Coincheck is facing scrutiny after losing $530 million (€424 million) in a recent hack. The Japanese government has been trying to regulate the cryptocurrency exchanges since 2017.
A look at the Coincheck currency exchange in a smartphone appImage: Imago/Kyodo News
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Japanese Financial Services Agency (FSA) carried out a search of Coincheck's headquarters on Friday, as authorities step up their efforts to regulate cryptocurrencies following a recent hack. The breach of the virtual currency exchange was one of the world's biggest cyber heists to date.
"We have launched an on-site inspection to ensure preservation of clients' assets," Finance Minister Taro Aso said at a briefing on the operation.
The FSA inspection focused on compensation of customers, financial conditions and system management at the exchange. It also focused on Coincheck's efforts to ensure consumer protection, a senior official said.
Japanese officials argue that Coincheck lacked proper security measures and made itself vulnerable to the hack.
Coincheck submitted an application with the FSA in 2017, which was still pending official approval due to concerns with its security gaps. Nonetheless, Coincheck was allowed to operate.
The FSA has given Coincheck a deadline of February 13 to complete an investigation into the cause of the theft. It must also deal with clients "properly," strengthen risk management and take preventive measures.
On January 26 hackers managed to steal $530 million worth of the cryptocurrency New Economy Money (NEM). The last theft of this size occurred in 2014, when more than $480 million in bitcoin was stolen from Japan's MtGox exchange.
After the MtGox hack, Japan became the first country to introduce a law to regulate the cryptocurrency exchanges in 2017.
Bitcoin: Where it came from and where it's headed
The booming cryptocurrency has a cryptic backstory and a perplexing modus operandi. Following a year of particularly tumultuous growth, DW asks where Bitcoin will go next. Can it sustain its incredible ascent?
Image: picture-alliance/dpa/J. Kalaene
Good time to start a currency
Introduced in 2009, Bitcoin was the world's first decentralized digital currency. It quickly gained traction amid lingering uncertainty in the wake of financial crisis. Designed to be as rare as gold, Bitcoin was created to have a maximum of 21 million "coins." Initially worth just a fraction of a cent, by February 2011 the currency had gained parity with the US dollar, then it really took off.
Image: picture-alliance/dpa/J. Kalaene
An anonymous founder
The name Satoshi Nakamoto is synonymous with Bitcoin. It is said to be the alias for an unknown IT whizz who invented the cryptocurrency. But despite claiming to be a 30-something Japanese national, it is generally thought that several computer science experts created the technology behind the digital coin. One rumor even suggested that Tesla chief Elon Musk is the real Satoshi, which he denied.
Image: Reuters/AAP/B. Macmahon
So no coins then?
Instead of being printed like dollars and euros, each Bitcoin is created on a global network of computers and verified by the system rather than a bank. There are no transaction fees. The smallest amount you can buy is a "Satoshi" or one-hundred-millionth of a Bitcoin. Purchases can be made anonymously and even at digital currency ATMs. When you buy Bitcoin, it is often stored in a digital wallet.
Image: DW/M. Sevcenko
Complex puzzles
To ensure that not too much Bitcoin comes into circulation, a process called mining was created where blocks of transactions could only be processed once a difficult math problem was solved by geeks. The puzzles are becoming so complex that bigger and bigger computers are being utilized to decipher them. That's led to concerns about the amount of electricity used to handle Bitcoin transactions.
Image: Getty Images/AFP/M. Zmeyev
Are Bitcoin fortunes legit?
Due to its anonymous nature, Bitcoin's success is likely being fueled by organized crime, including money laundering and the purchase of illegal goods. The currency is also being targeted by cybercriminals. A recent hack blamed on North Korea forced a South Korean digital currency exchange into bankruptcy. Reports suggest the "Islamic State" armed group used Bitcoin to receive funds to buy arms.
Image: picture-alliance/Zuma Press/M. Dairieh
Bitcoin leads, others follow
Bitcoin is the largest of all the cryptocurrencies and its incredible rise has spawned many imitators. Other large digital cash creators include Ethereum, Zcash, Bitcoin Cash, Ripple and Litecoin. As of November 2017, their number had swelled to 1,324. Hundreds of others have attempted and failed to launch their own digital coins. The market is now coming under increasing scrutiny by regulators.
Image: picture-alliance/NurPhoto/J. Arriens
Watch it skyrocket
2017 was a stratospheric year for Bitcoin. Worth close to $1,000 in January, some twelve months later it had scaled to an all-time high of $19,784. Despite much skepticism, the currency started to see serious interest from institutional investors. Two exchanges began Bitcoin futures trading, allowing speculators to punt on the incredible volatility in the value of the cryptocurrency.
Image: Reuters/D. Ruvic
Warnings abound
From central banks to respected investors, almost the entire financial establishment warned of a massive Bitcoin bubble, which they said can only end in disaster for holders of the digital currency. Among them was Nobel prize-winning economist Joseph Stiglitz who said Bitcoin "ought to be outlawed." Jamie Dimon, the CEO of JPMorgan Chase labeled those who buy the currency "stupid."
Image: World Economic Forum/Benedikt von Loebell
The shape of things to come?
Just before Christmas 2017, Bitcoin saw a dramatic rally, topping out at nearly $20,000 before losing a third of its value in just five days. More intense volatility followed early in the New Year, only to be reversed when it plummeted by almost half. Are we in for an even bigger rollercoaster ride if Wall Street adopts Bitcoin?
