The $500 Million Heist Hit High-Minded Cryptocurrency: QuickTake
Hackers in $500 million heist targeted obscure cryptocurrency.
(Bloomberg) -- When hackers broke into a cryptocurrency exchange in Japan last week, they made off with about $500 million. But what they stole wasn’t Bitcoin or Ether. They swiped a digital currency called XEM. If you have no idea what that is, you’re not alone. XEM was created in 2014 out of an organization called, helpfully, NEM, and has grown to become the world’s 10th-largest cryptocurrency with a valuation of about $7 billion. It’s most popular in Japan and Russia, but has followers around the world. NEM’s stated mission is unusually high-minded in this world of quick money: fight inequality, save the environment and allow anyone to use blockchain technology.
1. What is NEM?
The official name now is "NEM," but the acronym originally meant New Economy Movement, New Economy Money and other progressive slogans. Invented in 2014 by someone identified only as UtopianFuture, its white paper is decorated with green leaves and quotes everyone from Haruki Murakami to Marcus Aurelius. It’s aimed at fixing the shortcomings of other cryptocurrencies, including Bitcoin and Ether.
2. How is NEM different?
Bitcoin is structured so that people "mine" the currency by setting up computers to solve increasingly difficult mathematical problems. That rewards the hardest-working miners -- and also takes money and electricity. NEM believers argue that approach unfairly favors the rich and wastes mass amounts of power. They distribute XEM coins based on reputation instead. NEM ranks miners based on what their peers think of them, giving the biggest rewards to the highest-ranked people.
3. How does NEM mining work?
Miners must buy a minimum 10,000 XEM (worth $8,000 at current prices) and hold it for several weeks. After that, they become eligible to participate in the mining process. As a miner verifies transactions and accurately communicates with others in the network, the miner’s importance increases, making them eligible to receive a bigger share of mining rewards. “It is an egalitarian cryptocurrency,” said Shiharu Akahane, who oversees fintech research at Tokyo-based NTT Data Corp.
4. Is NEM used in the real world?
Like most blockchain projects around the world, NEM is more hype than reality. But it has attracted some support, including Snap Inc. which in December said it is using the currency to develop a video messaging app. Japanese startup Tech Bureau Corp. in November raised $96 million to build a NEM-powered platform for initial coin offerings. Tokyo-based Metaps Inc., which is publicly traded, is among companies planning to raise money through the platform.
5. Is NEM particularly vulnerable to hackers?
Not really. Executives at Coincheck Inc., the exchange that was hacked, admit they weren’t using all the available security measures. Unlike Bitcoin, NEM is actually hard-wired with multi-signature security, a measure requiring multiple signs-off before funds can be moved. But Coincheck wasn’t using that security. "One of the excuses, which I’m not quite in agreement, is the CEO of Coincheck said that it was too hard to implement,” Lon Wong, head of the NEM Foundation, said in an interview. “It is not hard. In fact, our solution is one of the easiest to implement for all the cryptocurrency types you can find on the market.”
6. Can the stolen NEM be recovered?
That’s unclear. The community has developed a tracking tool that is following the money and NEM exchanges are said to be cooperating to prevent the thief from cashing out. But even that’s no guarantee victims will get their money back. “With cryptocurrencies, if you don’t have the private key, you can’t do anything,” said Takao Asayama, chief executive officer of Tech Bureau which runs Zaif, the world’s largest NEM exchange. “Even if we arrest the thief, if he or she doesn’t hand over the private key, it is impossible to get the money out.”
7. What’s happening to NEM prices since the hack?
Although 6 percent of the global NEM supply was stolen, supporters are largely unfazed. Prices have mostly rebounded since the attack and are up more than 20,000 percent from a year ago, according to coinmarketcap.com. Projects under development are proceeding, according to Tech Bureau’s Asayama, who is also a director of the NEM Foundation. Coincheck has said it plans to repay most of the lost money, though it is unclear if it can do say amid active investigations by Japan’s regulators and Tokyo’s police.
8. How will this affect NEM’s mission?
No one knows how serious the NEM group is about its world-saving rhetoric. UtopianFuture disappeared after the currency’s creation, much like Bitcoin creator Satoshi Nakamoto. For those eager to learn more, there is a nem bar in downtown Tokyo where the currency’s supporters can be found sipping cocktails every night. You can buy an Ethereum Stout or Bitcoin Driver -- and pay with XEM.
The Reference Shelf
- What are cryptocurrencies?
- What central banks say about cryptocurrencies.
- Inside a Bitcoin miner -- a video.
- How to launder $500 million in digital currency.
- Why crypto traders are worried about Tether.
--With assistance from Milda Seputyte
To contact the reporters on this story: Yuji Nakamura in Tokyo at ynakamura56@bloomberg.net, Hideki Sagiike in Tokyo at hsagiike@bloomberg.net.
To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Peter Elstrom, Grant Clark
©2018 Bloomberg L.P.