Yet again, a Japanese virtual currency exchange has suffered a massive loss of cryptocurrency. In 2014, some 47 billion yen worth of bitcoin disappeared from an exchange, but those losses were eclipsed in the latest incident by the theft of some 58 billion yen in cryptocurrency -- the largest loss ever in the world.
Coincheck Inc., the company hit in the latest theft, has indicated that it will compensate all account holders for their loss of the virtual currency NEM. At the same time, the Financial Services Agency (FSA) has issued a business improvement order to the company, on the grounds that its measures to prevent hacking were insufficient.
This, of course, does not mean that the situation has come to an end.
Though Coincheck was a victim from the perspective of having its customers' virtual currency stolen, it bears a heavy responsibility for its lax safety measures that allowed the crime to occur.
The company handles 13 types of cryptocurrency, including bitcoin. Its theft prevention measures for NEM, however, were far inferior to those for bitcoin.
NEM, which arrived on the virtual currency market after bitcoin, showed rapid growth. Outpacing bitcoin, which at one point in 2017 gained 20 times its value at the beginning of the year, it was probably seen as a prime target by hackers.
Coincheck should have waited until it had adopted sufficient security measures before opening trade in NEM. The company cannot avoid criticism for placing priority on the company's growth while putting the protection of its consumers on the back burner.
This aside, why is it that Japanese exchanges have been targeted twice in these massive thefts? For one thing, Japan is the largest market in the world for bitcoin trade. The Japanese government sees potential for growth in new technology, and the fact that it led the world with a registration system for virtual currency exchanges contributed to the growth of virtual currency markets in the country.
At the same time, Japan has allowed companies to operate even before they are registered or during a period of grace. The outcome of this kind of approach to the industry is that lax safety measures have been left unaddressed.
Coincheck applied for registration in mid-September last year following the introduction of the registration system in April. The registration procedures still have not been completed, but the company has nevertheless been actively promoting its business, employing television personalities in its commercials.
Shouldn't the FSA have been quicker to implement stringent measures?
A lax approach to measures against illicit acts not only opens the door for users to suffer huge losses; if the illicitly acquired funds end up supporting terrorist groups, then it could spark fears regarding the security of the country.
There are many things we can learn from a policy that prioritizes growth and profit.