Coincheck hacked for $400 million! The State of Regulatory Oversight in Japan

in #hack7 years ago

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Out of all the member states of the G-20 group, Japan has undeniably taken the most level-headed approach to market regulation for cryptocurrencies.

As with all things, the current or future administrations could still do a complete about-face, and take measures to outlaw, or severely restrict the use of Bitcoin and other currencies, but thus far the Japanese government has taken a very progressive view on the issue.

Japan began recognizing Bitcoin as legal tender back in April, and thus far, the only steps towards regulatory oversight have been through a semi-voluntary process through which exchanges must prove their bonafide in exchange for a stamp of approval from regulators.

Exchanges like BitFlyer, Quoine, and Zaif, have all received the blessing of the government, and are operating in full compliance with strict AML and KYC laws designed to thwart the laundering of proceeds derived from criminal activity.

In fact, BitFlyer even goes as far as to insure customer funds against hacks and theft.

Conspicuously absent from this list of accredited exchanges was/is Coincheck. Despite having one of the largest trading volumes in Japan, Coincheck failed to meet the Financial Services Agency's (FSA) criteria for approval.

I expect today's hack, in which over $400 million in NEM tokens simply vanished from the exchange's hot wallet, will only worse their prospects, and cast further doubts over Coincheck's fitness as a custodian of customer funds.

Now, if it were up to me, there would be absolutely no regulation at all. We're all consenting adults here, with the rational faculties to make reasonable decisions without intervention from the Nanny State.

At this stage, though, I think it's almost inevitable that governments will become involved in crypto, so it's better if countries approach this matter in a more mature and forward-thinking way like Japan has done.

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Through the introduction of a system of semi-voluntary registration with the FSA, the government creates a smart system of market incentives, indirectly benefiting honest and transparent exchanges, while similarly penalizing the bad actors in the space.

This is exactly what happened with Coincheck. This particular exchange has always been somewhat notorious in the local community as having poor customer service, and for its lax security practices.

The fact they were unable to formally register as a cryptocurrency exchange served only to solidify these suspicions, and might have saved a lot of people from losing quite a bit of money as a result of this hack.