While virtual currencies are generally considered secure and safe, the same cannot be said of the exchanges where these currencies are bought and sold. A recent example of the security challenges facing virtual currencies came to the fore when the Coincheck exchange was hacked and more than half a billion dollars stolen. One of the reasons for their vulnerability is because they are insecure networks.
The vulnerability of these exchanges would however be eliminated or at least reduced if they adopted the security features of the cryptos. According to a cybersecurity expert at anti-virus software firm Hauri Inc, Simon Choi, the exchanges are to blame for the recent spate of hackings.
“If security on the exchanges’ is not secure, their currencies can be stolen. If the exchanges are to play their intermediary role, they should be as safe as banks and strengthen their security,” said Choi.
Rise of criminals
Per Chainanalysis, bitcoin losses whether through scams, hacking or ransomware, rose by more than 30 times to reach a figure of $95 million two years from $3 million five years ago. The hacking incident at Coincheck was the second major security breach in a virtual currency exchanged located in Japan after that of Mt. Gox, which was the biggest exchange for trading bitcoins prior to its collapse.
Following the incident Coincheck has issued an apology and committed to reimbursing customers who were affected. Additionally Coincheck will strive to ensure compliance with an order by the Financial Services Agency by determining the reason behind the losses as well as improving its security in order to avoid a repeat.
The incident involving Mt. Gox discouraged many Japanese investors at the time and more regulations were imposed by authorities. According to estimates by Blockchain Analysis Firm Chainanalysis, the value of the bitcoins (BTC) that were lost at the exchange was about $7.5 million. In today’s bitcoin exchange rate the value of these coins is close to $10 billion.
While the blockchain transactions can be traced, it is impossible to determine in which wallets the virtual currencies were stored. This makes it difficult to identify the particular hackers. In South Korea one proposal aims to have virtual currency accounts linked to verified bank accounts in order to bolster security.