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One of the most damaging hacks ever occurred last Friday.
NEM is the world’s tenth biggest cryptocurrency by market capitalisation with a total value of $9.2 billion at the time of writing according to CoinMarketCap.
With so much cryptocurrency cash floating around, it makes cryptocurrency exchanges a tempting target. One of Japan’s largest digital currency exchanges, Coincheck, was hacked on Friday to the tune of reportedly US$534 million.
The exchange didn’t discover the breach for around eight and a half hours, but the company is confident it knows were the currency was sent. Coincheck’s chief operating officer, Mr Yusuke Otsuka said “We know where the funds were sent, we are tracing them an if we’re able to continue tracking, it may be possible to recover them”. The incident has been reported to the police and to Japan’s Financial Services Agency.
The NEM value fell by 11% over a 24-hour period on Friday whilst Bitcoin dropped by 3.4% and Ripple dropped by 9.9%. NEM may have dropped to US$0.87 at the time, but it has since recovered to US$1.03.
Coincheck has said that it promises to refund about 90% of the amount lost, so the 260,000 affected customers will hopefully only be out of pocket by 10% of their NEO.
The problem was that Coincheck had stored the assets in a ‘hot wallet’, which is where that part of the exchange is connected to the internet. A ‘cold wallet’ is where the funds are stored securely offline.
A few years ago, a Tokyo-based exchange called MtGox was also hacked and collapsed after US$400 million had been stolen from its systems. This may not be the last time a cryptocurrency exchange is hacked.
This latest hack goes to show there’s more risks to cryptocurrencies than just the value rocketing up or down. I believe shares will turn out to be much better investments in the long-term and also safer security-wise.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.