Early afternoon of Friday brought a news of hack of another wallet. Coincheck announced that there has been theft of 500 billion tokens worth roughly $420 million. Shortly after it discovered theft, the exchange suspended exchange of XEM, followed by other dozen coins it lists.
The last time Japanese cryptocurrency exchange was hacked, for a record haul, it shook the whole ecosystem. It took about two years to recover completely. This time the numbers might be same and the crypto market took a whole day to get back on its feet. In this aspect, Coincheck is reminiscent compared to Mt. Gox hack of 2014, and differs in key ways.
After the news hit the market, cryptocurrencies and XEM saw a slide but recovered at the end of the day. Eventually, Coincheck and XEM aren’t as important as Mt. Gox and bitcoin were four years ago.
Then and Now
Four year ago, Mt Gox was the only available exchange for bitcoin traders, and altcoins were still coming into the market. Today, there are number of exchanges, and so many altcoins.
Chris Burniske, a partner at Placeholder VC, said that Mt. Gox hack accounted for roughly 5% of all the crypto asset aggregate of all the network value at the time.
In contrast, Coincheck represent only 0.25% of aggregate value, meaning the hack of Mt. Gox was of much larger magnitude than of Coincheck.
Burniske also state,
“Crypto investors and speculators have been through a number of exchange hacks by now, likely recognizing that an exchange hack involves a vulnerability in the application on top of a protocol, as opposed to a vulnerability within the crypto-protocols involved … the fundamentals of crypto assets have not weakened, though we have yet another example of the need for further professionalization in crypto application-infrastructure.”
After the Mt. Gox hack, the investors never got to see their money. But with Coincheck that can be the counting difference.
Coincheck executives suggested that their users would be compensated for their stolen crypto, though it is unclear at this time whether they would be fully reimbursed.
As XEM is account-based platform, all associated accounts could be tagged, thereby marking if that particular account has stolen XEM or not. However, it is not clear whether it account tagged has stolen XEM, or that every stolen token has been tagged.