Multiple hacking incidents this year has prompted a group of Japanese exchanges to come up with changes to manage and safeguard customer assets.
The Quest for Better Controls
A group of Japanese cryptocurrency exchanges has planned to come up with tighter measures to ensure that customers’ assets are better managed. This move, apparently, has been triggered by one more incident of hacking in early September.
As per reports, the Japan Virtual Currency Exchange Association plans to set a ceiling on the number of crypto-assets managed online. The capping could be anywhere between 10% to 20%. The group had come up with the self-regulatory guidelines, earlier in July. The rules will be revised and need to be sent to the Financial Services Agency (FSA) for approval as per the payment services law. Once certified by the agency, the exchanges will go ahead and implement them.
What Triggered the Action?
This year has seen many cases of hacks targeting Japanese exchanges. Cryptocurrencies worth Yen 7 Billion were stolen in the recent hack from Zaif, an exchange run by Tech Bureau Corp., an Osaka-based start-up. The three virtual currencies pilfered include Bitcoin, Monacoin, and Bitcoin Cash. The stolen funds were being managed online in hot wallets, and Yen 4.5 billion apparently belonged to customers.
In another incident, in January this year, digital asset NEM worth Yen 58 Billion was stolen from Coincheck, a leading exchange. In this case, too, the funds were managed online.
To prevent cyber intrusions from occurring, many cryptocurrency exchanges, now prefer to keep large portions of the customer funds offline, in cold storage wallet s.
Japanese Cryptocurrency Market
After China imposed a ban on digital asset exchanges last year, Japan emerged as the number one market for cryptocurrencies. It leads the world in trading volumes with participation from retail as well as institutional investors. The country also happens to be blockchain and crypto friendly with Bitcoin being legally recognized as a medium of exchange. It is estimated that 12% of the global Bitcoin trades are paired against the Yen.
16 cryptocurrency exchanges in Japan are regulated by the Financial Services Agency which has been proactive in ensuring compliance with local laws. FSA has also from time to time issued warnings to exchanges including Tech Bureau corp. for its loose structure.
While many countries and their regulators are still confused about how to deal with cryptocurrencies, Japan has had a very positive and practical approach towards adoption and regulation of digital currencies. It has also been the victim of two of the biggest cyber heists in the digital asset world – Mt. Gox in 2014 and Coincheck earlier this year. However, with its proactive approach, Japan is unlikely to be deterred by such incidents and will figure out ways to protect its customers’ assets.
Do you think all exchanges should follow a similar policy of keeping a large portion of the customers’ assets in cold storage? Would it help in reducing the number of cyber-attacks? Do let us know in the comments below?
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