Cyberattack targeting cryptocurrency supports Egypt’s Bitcoin ban


Tue, 30 Jan 2018 - 04:02 GMT

Broken representation of the Bitcoin virtual currency, placed on a monitor that displays stock graph and binary codes, are seen in this illustration picture, December 21, 2017 - REUTERS/Dado Ruvic/Illustration

Broken representation of the Bitcoin virtual currency, placed on a monitor that displays stock graph and binary codes, are seen in this illustration picture, December 21, 2017 - REUTERS/Dado Ruvic/Illustration

CAIRO – 30 January 2018: After being hacked and losing cryptocurrency worth $530 million on January 25, Japanese exchange Coincheck Inc. revealed on January 27 that it will spend up to ¥46.3 billion ($426 million) to pay back customers.

In a statement on its website, Coincheck Inc. assured customers and watchers that it will pay back those holding the cyrptocurrency NEM in Japanese yen at a rate of ¥88.549 per NEM. The company revealed that it lost 523 million NEM after the cyberattack, translating to ¥46.3 billion ($426 million).

They also revealed that some 260,000 customers hold NEM.

Coincheck Inc. did not reveal when they would give the money to those affected by the cyberattack, leaving the customers worried and frightened.

Moreover, the rate given by Coincheck Inc. for NEM reflects the heavy withdrawal that the company suffered from after the news of the cyberattack became known. Many customers banking with the company withdrew cryptocurrencies and yen after the hack.

Coincheck Inc. has been heavily criticized by many people, some of whom took to Twitter to air their concerns. Most customers feel that they should be compensated at the earlier, higher rate and in NEM rather than in yen. They feel that they should not be the ones to suffer the failure of the company to secure the accounts.

On Sunday, Coincheck Inc. reaffirmed the fact that it is currently working to restore service and obtain a license from Japanese authorities allowing it to operate as a cryptocurrency exchange. Despite Coincheck Inc. being, according to their website, Japan’s largest bitcoin exchange based on trading volume, the company has not yet been issued a license. The company was allowed to stay in business by Japanese authorities, as they had only started requiring licenses in 2017. Many exchanges were allowed to continue operating while applying for the license.

Coincheck president Koichiro Wada apologized, “Some parts of our service were suspended today [on Sunday]. I deeply apologise for your inconvenience because of this incident. I am very sorry.” He also revealed, according to Forbes, that the company may require financial assistance to cover its losses.

Forbes further reported, based on comments by Chief operating officer Yusuke Otsuka that stolen funds were kept in a “hot wallet” — one connected to the internet. When pressed about the reasons behind this, Wada explained that there were technical difficulties and staff shortages that resulted in funds being stored online.

Previously, Japan has suffered similar attacks, the last and biggest of which was four years ago at the then world’s largest bitcoin exchange, Mt. Gox. The losses from the attack amounted to about $450 million, based on the bitcoin’s price at the time. Calculating the amount lost now would leave the loss in the trillions.

Until today, Mt. Gox customers are still awaiting compensation, as the case ended up in bankruptcy court liquidation.

In response to the attacks, many security experts spoke out about the possible increase of attacks if security is not strengthened.

In an interview on CNBC, Tyler Moffitt, senior threat research analyst at Webroot, stressed the importance of keeping your upping security, stating that this is “only the beginning.”

Moffitt also told, “I would have thought the attacks would have been more frequent than we are currently seeing – it looks like every month there is a large amount of tokens stolen from an exchange. … I think now is the beginning because more and more people are aware of cryptocurrencies, more people are buying them and there will be more adoption.”

“I believe that we’re at the beginning for sure and it’s going to continue and [the attack in Japan] isn’t the end.”

Throughout the World Economic Forum in Davos last week, world leaders also spoke out about the dangers of cryptocurrencies, with U.S. Treasury Secretary Steven Mnuchin presenting Washington's concern about the money being used for illicit activity.

News of the cyberattack reached countries worldwide, assuring Egypt and other countries that banned cybercurrencies that they made the right decision.

Grand Mufti's Counsellor Magdy Ashour had spoken out against the use of Bitcoin late 2017, early 2018. He stated that the use of Bitcoin is forbidden in Islamic Sharia for the risks it holds, besides its usage as a tool to fund terrorism.

The Mufti’s counsellor issued a Fatwa (Islamic ruling) that the virtual currency should not be used to make financial transactions because it has no monetary cover by the Central Bank of Egypt (CBE), which means it is not guaranteed.

