It’s possible that you have already heard about the Coincheck hack in which 500 million NEM tokens were stolen from a hot wallet on a Japanese exchange. As more crypto is being traded online, these platforms are becoming an increasingly appealing target for hackers and what’s worse is that once these funds are stolen, they are difficult to recover, and the thieves hard to track.
This Coincheck hack marks one of the biggest heists in history, and its timing could be a massive blow in the drive to encourage trust in the token economy, coming into the spotlight at a time when critics from all sides are spreading FUD. However, the industry is continually searching for ways to prevent future occurrences and repair the damage done to the confidence in the system.
What has happened since?
In the months since the Coincheck hack, there has been a more significant drive to bring the market under some regulatory control. It’s not just authorities taking the initiative in this regard. Sixteen of Japan’s registered coin exchanges have decided to impose regulations on themselves and will be forming a self-regulatory body in April. CNN reports that this body aims to establish guidelines for ICOs in Japan – a measure that should decrease the number of scammers taking advantage of the current hype surrounding crypto and will be the first step in regaining the trust of investors.
Will regulation restore confidence in crypto?
No – at least not on its own. Similar heists are too common an occurrence, and the technology is still plagued by other problems. Exchanges come under the most scrutiny, but aside from hackers, there are other traps into which an unsuspecting investor may fall, such as ICO scams. To build enough trust in the market, these problems need addressing.
Ethereum was famously victim to a hack in which $64 million worth of ether was stolen. What happened next, however, could provide an option for future developers. Instead of trying to track the thief, Ethereum founder Vitalik Buterin, used a software update to reset the blockchain to a point before the heist took place.
This created a hard fork that split Ethereum into two systems running alongside each other and ether on the old blockchain plummeted in value. This move wasn’t received well by all investors, but it has provided a precedent for dealing with future heists.
Could technology solve the problem?
Turning back the clock may seem like a good way of dealing with theft, but it would be better to ensure such action isn’t necessary. The Ethereum blockchain already allows for smart contracts that can help handle more complicated transactions, and innovators are looking at other ways software can improve blockchain technology.
Polymath, for example, employ what they call KYC-aware token technology that ensures only authorized investors can participate on their network. This provides an additional layer of security for those using the network, discourages scammers, and is an effective way of building trust.
Blockchain technology is constantly evolving. Innovators are always looking to make it safer, but it does appear that regulation needs to keep pace with innovation. If investors aren’t protected, and the technology gets a bad name before the majority of people have a chance to experience the benefits, how can widespread adoption be achieved?
Michael is an English and Creative writing graduate of Liverpool John Moore’s University, a former editor of several magazines, and a crypto-currency enthusiast. He is mostly interested in crypto-legislation and the potential of decentralized technology to change the world.