16 Jan 2019

Cryptocurrency users try to reclaim funds from hacked exchange

7:21 pm on 16 January 2019

About 40 people have come forward to try and reclaim their investments with the New Zealand cryptocurrency exchange Cryptopia, which crashed this week after being hacked.

Bitcoin crash concept. Stock market arrow on digital background. 3d illustration.


Police have started investigating after millions of dollars of digital money disappeared from the online exchange, but people who made sizeable investments during the Bitcoin bubble fear their money may be gone for good.

On 13 January, $US3.6 million ($NZ5.3m) was transferred from Cryptopia to an unknown digital wallet.

The following day its website was down and concerned investors left in the dark, except for a brief statement that said there had been a security breach.

It is not the first time digital currency investors have been anxious about money they were keeping with Cryptopia, which is similar to the way money is stored with banks.

Christchurch lawyer Clive Cousins was approached early last year by investors who didn't know what was going on with their funds.

"We were contacted initially by about three people, including a South African lawyer, who were complaining that they were having trouble transacting using their wallets and couldn't withdraw funds."

Mr Cousins said a further 40 or so people have since approached him with an eye to launching a joint lawsuit.

He said Cryptopia's success may have contributed to delays in processing transactions.

In 2017 the company claimed to have 30,000 users around the world. This increased to 1.4 million by January last year.

The lawsuit has stalled due to a lack of funding, but Mr Cousins said his clients still wanted to know what was happened to their money.

Cryptocurrency consultant Josiah Spackman said one of the problems with Cryptopia was its focus on lesser known digital currencies, which meant not as many eyes were monitoring transactions as with currencies like Bitcoin.

"Because they were often the exchange that people would go to for these lesser-known currencies - these up-and-comers - they got a bit of a reputation for that and they did in fact grow quite significantly from that.

"Unfortunately, as a result they've had these other coins disabled. So once you purchase them you basically can't get them off the exchange."

Mr Spackman said it could difficult to track down those responsible for the hack.

"It is effectively like a bank holding the funds for thousands, tens of thousands, hundreds of thousands of users. And they are basically tasked with keeping it safe.

"The problem is it's easier to hack a computer than to physically walk into a bank and take gold and silver."

Police were today seen at Cryptopia's offices on Colombo St in the Christchurch suburb of Sydenham but no-one from the company could be reached for comment.

Adrian Przelozny, from Sydney-based cryptocurrency exchange the Independent Reserve, said crypto exchanges were natural targets for hackers but attacks were becoming less frequent.

"Smaller companies grew very quickly and they perhaps didn't have the controls in place to manage the amount of client funds they were holding."

A Christchurch-based investigation team is being established and includes specialist police staff with expertise in this area.

Police said they were liaising with relevant partner agencies in New Zealand and overseas.

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