Coincheck, a major Japanese cryptocurrency exchange which on Friday lost over $500 million in cryptocurrency to a hack, has assured affected customers that they will be reimbursed from its own pocket, according to an official Twitter post.
BREAKING: Coincheck says it will compensate all losses to its NEM holders at a rate of 88.549 JPY ($0.81) per each coin. Says it is using its own capital to reimburse clients. Exact date of reimbursement not yet decided.https://t.co/q5R7nOeWVp
— Yuji Nakamura (@ynakamura56) January 27, 2018
On Friday we reported that hackers had absconded with 523 million XEM tokens from Tokyo-based Coincheck. The tokens were worth $534 million at the time.
XEM is the native token of the NEM Foundation, a blockchain with a market capitalisation of over $9 billion, making it the 8th biggest in the world at the moment. Only holders of this particular coin were stolen from.
The NEM Foundation made it clear in the aftermath of the attack that there is no issue with its technology, and that the blame for the breach lies solely with the exchange.
“As far as NEM is concerned, tech is intact. We are not forking. Also, we would advise all exchanges to make use of our multi-signature smart contract which is among the best in the landscape. Coincheck didn’t use them and that’s why they could have been hacked. They were very relaxed with their security measures,” said Lon Wong, president of NEM, to cryptonews.com.
Reportedly, the XEM tokens were stored in a relatively basic wallet, in contrast to other coins at the exchange. This wallet was less secure, which is why only this currency was stolen. According to cointelegraph.com, the private key of said wallet was acquired by the hacker/s, which allowed them to drain the funds.
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Hacks are a frequent occurence in today’s world, but this story is remarkable because of the effective response of both the affected exchange and the NEM Foundation. Initially, Coincheck froze all NEM activity, and as media began to gather outside its offices, it held a press conference.
— NAOYA FUJITA (@fuji_syan) January 26, 2018
It then informed the police and national financial regulator of the illicit transaction.
Meanwhile, the NEM Foundation announced the initiation of a new tracking system, which has rendered the stolen funds useless to the thieves (unless they want to be traced).
1/ @coincheckjp hack update: NEM is creating an automated tagging system that will be ready in 24-48 hours. This automated system will follow the money and tag any account that receives tainted money. NEM has already shown exchanges how to check if an account has been tagged.
— Inside NEM (@Inside_NEM) January 26, 2018
The NEM Foundation’s market capitalisation dropped by about $2 billion dollars after news of the theft broke, but soon jumped back after the assurances offered by Coincheck. It is currently worth $9,363,779,999, according to coinmarketcap.com.
NEM (New Economy Movement) is a peer-to peer blockchain which differs from others because of its ‘proof-of-importance’ model. Like with the proof-of-stake model, a certain amount of XEM tokens must be held by an account for that account to be counted, but unlike the proof-of-stake model, activity is also measured. The more active a node is, the higher its importance score is, and the more likely it is to ‘harvest’ coins.
This encourages participation and avoids the problem of a mining monopoly, because the system is not hardware intensive.