Zaif — a Japanese cryptocurrency exchanged operated by Tech Bureau — has been hacked, totaling losses of more than $60 million in Bitcoin, Bitcoin Cash, and MonaCoin.
Zaif is a licensed exchange under Japan’s Financial Services Agency (FSA) regulatory framework and is the second Japanese exchange to be hacked this year. In January this year, cryptocurrency exchange Coincheck was hacked for more than $500 million in NEM tokens.
As a response to the hack, Tech Bureau has received 5 billion yen (approximately $45 million) in funding from Fisco Digital Asset Group Co, Ltd in exchange for a majority share of ownership.
Warnings and Security Failures
The hack comes after persistent warnings by Japan’s FSA toward exchanges to improve their security. The FSA initially approved 11 licenses for cryptocurrency exchanges last September but has remained steadfast in their calls for better security, including a recent introduction of new screening measures for exchanges.
Tech Bureau has reported the hack as a criminal case to the Japanese authorities. The hack will assuredly raise more concerns about the security and viability of cryptocurrency exchanges, particularly in Japan, where authorities have allowed them to legally operate but with continual pressure to improve their operational practices.
It is not yet known whether or not Zaif’s customers will be directly affected by the losses, as the unusually quick injection of capital by Fisco Co may be used to cover the losses.
Same Story, Different Exchange
Hacking of centralized exchanges continues to be a severe problem in the cryptocurrency space. Zaif’s loss of $60 million is just another high-profile example of a history littered with security holes and enormous sums of money lost.
To really put into perspective how significant the cryptocurrency exchange hacking problem is, the top two exchange hackings in cryptocurrency history — Mt. Gox at $487 million and Coincheck at $534 million — are two of the largest independent thefts in history. Rivaling, and sometimes dwarfing, famous heists such as the Antwerp Diamond Heist (~$100 million) and the Isabella Stewart Gardner Museum Art Heist (~$500 million), there is justifiable concern that the centralized exchange model is not sustainable.
The recent report from the New York State Attorney General’s Office highlights some generally recognized concerns with the state of cryptocurrency exchanges. Further, Japan’s FSA filed an order explicitly directed at Tech Bureau and 5 other exchange operators over the summer to reform their business practices.
Zaif represents another example of problems with cryptocurrency exchanges that are endemic to the industry. Whether or not these problems can be solved by improving security measures is questionable. If exchanges continue to be hacked, the demand for decentralized exchanges will inevitably accelerate.