Online Cryptocurrency Investors to be Refunded £300 Million After Hack

The craze of investing online in volatile cryptocurrencies has proven to be profitable for many over the past few months. Those who bought at the recent market peak in mid-December, however, so far won’t have seen their investments fare so well. Others have been more unlucky still, with a Friday hack on Japanese cryptocurrencies exchange Coincheck resulting in the theft of over £300 million-worth of the cryptocurrency NEM. It is estimated that 260,000 Coincheck account holders were hit by Friday’s cyber attack, which saw the exchange shut down for several hours.

However, the good news for the hundreds of thousands of customers who had been investing online in NEM is that Coincheck have subsequently announced that the exchange will cover 90% of the value of losses resulting from the hack. The perpetrator(s) of the heist managed to empty cryptocurrency wallets held on Coincheck of 523 million NEM units.

The decision of the exchange to foot the bill for a refund meant the slump in prices across cryptocurrencies exchanges that followed the news of the hack quickly reversed. It can also be said to mark a new era of the biggest exchanges accepting responsibility for online security despite the fact that they are not yet regulated. Financial regulators around the world are circling the cryptocurrencies industry. With China having already shut down exchanges based in the country and South Korea’s National Assembly currently considering a bill that would have the same consequences there, Coincheck have clearly decided it is in their business’s best long term interests to accept responsibility and take the financial hit. Customers losing upwards of £300 million would have run a high risk of regulators in Japan potentially moving on the country’s exchanges, which are some of the largest in the world.

In 2014 another Japanese exchange, Mount Gox., also suffered a hack that led to the theft of $460 million of Bitcoin. That incident, and the loss of trust it resulted in, arguably set the cryptocurrencies market back a couple of years in terms of its mainstreaming process. It also led to the permanent closure of the Mount Gox exchange.

Many of those considering investing online in cryptocurrencies, or with existing holdings, will understandably be concerned how secure their assets are from hackers. While exchanges have raised cyber security levels considerably in recent times, the Coincheck hack demonstrates that there is still a genuine security threat. Exchange account holders should only hold cryptocurrencies needed for buy and sell transactions on exchange wallets, transferring out as soon as possible to their own wallet as soon as possible. Wallets on computers and mobile devices that only connect to the internet during transactions are safer but still have some vulnerability to direct hacking or viruses when the device itself is online. The most secure options for longer term storage of cryptocurrencies are USB hardware wallets or paper wallets.