Another Earthquake on Japanese Cryptocurrency Market

Over the past few years, the market in Japan has strongly embraced the heavy use of cryptocurrency. Statistics from the specialist website jpbitcoin.com shows that last December the Japanese market claimed a third of all Bitcoin transactions in the world.

by Pavel Velichkov
30 January • 2.5 min
In Markets

Since cryptocurrency has been on the up on the island, the country’s main cryptocurrency exchange bitFlyer has seen a huge increase in its user base, which has surpassed the 1 million mark and does not show any signs of slowing down. It is also believed that roughly over 10 000 Japanese businesses now accept Bitcoin.

These facts are the natural cause (and effect) for the rising interest in cryptocurrencies among many Japanese people. Many younger investors have been dissatisfied with the country’s poor conditions in terms of traditional investment. Disheartened by the low-interest rates in Japan, people have turned to a little more adventurous way of investing they can quickly profit from.

 

The MtGox Heist

All this is not to say that it has been easy for the Japanese market. It has had its fair share of trouble over the years. Many different companies are being terrorized by hackers and while most of them manage to block the attacks, there are cases where the attacks are successful.

Back in April 2014, MtGox, a Tokyo-based company, which had almost monopolized the trade between Bitcoins and real money, suffered a hack that nearly destroyed its reputation as its vaults were robbed of 850 000 coins; this was worth around USD 480 million at the time.

The hack attacks in 2014 had a negative impact on the market, but fortunately, they didn’t slow down the surge of interest in virtual money on the island. Japan defined cryptocurrencies as legal tender in April 2017, and it was the first country to do so.

 

New Signs of Trouble on the Horizon

On a Sunday morning in January this year, the people in Japan woke up to newspaper headlines reading that Coincheck (a Japan-based cryptocurrency exchange), had been hacked. The newspapers said that Coincheck had focused more on growing their business rather than making it secure, calling the management of the company ‘sloppy’.

Coincheck had registered ‘unauthorized access’ on their market and to prevent any trouble they froze trading for all cryptocurrencies save for Bitcoin. Unfortunately, they hadn’t acted as quickly as they should have. All the company’s NEM coins (NEM is the 10th biggest cryptocurrency worldwide) were stolen.

The NEM coins were being kept in a hot wallet, instead of a more secure cold one. Cold wallets are kept offline, which Coincheck couldn’t afford due to staff shortage and technical difficulties. The total value of NEM coins that were stolen amounts to JPY 58 billion and that is even more than the sum stolen from MtGox.

Coincheck has since confirmed that it will cover its customers’ losses, using JPY 46.3 billion of its own cash. It is still expected that the Financial Services Agency will take action against Coincheck.

In April 2017, the Japanese government required cryptocurrency exchanges to register. All the operators were allowed to continue their business as usual during the process. Coincheck’s status is still pending.