How Would Australia Handle A Large Scale Cryptocurrency Exchange Hack?

With the recent Coincheck hack, this has exposed investors to the risk of getting their money stolen. Large-scale hacking on exchanges has been more rampant especially to investors to put their money into exchanges. Your cryptocurrency can easily go into the hands of money launderers and terrorists. As one of the popular Japanese exchange Coincheck was recently hacked, it will force cryptocurrency investors to think hard about how they are protecting their assets.  In this hacking, over $616 million worth of native cryptocurrency was stolen from the exchange.

Did you know that one-third of all exchanges have been hacked?

It doesn’t help that cryptocurrencies are so difficult to track. In a way, this is a double-edged sword because it was the feature that made a lot of people wanted to buy cryptocurrencies in the first place. The rate of the recovery after a hack is incredibly low.

If you’re lucky enough, the exchange may be willing to compensate you for your loss by selling their holdings and paying off the refund. In Australia, the government has established legislative provisions that will help regulate how exchanges do business. Hence, this is hoped to reduce the risks of getting attacked and make operators more accountable for losses.

With exchanges, investors don’t have a depositors insurance. This is the main reason why exchanges are not regulated. In the case of a hacking, it is difficult to track who did it. This is because the attackers can simply transfer all of the cryptocurrencies into their virtual wallet which is highly encrypted.

The Coincheck Hack

This Japanese exchange hack exceeds the Mount Gox hacked which resulted in over $480 million being stolen. Hence, this highlights the importance of bringing exchanges in line with money-laundering and counter-terrorism financing measures. Japanese lawmakers have made compulsory for exchanges which are offering within services within the country to register and comply with the rules. Hence, anonymous trading is not permitted within Japan. Any exchange must also employ sufficient staff within the firm. In addition, balance sheet and customer deposits must be in cold storage.

The good thing about these regulations is that these exchanges will be held liable in the case of a hacking or collapse due to the hacking. Japanese authorities are threatening to prosecute the operators of Coincheck as they failed to comply with the new laws. The main reason for the hacking which occurred on Coincheck was because the storage was connected to the Internet instead of being offline. Therefore, Japanese authorities will have a good case against prosecuting the company. Investigations are ongoing to review any other irregularities which may have caused the hacking. Thankfully, the exchange promised to return at least 90% of the loss of the cryptocurrencies. However, they have yet to explain how they will make this happen.

How would Australia’s regulatory react if the Coincheck happened to the country?

In the struggle to define the regulation of their cryptocurrency exchanges, Japan is not alone. The Australian government has recently announced that they will monitor Bitcoin and other cryptocurrencies. Under the new legislation that the government introduces, this forces all exchanges to disclose details about investors and transactions. The government is also trying to avoid the cryptocurrency space being used as an area where people launder money and fund criminal activities. Therefore, anonymous trading is no longer permitted in the region and any suspicious transactions must be reported immediately.

All transactions worth AUD 10,000 or more must report to AUSTRAC. The necessary details of the report must include the recipients of the transaction. In the case where the operator fails to comply, there will be severe consequences for this. However, the government is highly reliant on the honesty of these exchanges at it difficult for them to monitor any breaches within the cryptocurrency ecosystem. Therefore, one of the common ways to identify possible wrongdoing is by looking at the size of deposits made into the bank accounts.

However, even this doesn’t ensure that everyone is a law-abiding citizen. People can easily create fake trading accounts that break up the deposits into smaller accounts to avoid raising any suspicions. For these exchanges, being confined to these regulations also piles up their operating costs. Under Australia’s current laws, any major hacking of the cryptocurrency exchange will make the operators liable for any losses.