Coincheck, the Japanese-based cryptocurrency exchange platform is taking steps to shore up its security protocols following the devastating January crypto hack. In what is perhaps the worst hack in the history of the crypto market, hackers stole more than $550 million in NEM coins. As part of its response, the platform is putting a stop to its support for Monero, Dash, and Zcash.
In the immediate aftermath of the hack, trading activities on the platform were suspending. Upon resumption of March 12, these three cryptos which had hitherto been part of the Coincheck crypto exchange catalog were conspicuously missing.
Privacy-Focused Cryptos are a Favorite of Money Launderers
The high level of privacy and anonymity embedded in the operating architecture of these three cryptocurrencies has been given as justification for the move to stop offering support for them on the Coincheck platform. According to an article in the Japan Times, posted March 17, 2018, the team at Coincheck has identified several risks involved in dealing with these coins. One of the significant risks involved is predicated on the fact that these coins are notorious for being heavily involved in crypto-based money laundering activities.
While cryptocurrencies are pseudonymous, offer some level of privacy and anonymity, these 3 cryptos are known to take things up a few notches. In the bitcoin blockchain, for example, it is possible to identify the recipient of a bitcoin transfer. The bitcoin addresses of the sender and receiver in any transaction are recorded on the blockchain. In the case of these three cryptos, the situation is entirely different. It is not possible to identify the recipients of coin transfers on these blockchains. Complete anonymity is offered on these blockchains, and as a result, they have the potential to be used in money laundering and other criminal financial activities.
As part of the move by the exchange platform to stop offering support for these three cryptos, it is planning to repurchase from its customers at a fixed rate. The move to end providing support for these three cryptos also appears to be an attempt by Coincheck to comply with the improvement notice given by the Japanese Financial Services Agency (FSA). After an FSA inspection of Coincheck’s operations, the agency noted that it didn’t have a robust system to prevent the use of cryptos for money laundering and terrorist financing (ML/TF).
Half of Stolen NEM Likely Already Converted on the Darknet
In a related development, Masanori Kusunoki, the Chief Technology Officer of Japan Digital Design Inc., believes that about half of the stolen NEM coins may have already been converted on the Darknet. He declared that the hackers had already set up a website on the darknet since February 7 and had been trading the stolen coins. He spoke about the difficulty involved in tracing the funds and that reversing the damage is all but impossible to do at this point. According to the NEM Foundation, hackers started moving the stolen NEM coins on January 30 to many different wallet addresses.
Coincheck has revealed that about 260,000 affected customers have been refunded to the tune of $440 million. A couple of weeks after the incident, a group of investors filed a lawsuit against the exchange platform asking for $2.15 million.