523m NEM Stolen 🔐 - How It Happened And What's Next

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On today's show:

1. We’ll check in on the growth of the Lightning network

2. We’ll look at the Bitcoin price pattern that is on the edge of breaking out

3. AND I’ll bring you my comprehensive report on the $500m worth of NEM that was stolen, how it happened and what’s happening next.

Story - Lightning Watch 0:50
http://lnstat.ideoflux.com:3000/dashboard/db/lightning-network?refresh=5m&orgId=1

https://docs.google.com/spreadsheets/d/14EN_vpbeLeQNFTNJ8DJbayZX33wlRINW-oQfJjveScI/edit?usp=sharing

Today’s stats.
326 nodes and 846 channels.

And a spike in Segwit:
http://segwit.party/charts/

https://btc.com/
The Bitcoin backlog is clear and tx fees down to $0.15.

Story - Bitcoin Price Pattern 13:21
Charts provided by Coinigy: https://www.coinigy.com/?r=16171fe8

We are reaching the end of this descending triangle pattern.

Story - 523m NEM Tokens Stolen 13:23
https://coinmarketcap.com/
NEM is a top 10 cryptocurrency by market cap.

https://nem.io/
NEM stands for new economic model and describes itself as a smart asset blockchain.

The NEM foundation is based in Singapore, however I believe NEM has Japanese roots, don’t quote me on that.

https://coincheck.com/
Anyway the story is that on Friday the 26th of January, Japan’s 2nd largest cryptocurrency exchange Coincheck, contacted law enforcement to report they had suffered a security breach.

Someone stole 523m NEM tokens from the exchange.
At today’s price of $0.96 that equates to just under $505m, making it the biggest cryptocurrency hack ever by dollar value.

While that’s more the the famous Mt. Gox hack, it’s a much smaller proportion of the overall cryptocurrency market than the Mt. Gox hack.

The question is how a hacker was able to steal this much money from Japan’s 2nd largest exchange.

https://docs.nem.io/en/other-wallets/iphone-wallet/multisig
Well the feature set provided by the NEM blockchain is quite comprehensive and includes a world class multi-signature wallet, meaning when the attacker proposed the transaction to send the 523m NEM out from the exchange, multiple staff members at Coincheck would have to co-sign that transaction.

If you are watching the video version of today’s episode you can see a diagram of how this works.

Making a wallet multi-sginature makes the private key for the wallet useless because it now depends on the keys of three separate people to authorise transactions.

This is all fine, except for the fact that Coincheck didn’t bother to use this feature.

So to be absolutely clear, in no way has the security or integrity of the NEM blockchain been breached. The network performed perfectly and even provided a feature designed to prevent this kind of theft.

The NEM multi-sig wallet is so comprehensive, it even allows you to have 10 signers and require all 10 of them to sign a transaction if you want. That’s the level of security you can have, if you will be use it.

Perhaps the most tragic part (and I’m getting this directly from the NEM documentation) is here where it says [red]

Then yesterday, Sunday the 28th of January, Coincheck published this article:
https://coincheck.com/en/blog/4680

In which they describe their reparations policy towards the 260,000 affect users.

The bottom line is that they will be paying Japanese Yen into each users Coincheck account at the rate of 88.549 per NEM.

They calculated that price based on a time period between Coincheck halting trading and publishing this article.

This process of refunds hasn’t begun yet but once it’s available they’ll publish instructions on how to make a claim.

Meanwhile Coincheck have been in touch with the NEM foundation who are doing their best to monitor the stolen NEM on the blockchain, in an attempt to identify the hacker and catch them.

For more information on this I’ll refer you to Alex from the Inside NEM YouTube channel who wasted no time in getting Jeff McDonald, Vice President of the NEM Foundation on for an interview.

This is a 27 minute interview where Jeff describes what the NEM Foundation is doing to help Coincheck, but does point out a clear failure to use the multi-sig wallet that is readily available.

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