The two greatest disasters in the history of cryptocurrency: Mt Gox & Coincheck Hack
What have you learned from them?
Perhaps you have heard of these stories too many times, or possibly you´re a novice in the crypto world and learning about them for the first time, whatever your case might be the cryptocurrency community can derive substantial lessons from these unfortunate disasters.
Mt Gox
In July 2010, Shibuya -Tokyo, Japan, Mt Gox was founded and launched by programmer Jed McCaleb co-founder and CTO of Stellar.org. The website started as a card trading platform, which is where the name comes from a Card Game named Magic the Gathering Online Exchange, and eventually it became a crypto exchange.
In 2011 Mark Karpelés, a software developer from Chenôve France purchases Mt Gox, the exchange becomes extremely popular and as expected the BTC price climbs.
By January 2014 it was the largest and most popular Bitcoin exchange at the time handling over 70% of all BTC transactions worldwide.
In February of 2014 Mt Gox suspended all tradings and services, and shut down the exchange’s website to file for bankruptcy protection from creditors — by April the company started the liquidation proceedings and announced that approximately 850,000 Bitcoins an estimated value of 450 million, which belonged to customers and the company were missing and obviously stolen.
Tokyo Security Company named WizSec presented proof data that the missing Bitcoins were stolen straight out of Mt Gox hot wallet over time beginning late 2011.
Mr. Karpelés was sent to jail in solitary confinement as the main suspect of the stolen bitcoins at the time; he was interrogated day and night because the authorities were hoping he would confess to stealing the coins, but he didn't, he said: “I cannot confess to something I did not do.”
This was the worse time for Bitcoin; the prices crashed, and people actually thought that this was the end of it.
In 2017 the U.S. authorities arrested a Russian suspect Alexander Vinnik while on vacation in Greece, and according to Fortune.com they had evidence that about 90% of the stolen coins had gone directly to wallets that belonged to Mr. Vinnik, whether he had stolen them or not.
At this point, Japan hates Mark Karpelés´s guts, but after the arrest of Mr. Vinnik, he didn't look so guilty now, did he? After all the harassment he went through Mr. Karpeles still kept his cool, ends up being innocent of the theft, although found guilty of record tampering, and according to Fortune.com he finds a lost wallet with 200,000 BTC that belonged to Mt.Gox which in 2017 were worth billions, and by the Japanese laws Mr. Karpelés had the right to keep that money, but he rejected it, and so did the creditors.Which proves his innocence even further, but also he knew he couldn't keep that money or else he would've been hunted for the rest of his life.
The 650,000 coins left have never been recovered.
The crypto community still talks about this disaster, and Mt Gox will most likely be remembered for generations to come as THE FIRST GIANT HACK in the history of cryptocurrency.
Coincheck
Coincheck was founded in 2014 in Tokyo, Japan by President Koichiro Wada and Chief Operating Office Yusuke Otsuka. It quickly became one of the most popular exchanges in the nation transacting between bitcoin, several other cryptos, and fiat currencies.
January 26th, 2018 — The platform posted a blog announcing that they were restricting NEM deposits and withdrawals along with any other form of buying and selling cryptos on their platform. This notice raised a flag amongst the community that quickly realized that the exchange had been hacked.
Meanwhile, the developers of NEM issued a note saying they had no knowledge of glitches in the NEM´s protocol and that any issues could only have been the result of a gap in the exchange´s platform security. They also stated that exchanges recommended procedure is to use the “Multisig Contract Smart Signing App to provide an additional layer of security requiring multiple exchange managers to sign off on large transactions.”
It was not long after that Coincheck held a press conference to announce they indeed had been hacked an estimated value of $58 billion yen, about $533 million dollars at the time, a total of 500 million NEM tokens, which were distributed between 19 different addresses.
Eventually, the owners of the company announced how they stored the NEM tokens and it was revealed that they did not make use of the Multisig Contract Smart Signing App as mentioned and recommended by the developers of the token.
After the hack, it surfaced that Coincheck was not registered with the FSA (Financial Services Agency), and during the conference, according to blockonomi.com, the founders were very humble demonstrating deep remorse and pledging to register with the FSA after the incident.
The day after the conference Coincheck was very quick in announcing they would refund all 260,000 users which resonated well with the entire community. The integrity displayed helped Coincheck to remain within the same level of respect the community had always had for them.
Subsequently, the developers of NEM decided to tag all stolen tokens so that other exchanges would not accept them. But eventually they stopped with the search without any specified reasons, and speculation says that the thieves were getting ready to cash out their NEM tokens in the dark web.
Probably needless to say that NEM´s tokens value went down drastically from $1.60 early January to $0.07 throughout 2018.
In April 2018 Monex Group an online broker purchased Coincheck and quickly got ready to relaunch it.
Oki Matsumoto Chairman and Chief Executive Officer at Monex Group said — “In the future, I’d like to strengthen Coincheck by making initial public offerings,”
After the incident Japan´s exchanges decided to self-regulate, the FSA has increased the proposals and even new regulations, it also sent out numerous business improvement applications to Coincheck.
Today the exchange is fully functioning and registered with the FSA.
Coincheck is considered THE BIGGEST HACK in the history of the cryptocurrency.
The aftermath for the crypto community
Unfortunately, the use of hot wallets to pile up large amounts of cryptos is an infamous poor security practice amongst many.
Exchanges today have learned a bunch after both hackings and are using hybrid hot/cold wallets, but keeping most of the tokens in cold wallets secured by multisignatures.
Despite the fallouts, the cryptocurrency community as a whole is still progressing strong, even during the bear market it is under at the moment. The arduous heists have helped the ecosystem to improve its security not only from the business side but also on the community´s side, and it will continue improving and learning from them generations to come.
These stories will never get old.
Many have said they are tired of hearing about the hacks, but the truth of the matter is that these unique disasters can still help pave a wise path for other existing exchanges and all there is still to come and be discovered in the cryptocurrency ecosystem.
One of the big lessons I truly hope other exchanges and cryptocurrency businesses take out of this is how Coincheck dealt with the issue. They were prepared to take care of their customers in case of a disaster, it was immediately taken care of, with professionalism, as in opposed to many other crypto hacks we have seen where exchanges are shut down, and they couldn't care less about their customers, most even blame the customers for leaving their money on an exchange, but that´s a whole other issue.
Anyways, sadly not all situations will be dealt with such professionalism as shown by Mr. Wada and Otsuka, but here is a great lesson to take from this unfortunate disaster.
Let´s hope history doesn't repeat itself and that the community learns from others mistakes.
What have you learned from them?
Please leave your thoughts in the comment section.
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