Coincheck's Weak Security Measures Led to NEM Hack

By Teiji Osawa and Shinsuke Yasuda | The Daily Yomiuri (Toyko, Japan), January 29, 2018 | Go to article overview

Coincheck's Weak Security Measures Led to NEM Hack


Teiji Osawa and Shinsuke Yasuda, The Daily Yomiuri (Toyko, Japan)


An exchange for virtual currencies, which have been extremely popular lately, has been the victim of a major theft.

Coincheck, one of the larger exchanges, announced that the equivalent of 58 billion yen worth of the virtual currency NEM had been stolen. The company, which is based in Shibuya Ward, Tokyo, appears to have used a vulnerable system to manage the assets it held.

Flawed data storage

"In running the exchange, we were aware of the possibility [of fraudulent access]. We had a sense of urgency about implementing [safety measures]," Coincheck President Koichiro Wada said at a press conference that started late Friday night.

As the head of what was considered a major virtual currency exchange, one that even ran commercials on television, Wada appeared deeply troubled. Much of the press conference focused on the system the company used to manage its assets.

Virtual currencies are managed on computers using what are called "wallets." The exchanges that broker transactions on the internet are vulnerable to a risk of fraudulent external access, so most exchanges store their data in "cold wallets" that are not connected to the internet.

However, Coincheck did not use this method to manage its NEM, instead keeping the currency in "hot wallets" that were connected to external networks.

Yusuke Otsuka, a Coincheck director, said the company had been slow to address the situation. Cold wallets "are highly difficult in terms of the system. We had started on them, but we weren't fast enough," Otsuka said.

Yet an executive of a Tokyo-based security company said, "From a safety standpoint, it's unthinkable to manage data 'online.'"

Moreover, much of the virtual currency industry is implementing "multisignatures," which use several protective measures, such as PIN numbers. …

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