[2018-01-31] Japan’s Finance Minister Tells Crypto Exchanges to Toughen Up

[ivanpoldark]

Japan’s finance minister has called on cryptocurrency exchanges to strengthen their cybersecurity posture and standards following the $530 million hack of XEM tokens from Tokyo-based exchange Coincheck.

Speaking to reporters after a cabinet meeting on Tuesday, Japanese finance minister Taro Aso demanded the strengthening of management systems at domestic cryptocurrency exchanges while urging regulators to “appropriately monitor” the ecosystem to protect consumers.

“It was a matter of great regret that illicit access caused a massive cryptocurrency outflow from Coincheck on Friday,” Aso told reporters, as reported by Reuters.

He went on to add:

“The Financial Services Agency [Japan’s financial regulator] must appropriately monitor cryptocurrency traders to protect users. We will appropriately weigh the balance between promotion of innovation and protection of users in (supervising) cryptocurrency exchanges.

Aso, who also serves as Japan’s financial services minister, has previously been critical of excessive regulation on cryptocurrencies.

The finance minister’s remarks follow the FSA’s own statement on Monday where the regulator revealed it would investigate all cryptocurrency exchanges including the possibility of on-site inspections. The FSA has also ordered Coincheck to improve its cybersecurity standards.

As reported previously, Coincheck executives admitted to storing funds in its hot wallet, which was ultimately compromised. Hot wallets are susceptible to unauthorized access, unlike cold wallets that are secure and kept offline. “It was hard for us to manage cold wallets,” Coincheck president Koichiro Wada said in a press conference in the aftermath of the hack, pointing to “technical reasons and understaffing.”

Coincheck also stored the 500 million NEM tokens in a hot wallet without multi-sig security, further underlining its failings as a custodian of customers’ cryptocurrencies.

On Monday, Japan’s primary financial diplomat Masatsugu Asakawa revealed cryptocurrency regulation ‘was likely’ to be discussed among G20 nations’ finance ministers and central bankers in Argentina during this year’s meeting in March.

https://www.ccn.com/japans-finance-minister-tells-cryptocurrency-exchanges-toughen/

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[CryptoBry]

Certainly, many people would reecho the grave concern expressed by the Finance Minister. Losing more than half a billion dollar is not a small thing as this strikes at the very heart of security and trust bestowed on the exchange by its own members/clients. There is a need to upgrade everything and to always two steps ahead of the hackers whoever and wherever they might be. In cryptocurrency, it is almost impossible to gain back what has been stolen unlike with the physical fiat money. Exchanges should be secured at all times otherwise we could not trust anything anymore.

[Samarkand]

...

Coincheck also stored the 500 million NEM tokens in a hot wallet without multi-sig security, further underlining its failings as a custodian of customers’ cryptocurrencies.

...

Unbelievable.

Most exchanges keep only 1-2 % of customer funds in hot wallets. Keeping NEM tokens that
are worth 500M $ in a hot wallet is a blatant example of negligence by the Coincheck
management. Especially, after all the Bitcoin exchange hacks in the past.

On the other hand it is probably necessary to keep a certain amount of coins in
hot wallets, because otherwise fast/instant withdrawals aren´t really viable.
It basically always boils down to a trade-off between maximum security
and maximum convenience.