
For users and investors in the Japanese crypto exchange market, the involvement of the FSA could further legitimize the sector as a regulated and protected industry.
In the near-term, due to the low liquidity of monacoin, the Zaif team said that while bitcoin and bitcoin cash can be compensated, about 40 percent of user funds held in monacoin will be compensated in Japanese yen.
A roughly translated section of the document read:
With regard to the compensation, for BTC and BCH, it was possible to procure from the market, but for MONA, whose market volume is scarce compared to BTC etc., procure a virtual currency equivalent to the amount lost due to the current outflow. The situation was extremely difficult. Therefore, about MONA, it was decided to return about 60% of the total amount that was leaked by MONA itself, and to replace the lost part of about 40% with the Japanese yen for compensation. The yen conversion rate will be 144.548 yen per MONA.
Why Do Hacks Continue to Happen?
While crypto exchanges are highly profitable during the bull market, in a correction or an extended period of sideways price action, small exchanges tend to record relatively large net losses.
In South Korea, for instance, only Upbit recorded an operating profit of over $100 million in 2018 and the rest of the top five exchanges recorded large net losses.
It is possible that small exchanges focus more on profitability, which may take away some of the resources that are necessary to maintain a high level of security, compliance, and transparency standards on the platform.
With frameworks like the national licensing program in Japan that requires every exchange to be approved by the FSA before beginning operations in place, over the long run, security breach and hack-related cases are expected to decline.
Last modified: March 4, 2021 2:44 PM