Early Friday morning in Tokyo, Japanese cryptocurrency exchange Coincheck has reported the loss of around 523 million NEM (XEM) coins worth over $500 million following a breach on its network, raising questions about security and regulatory protection in the emerging market of digital assets.
The Shibuya, Tokyo, Japan-based company admitted that hackers broke in at 2:57 a.m. local time on Friday. However, the breach went undetected for nearly another eight and half hours. Most of the losses pertain to a lesser-known cryptocurrency NEM; the world’s tenth-largest by market value.
Yusuke Otsuka, chief operating officer of Coincheck, said the stolen funds were kept in an online ‘hot wallet’ as opposed to a much more secure offline “cold wallet.”
After hours of speculation Friday night, Coincheck Inc. said the coins were sent “illicitly” outside the venue. Otsuka said the company didn’t know how the 500 million tokens went missing, and the firm is working to ensure the safety of all client assets. Coincheck announced in a blog post that it had suspended all withdrawals, halted trading in all tokens except Bitcoin, and stopped deposits into NEM coins.
“We know where the funds were sent,” Otsuka said during a late-night press conference at the Tokyo Stock Exchange. “We are tracing them and if we’re able to continue tracking, it may be possible to recover them. But it is something we are investigating at the moment.”
Pending investigations, the alleged hack could end up as the world’s largest cryptocurrency heist yet. It could eclipse the theft of $400 million from MtGox, another Tokyo-based exchange, which collapsed in 2014.