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In its most sweeping crackdown yet, a Japanese regulator has penalized seven cryptocurrency exchanges, requiring two to halt operations for one month.

Japan’s Financial Services Agency (FSA) announced today, March 8, 2018, that it came down on the exchanges due to their failure to provide proper internal-control systems. All of the exchanges were ordered to step up efforts to improve security and prevent money laundering.

Business suspension orders were issued for FSHO and Bit Station, effective today. The FSA said FSHO was not properly monitoring trades and employees at the exchange had not undergone proper training. The FSA also alleged that a senior employee at Bit Station had used customers’ bitcoin for personal use.

The five other exchanges punished were GMO Coin, Tech Bureau, Mister Exchange, Increments and Coincheck. Coincheck was served with its second business improvement order since its security breach earlier this year, when $530 million worth of NEM (XEM) tokens were stolen.

Coincheck to Repay Victims

In a news conference today, Coincheck also announced that it will begin compensating users who had their cryptocurrency stolen, beginning as soon as next week. The exchange was hacked on January 26, 2018, after a hacker used malware to gain access to an employee’s computer.

All of the 260,000 users impacted by the theft will be paid back in Japanese yen, based on NEM rates at the time of the theft, the Tokyo-based company said.

At the root of the problem, the cryptocurrency exchange had been keeping all its NEM in a hot wallet connected to the internet. In contrast, at any one time, U.S.-based exchange Coinbase keeps 98 percent of its funds in a more secure cold wallet. The vice president of the NEM Foundation, Jeff McDonald, also told Bitcoin Magazine that if Coincheck had been using a multisignature wallet, the problem would not have occurred.

It is still not clear who was behind the Coincheck hack.

Tough Measures

The Coincheck hack was one of the largest thefts of cryptocurrency in the world since Mt. Gox, another Tokyo exchange, was brought to its knees by hackers in 2014. What happened at Coincheck highlighted the risks of storing funds in cryptocurrency exchanges, and since then, Japan’s FSA has taken strong measures to protect its citizens and ensure the security of cryptocurrency exchanges across the country.

Following the Coincheck breach, Japanese authorities announced on January 29, 2018, that they would investigate all cryptocurrency exchanges in the country for security gaps, and ordered Coincheck to, essentially, get its act together.

The FSA gave Coincheck until February 13, 2018, to submit a report summarizing the actions it would take to improve security and customer support.

Last year, Japan became one of the first countries to regulate cryptocurrency exchanges when it set up a licensing system. Some 16 exchanges in the country are currently registered, while another 16, including Coincheck, have been allowed to continue operating unregistered while they apply for licences. Five of the seven exchanges punished by the FSA are unregistered, including the two forced to suspend business. Subsequent to its business suspension, Bit Station withdrew its application for a license.

Japan’s crackdown on exchanges follows a series of efforts by U.S. regulators to tighten reins on the industry. Yesterday, the U.S. Financial Crimes Enforcement Network (FinCEN) proclaimed that anyone selling initial coin offering (ICO) tokens are unregistered money transmitters, while the U.S. Securities and Exchange Commission (SEC) warned that any exchange selling tokens deemed as securities must register with the agency.

Overall, Japan remains one of the more cryptocurrency-friendly countries, distinguishing itself from crackdowns in South Korea and China.

Today, Overstock’s Medici Ventures doubled down on its investment in the realm of digital currency for central banks. The additional $3 million dollar investment in  Caribbean blockchain-based digital payment provider Bitt.com signals a reaffirmation of Overstock and Medici’s belief in the ability of digital currencies to become the de facto means of payment transactions.

Medici Ventures originally invested $4 million in the Barbados-based fintech company in 2016. At the time of the initial investment, Overstock CEO, Patrick Byrne, stated, “Bitt has a vision for the Caribbean of frictionless mobile cash, beginning with central banks transparently issuing digital fiat which is then exchanged on a blockchain (all under proper regulatory oversight, as with our tØ offering to Wall Street).”

In a recent conversation with Bitcoin Magazine, Byrne reaffirmed his company’s continued belief in that vision. He pointed out the ubiquity of payments in the island nation, citing that people use digital currency for all kinds of purchases at 150–200 stores around the island, even at the fried-chicken restaurant chain Chefette. “You can walk into this charming chain and buy a drumstick with your phone,” said Byrne, “so it’s basically mobile banking but it’s not tied to any bank.”

To Byrne, the local utilization and adoption of blockchain-backed digital fiat for small purchases, such as a meal, is a positive signal that the Bitt success could spread to other countries. In late February 2018, Overstock announced Bitt had signed a memorandum of understanding with another Caribbean island: Montserrat.

“As goes Montserrat, so goes the globe,” said Byrne.

Hyperbole aside, Montserrat is technically a British Overseas Territory. “There are other countries behind them … we have ‘central bank in a box,’” Byrne said. “The difference between us and all the other people who say they are doing it … is we are going step by step and taking these steps.” Those steps seem to allow Bitt.com to provide a turn-key solution for central banks to issue new fiat currencies digitally on a blockchain, something Byrne suggested is not being adequately fulfilled by others attempting to provide a similar solution.

By exercising its option to increase its ownership stake in Bitt’s total Class A and B common shares by 8.6 percent in exchange for $3 million in additional funding, Overstock’s ownership stake in Bitt has increased by 8.6 percent.

The new investment underscores what Medici Ventures president, Jonathan Johnson, stated in today’s press release: “[Bitt] has positioned itself as a clear leader in applying blockchain technology to solve real-world problems … Bitt has taken a good idea and grown it into a viable product able to make the financial lives of Caribbean residents easier. We’re pleased to take a larger stake in this forward-thinking company, as it aligns with Medici Ventures’ goals of re-democratizing capital.”

For his part, Bitt CEO Rawdon Adams stated that the “reaffirmation” of his company’s promise by Medici Venture was “a tremendous reflection on the dedication, motivation and execution skills of my colleagues.”

He added, “Bitt is in a unique position to provide the solutions to boost both financial inclusion and overall economic performance through its blockchain-based software. That’s already being recognized by regional governments overseeing economies characterized by large informal sectors, persistently high rates of poverty and expensive traditional financial services.”