It seems that the advice to store cryptocurrencies in cold storage wallets was not enough. Coincheck, one of the largest cryptocurrency exchanges in the country got hacked. The massive hack resulted in a loss of 523 million NEM coins something around $500 million dollars. In order to explain the situation, Coincheck gave a press conference where more information was given.

Coincheck Low Security Wallet

The hack didn’t include other cryptocurrencies like Bitcoin (BTC), Ethereum (ETH) or Ripple (XRP). The company explained that hackers were able to steal the private key of the hot wallet where the NEM coins were stored. That’s how they were able to steal these funds. The information was given to the Financial Services Agency and to the police.

NEM

NEM

In different statements, the company wrote:

“Depositing NEM on Coincheck is currently being restricted. Deposits made to your account will not be reflected in your balance, and we advise all users to refrain from making deposits until the restriction has been lifted. We sincerely apologize for the inconvenience this has caused everyone. Please follow the official Coincheck blog and our official social media accounts for updates.”

After this announcement, the company decided to halt all withdrawals and deposits. The intention was to avoid possible further damage to the funds. According to their webpage, withdrawals of fiat currency were going to be allowed soon.

The company was storing the funds on a simple hot wallet. Hot wallets are much more insecure than multisig wallets. That has given the opportunity to hackers to steal the private key and withdraw the funds. The exchange has also provided the information that the security setup differs depending on the cryptocurrency.

Bitcoin and Ether are stored in cold storage wallets and Bitcoin has a multisig address. Ether is not stored on a multisig wallet.

The New MtGox?

The past is full of examples of hacks and cryptocurrency exchanges losing their funds. We can include the mining pool NiceHash in the list. MtGox was a bitcoin exchange from Japan that handled over 70% of al Bitcoin transactions in the world.

In 2014, the company announced that it got hacked, losing 850.000 Bitcoin. When this happened, Bitcoin lost 90% of its value. Other cryptocurrencies also lost around 80% of their value.

At the moment of the hack, 850.000 Bitcoins were worth $450 million dollars. That means that the hack that occurred on January the 26th to Coincheck was bigger than MtGox. So why the Coincheck hack didn’t create a massive sell off? Well, it is clear that Coincheck does not move 70% of the Bitcoin transactions in the world.

As we have more cryptocurrency exchanges, if one is hacked, then there are several others that keep working. It is important to mark that the cryptocurrency market is bigger than when MtGox lost its funds. Losing $500 million dollars now is not the same than 4 or 5 years ago.

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