Coincheck

• 1. Introduction

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  In April 2018, Monex Group bought Coincheck, a Tokyo-based bitcoin wallet and exchange service, for 3.6 billion yen, about 33.4 million US dollars. Coincheck had been founded by Koichiro Wada and Yusuke Otsuka, who built a business exchanging bitcoin, ether, and fiat currencies across Japan.

  What made an established platform worth buying out, and what earlier crisis forced its hand? The chapters ahead follow how Coincheck was built, what went wrong inside its systems, and how Japan's regulators and courts responded to the fallout.

• 2. Founding An Exchange

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  Koichiro Wada and Yusuke Otsuka launched Coincheck in August 2014, running it through a company originally named ResuPress, founded in 2012 and renamed Coincheck, inc. Within a short time, more than 2,200 merchants across Japan had signed on to accept payments through the platform's bitcoin payment solution. The exchange also handled bitcoin, ether, and fiat currency trades within Japan, alongside bitcoin transactions and storage in some countries.

  The company joined the Japan Blockchain Association, known as JBA, working with the government to help build usage standards for Japan's bitcoin community. Coincheck also partnered with SEKAI, a tie-up meant to let investors from China, Hong Kong, and Taiwan use bitcoin to buy real estate in Japan.

  That partnership positioned Coincheck as a bridge between Asian investors and the Japanese property market. Not long after, hackers would target the exchange's NEM token holdings.

• 3. The NEM Heist

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  In January 2018, hackers made off with about 500 million NEM tokens, worth close to 530 million US dollars, from Coincheck's systems. The stolen tokens moved through a total of nineteen separate accounts. Investigators later determined that one of those accounts had no traceable link to the hacker responsible.

  That gap in the money trail left investigators searching for the person behind the theft. Coincheck, meanwhile, faced immediate pressure from regulators and its own users.

• 4. Picking Up The Pieces

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  Japan's Financial Services Agency ordered Coincheck to strengthen its security practices, stopping short of shutting the exchange down, and citing concern for protecting its users. The incident also pushed two of Japan's existing cryptocurrency trade groups to merge into a single new self-regulatory organization.

  Coincheck initially said it might not be able to compensate every affected user. It later reversed course, pledging to repay all 260,000 users in Japanese yen using its own capital.

  By February 2021, Tokyo's Public Prosecutors Office had charged 31 individuals over their roles in transactions involving the stolen NEM tokens. Those individuals were found to have converted about 18.8 billion yen worth of the stolen coins into other cryptocurrencies.

  After the breach, Coincheck temporarily halted trading and reimbursed customers for their losses. The company also added tighter know-your-customer checks, reviewed its management system, and strengthened internal controls. Those changes reshaped how Coincheck operated in the years that followed.