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Security breaches hit cryptocurrency exchanges, poses risks for investors

Two cryptocurrency exchanges encountered major problems in December, with one forced into bankruptcy because of a cyberattack.

The Financial Times reported that the Yapian-operated Youbit exchange suspended trading after hackers caused it to lose 17% of its assets. This followed a security breach the exchange encountered in April.

Youbit was launched in 2013 and facilitates the trading of 10 digital currencies, including Bitcoin and Ethereum. The exchange said investors could redeem about 75% of their digital coin; the remainder would be paid after Yapian completes its bankruptcy process.

Meanwhile, The Wall Street Journal reported that the San Francisco-based Coinbase, which maintains one of the world’s largest cryptocurrency platforms, has started an investigation into possible misconduct after a drastic surge in the price of Bitcoin Cash.

On December 19, Coinbase advised its users that it would allow trading in Bitcoin Cash on its GDAX platform later that evening. As soon as the platform started accepting trades, the cryptocurrency’s price surged to US$9,500 — more than triple compared to other exchanges.

Four minutes after Bitcoin Cash trading began on GDAX, Coinbase halted the service; the company said it would remain offline until December 20. Hours after the halt, the company said it would look into whether any of its employees, contractors, or their friends and family, used confidential information about its plans before they were made public.

According to data from CoinMarketCap, Bitcoin Cash had undergone a 28% price increase in the 24 hours preceding Coinbase’s initial announcement. In the 75 minutes before trading was activated on GDAX, there was another rise of 20%. The launch was also thought to cause a US $2,000 decrease in Bitcoin prices to US $15,700, which was reversed shortly afterward.

The movements in the price of Bitcoin Cash have prompted some speculation of front-running by individuals who may have had advance knowledge of Coinbase’s plans. In a recent blog post, Coinbase said its employees “have been prohibited from trading in Bitcoin Cash for several weeks”.