In January of 2019, they gave us a formal registration."įor better or worse, the hack made it a lot harder to operate a cryptocurrency exchange in Japan. "Finally, the JFSA said that we don't need to report. Because of that, JVCEA set up a checklist for new coins."Ĭoincheck had to submit a monthly progress report on their business improvement plan, ultimately convincing regulators that they had sufficiently improved. ![]() They asked JVCEA to examine the appropriateness of coins. I think the JFSA realized they needed to look into the safety and soundness of coins more carefully. "Most crypto exchanges were ordered to improve in June of last year. "The crypto exchanges under a business improvement order cannot list new coins," Katsuya explained. Over 18 months later, no new coins had been approved. "But after the regulatory framework changed last year, crypto exchanges need to make sure their activity complies with self-regulatory rules." Rules were determined by Japan Virtual Currency Exchange Association (JVCEA), a self-regulatory organization among crypto exchanges.Īfter the hack, new coins needed to get approval from JVCEA. "Before the hack, as long as crypto exchange activity was not prohibited by a specific law, it was OK," Katsuya said. All Japanese exchanges were subject to harsher regulatory scrutiny. "We tried to persuade the JFSA that we can improve on cyber security, internal control and money laundering.”īut the pressure wasn't only on Coincheck. Coincheck had to prove to regulators, and the public, that it could be trusted. (Coincheck had no CEO after the Monex acquisition). So in April Katsuya started running Coincheck, as president. The JFSA gave Coincheck a business improvement order after the hack, telling Monex to change the exchange's governance. ![]() At the time of the hack, Katusya was the COO of Monex Group, in charge of overseas operations. In April of 2018, Coincheck was acquired by the online brokerage Monex. JFSA had to order the strengthening of internal controls." "After the hack, people realized crypto exchanges are custodians of crypto as well as fiat. So, we need to be very careful to safeguard these things." "Crypto exchanges hold everything: customer information, customer fiat money, and customer crypto. "Crypto exchanges function like a kind of bank," Katsuya said. But this is not necessarily true of cryptocurrency exchanges. One of the great advantages of the Bitcoin blockchain, for example, is that it is distributed throughout the world, meaning that there is no central point to hack into. Cryptocurrency is supposed to be decentralized. The hack highlighted a larger vulnerability in the crypto economy. "Coincheck returned almost all the money to customers, because NEM was not so liquid.” (NEM was the virtual currency that was stolen from Coincheck). Coincheck management tried to do their best in late 2017, but the boom came so suddenly they were not able to prepare a cold wallet for NEM," Katsuya said. "Coincheck made a huge profit in 2017, and then was hacked on January 26, 2018. Katsuya says this was in part because Coincheck offered some privacy coins, which the Japan Financial Services Agency (JFSA) had some concerns about. When Coincheck was hacked it did not have a license, but was operating on provisional basis. In 2017 it declared Bitcoin to be a legal form of payment and granted licenses to 16 cryptocurrency exchanges. Japan was once widely seen as a crypto-friendly nation. Japan's crypto world looks very different than it did two years ago, in large part because of Coincheck. The progress of the fintech industry lagged, probably because of that. "Last year, because of the hack, regulations tightened. ![]() I think people were astonished by the amount." "We still don't know who the hackers were. "Coincheck, with over $500 million stolen, was the biggest hack since Mt. In this exclusive interview, Coincheck President Toshihiko Katsuya talked to LongHash about the hack, its lingering effects, and Coincheck's remarkable comeback. That exchange was hacking victim Coincheck, which is now one of the largest in Japan. Then in early 2019, a year after the Coincheck hack, one Japanese exchange finally got a license to operate. For a long time, Japan had no new exchange licenses or coin listings. The incident deeply spooked Japanese authorities, sending a regulatory chill over a country that once looked like a Bitcoin capital. Last year, the Japanese exchange Coincheck suffered the largest hack in cryptocurrency history.
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