You’ve probably heard about the Coincheck fiasco. Coincheck is a Japanese-based cryptocurrency exchange. The exchange was hacked and about $530 million of cryptocurrencies went missing. This caused the usual “run on the bank” as customers scrambled to withdraw their deposits.
The exchange had to close its doors and prohibit customer withdrawals. This is similar to the “ice-nine” response I described in Chapter 1 of my book The Road to Ruin where banks, exchanges, brokers, money market funds and others will simply suspend redemptions and freeze your money in the next financial panic rather than engage in bailouts and money printing as they did in 2008. The owners of Coincheck next promised to give customers their money back. Nice try.
It turns out that it didn’t actually have that much money despite the promise. The exchange is trying to get back to normal, but without much success. Regulators are breathing down their backs. But the nightmare doesn’t end there.
As this article reports, class action lawyers have filed major lawsuits against Coincheck and their management, demanding that accounts be reopened. Another lawsuit is planned to request damages for losses. Coincheck is just the latest in a string of frauds, hacks and failures that have resulted in billions of dollars of losses to customers.
The bitcoin advocates keep claiming that this is just the cost of technology development, and exchanges keep claiming they have learned the lessons of past failures. None of it is true. Technology does have glitches in its early stages, but not the kind that cost customers billions of dollars.
And the lessons clearly have not been learned, because these hacks just keep coming. One more reason to steer clear of bitcoin and unregulated cryptocurrency exchanges.