Hackers stole all customer Bitcoin deposited in a Japanese exchange, but the platform promised to reimburse all users in full after the incident.
Japanese crypto exchange DMMBitcoin suffered a hack on May 31, losing some 4,502.9 Bitcoin (BTC) worth around $308 million to bad actors in crypto’s seventh largest hack and the biggest heist since December 2022, per Chainlysis.
The company imposed restrictions on services like withdrawals, spot trading buys, new leveraged positions, and new user onboarding till further notice to stem more outflows.
Outflows may have originated from hot wallets used for frequent transactions but the platform did not rule out a compromise of one of its cold storage solutions. At press time, DMM had not disclosed details of the vulnerability exploited by hackers during the “unauthorized leak”.
According to a notice, full reimbursements are possible due to compliance with local law. Japanese rules require virtual asset service providers to manage corporate liquidity separately from user funds.
Should users custody Bitcoin on crypto exchanges?
The leak underscores a popular question within the crypto community, whether users should store funds on crypto exchanges long-term. Experts have often argued that centralized exchanges aren’t banks, and users shouldn’t leverage these platforms for digital asset storage.
As the pro-self-custody saying goes – “Not your keys, not your coins”. Another issue highlighted by the DMM incident is exchanges managing user deposits in-house.
Crypto exchanges are typically used for quick transactions across multiple decentralized networks for a basket of digital tokens. In a sense, exchange handling customer crypto custody expedites this process but also runs the risk of hacks, theft, and bankruptcy.
The 850,000 Mt Gox Bitcoin hack in 2014 was an early example of the risks of keeping crypto on centralized platforms. Following suspended withdrawals throughout the 2022/2023 Terra and FTX contagion, the issue has claimed a spotlight among burning crypto concerns.
Many participants staunchly advocate for self-custody and keeping assets on decentralized solutions like MetaMask or in cold storage.