Coincheck Press Conference: We Use Hot Wallets to Store Altcoins

From using hot wallets and lack of multi-sig, the briefing revealed a lot as to how Coincheck manages the coins users keep on its platform.

Photo for the Article - Coincheck Press Conference: We Use Hot Wallets to Store Altcoins

Update 1:51 am JST – Statement of NEM included.

Coincheck faced the Japanese media tonight in a press conference in Japan. The media briefing revealed a lot as to how the company manages the coins that users keep on its platform.

Photo for the Article - Coincheck Press Conference: We Use Hot Wallets to Store Altcoins

Start of the Hacking Incident:

The hacking incident happened around 3 am (Japan Time). Coincheck did not notice the incident until around 11:25 am. After verifying  the incident, the company paused NEM deposits at 12:07 pm and also paused NEM trading at 12:38 pm.

By 4 pm, Coincheck has paused all currency withdrawals. Soon after (5:23 pm), the company paused all but BTC trading. Furthermore, deposits from credit cards, convenience stores, etc were also halted.

Security of Coincheck

Coincheck touted in its website that it keeps its coins in cold wallets. However, this is only true for bitcoin. Altcoins, NEM included, are in hot wallets. (For a refresher, please click here).

Coincheck also did not adapt multi-signature in its accounts. When pressed further, they said they couldn’t build with the current number of people in their engineering team.

What about the lost XEMs?

Approximately 500 million NEM coins are lost due to the hacking incident. This is worth around $530 million, making it the biggest hacking incident in cryptocurrency, bigger than Mt. Gox.

Initially, Coincheck requested the NEM Foundation if it could do a hard fork. However, NEM declined to do this. Details of what else are discussed between Coincheck and NEM are not yet public. However, it was revealed that Coincheck already traced the movement of the lost coins and would try to get it back.

Update: 1:51 am JST, NEM released a statement that is working with Coincheck to track the movement of the stolen NEM tokens.

The company also was not sure why it was targeted. However, given the lack of multi-signature, the presence of hot wallets, anyone can pretty much guess why Coincheck is targeted.

On the handling of the issue

Coincheck took a considerable amount of time to notice the lost amount and it did not have a precise answer as to why. The company is also criticized for failing to clarify the issue. While users were left wondering what has happened, the value of NEM has dropped along with the value of other coins. As they are trying to recover the lost amount, the media ask Coincheck if their insurance fund worth 6 million JPY can be applied to users who were affected by the hack. However, it seems the insurance fund is only for victims of phishing fraud.

Other Details:

  • Only NEM was hacked. They did not confirm the state of other cryptocurrencies but also said that they are still investigating.
  • When asked how they can continue doing business even without the license, Coincheck argued that they were allowed to run by Japan’s Financial Services Agency because the law regarding virtual exchanges is not yet in effect.

There is no time frame as to when Coincheck will open their trading again for altcoins.

This is a developing story. You can check out our live tweet of the press conference below:

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