In similar vein, on December 17, Head of the Egyptian Financial Supervisory Authority (EFSA) Mohamed Omran announced that Bitcoin trading is illegitimate in Egypt, recommending that people refrain from buying or selling the digital currency.

“This currency is used directly to fund terrorists,” Ashour told Egypt Today December 31, explaining that its transactions contain major damage to the economy. “It has no set rules, which is considered as a contract annulment in Islam; that is why it is forbidden.”

Prior to the Fatwa, Dar Al-Ifta had warned against the digital currency, saying that it gives extremists a chance to receive funding, especially after the government’s crackdown against them and cutting out their resources.

Egypt's Grand Mufti, Shawki Allam, confirmed on January 1, that it is not permissible to trade, purchase or sell Bitcoin currency, as it poses many risks on people; the currency may lead to fraud or falsifying its value.

He remarked that it is a virtual currency, not backed by any tangible asset, and can be issued without any control and without relying on any centralized authority, adding that it does not undergo any surveillance of financial institutions, as it depends on internet trading without any control. He indicated the risks that could arise as a result of this lack of surveillance.

Allam stressed that he met with economic experts to reach a final decision regarding the Bitcoin by analysing its effect on the economy, referring that the meeting has concluded that:

1- A deep study on Bitcoin and other digital currencies in the exchange market is needed to control it.

2- Exchange markets of these kinds of currencies are very risky, as it is difficult to predict prices and value due to its extreme volatility and fluctuations. In addition, brokers could benefit from these fluctuations to attract investors to use these currencies; this leads to weakening a country’s ability to preserve its local currency and control the currency exchange. It also negatively affects the financial policy and the expected fiscal revenues of states, and it opens the door for tax evasion.

3- Selling and buying Bitcoin requires encryption techniques to regulate the generation of units and verify the transfer of funds, making it necessary to produce backups to sniff out online piracy and to maintain it from theft or damage through the infection of serious viruses, making Bitcoin unavailable to be circulated among the public easily.

4- It is not recommended to be used as a safe investment as it deals on the basis of speculation, aiming to achieve extraordinary profits by selling or purchasing, making it extremely volatile, and face piracy.

5- Unlike bonds and equities, problems that occur will be the complete responsibility of the miner, or the person who owns the currency, which may lead to them losing their whole capital.

6- Bitcoins undermine the legal system, as companies can evade taxes and not disclose their profits due to the fact that Bitcoins are untraceable. Furthermore, companies turn their attention to cryptocurrencies as it allows them to launder money or finance terrorist activities and engage in other fraudulent behaviours.

Consequently, Allam said that based on what was mentioned the terms required for any money circulation are not available in Bitcoin as it does not have a physical form and it leads to fraud in its banks and value, resembling it to counterfeit money.

In this regard, Bitcoin is forbidden in Islamic Sharia as it leads to more corruption, because it is a decentralized and anonymous system and it is difficult to trace who gave how much to whom.

Other Muslim countries also forbad Bitcoin for due to similar reasons; Bangladesh and Morocco are perhaps two of the most important examples.

In September 2014, the Bangladeshi central bank cited bitcoin's lack of a central payment system as the reason behind the ban, which it believes would allow people to be "financially harmed." It is illegal to trade in the currency under the Foreign Currency Control Act of 1947 and the Money Laundering Control Act of 2012.

The Central Bank of Bangladesh released a statement explaining the ban and its negative impacts in Bangladesh.

In November 2017, Morocco banned the currency, as it is “a hidden payment system that is not backed by any financial institution.”

Interestingly, Qatari Leaks released a video on January 28, claiming that Qatar intends to recognize virtual currencies.

The platform, which aims to shed light on Doha’s strategies to support and fund terrorism, revealed that these currencies will be used to finance terrorism as they are untraceable, meaning there will be no centralized control over them and that the international community would have a more difficult time proving that Qatar is, in fact, funding terrorism.

Currently, many governments are mulling how to regulate and classify Bitcoin, a volatile digital currency that has captured the interest of speculative investors worldwide as its value has soared, roughly quadrupling since the start of 2017 and trading at around $18,000 on the Luxembourg-based BitStamp platform. It has soared by roughly 1,700 percent so far this year.

The virtual currency relies on a network of computers that solve complex mathematical problems as part of a process that verifies and permanently records the details of every bitcoin transaction made.



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