News about crypto assets (also known as virtual currencies) frequently includes reports of exchange hacks and unauthorized access incidents. Reading these stories, many people wonder: "If something like this happened to me, would my assets be compensated?"
The short answer is that crypto hacking losses are not compensated uniformly—the outcome depends heavily on the circumstances. In particular, whether the exchange itself is at fault, or the incident stems from an individual's own account management, makes a major difference in whether compensation is offered.
This article organizes crypto hacking incidents into several patterns and explains how compensation is typically approached in each case. It also covers basic measures individuals can take to protect themselves from such incidents.
Crypto hacking incidents fall into three categories
Crypto hacking incidents may look similar on the surface, but their causes and mechanics vary considerably. Where and how the breach occurs largely determines who is responsible and how the situation should be addressed.
To properly understand the reality of these incidents, it helps to first organize them by type. Below are three representative patterns, along with the characteristics of each.
Exchange hacks
This pattern refers to cases where a crypto exchange's systems or wallets are attacked from outside. Because exchanges manage the pooled assets of many users, a single breach tends to result in large-scale damage.
In particular, "hot wallets"—wallets kept connected to the internet for convenience—are considered more vulnerable to external attacks. Several past incidents involved unauthorized access targeting this kind of setup, resulting in asset outflows.
For example, in 2018 a major asset outflow incident occurred at Coincheck, a domestic Japanese crypto exchange. According to Coincheck's official announcement, the incident was described as follows:
Of the crypto asset NEM entrusted to us by our customers, 526,300,010 XEM was sent externally due to unauthorized access between 00:02 and 08:26 on January 26, 2018.
Source: Coincheck FAQ on the unauthorized transfer of the crypto asset NEM (in Japanese)
In this incident, an external attacker infected an employee's device with malware, used it as a foothold to infiltrate the internal network, and then unlawfully obtained the private key (signature key) needed to transfer the crypto assets. Using the stolen key, the attacker transferred a large volume of assets externally.
In cases where the exchange itself is hacked, the attack targets the service as a whole rather than any individual user. As a result, the scope of impact tends to be broad, making the exchange's management systems and security measures critical factors.
Unauthorized access to an individual account
This refers to damage that occurs when a user's own login credentials are stolen, rather than the exchange itself being breached. Here, the target of the attack is the "individual account," not the service.
A common method is phishing. Attackers direct victims to fake websites or emails disguised as a legitimate exchange, tricking them into entering login credentials or authentication codes. Because these fake pages can closely resemble the real thing, many people enter their information without noticing anything is wrong.
Reusing passwords or poor password management is another risk factor. For example, there are reported cases where IDs and passwords leaked from other services were reused to gain unauthorized access. In such cases, even if the exchange's own systems have no problems, an account can still be taken over.
Japan's Financial Services Agency (FSA) and the Consumer Affairs Agency have both issued warnings that crypto exchange users have had their credentials stolen via phishing sites and subsequently suffered unauthorized transfers of funds. In these incidents, assets are transferred to a third party's wallet after login, so by the time the victim notices, recovery is often already impossible.
In this way, unauthorized access to an individual account is a type of damage that depends heavily on the user's own security practices and awareness. It's important to understand that this risk exists on a separate plane from the exchange's own security.
Incidents involving DeFi or personal wallets
When using DeFi or self-custody wallets, assets that users manage directly—without going through an exchange—can become the target of attacks. Here, the defining feature is that the individual is the one responsible for managing the assets. In this kind of environment, users must manage their own private key (signature key) or recovery phrase, which are needed to operate the assets. If this information becomes known to a third party, there is an immediate risk that the assets could be moved freely.
For example, cases have been reported where users connected their wallet to a fake website, or entered sensitive information after falling for a phishing attempt, resulting in unauthorized transfers of assets. In DeFi, transactions are executed through programs called smart contracts, and if there is a flaw in this mechanism, attackers can exploit it to drain assets.
Many crypto and DeFi systems are designed without a central authority—like a bank—to reverse unauthorized transactions or provide compensation. As a result, the available response when something goes wrong tends to be limited, and users need to understand this risk before participating.
In this way, damage related to DeFi or personal wallets depends heavily on the individual user's own management practices and understanding of how the system works, rather than on any specific service provider. Unlike exchanges, the responsibility for asset management rests with the individual, which calls for more careful handling.
Exchange hacks may be compensated
So, in what kinds of cases is compensation actually provided?
Among crypto hacking incidents, when an exchange itself is attacked, compensation for users is sometimes provided depending on the circumstances. This is because the exchange holds users' crypto assets in a custodial capacity, and the incident may be judged as stemming from its own management practices.
In fact, there are past cases where an exchange decided, at its own discretion, to compensate users for their losses. Because crypto exchanges carry some characteristics similar to financial services, they may take such action out of concern for maintaining user trust.
Let's look at some concrete examples of compensation that has actually been provided in the past.
Notable past cases of compensation
As mentioned earlier, a representative example is the 2018 Coincheck unauthorized transfer incident. In this case, holders of the stolen crypto asset NEM were compensated in Japanese yen. The official explanation of the compensation was as follows:
Compensation method: Refunded in Japanese yen (JPY) to each customer's wallet with us. Compensation amount: ¥88.549 × the amount held as of 23:59:59 on January 26. Eligibility: Customers who held NEM in their Coincheck wallet as of 23:59:59 on January 26.
Source: Coincheck FAQ on the unauthorized transfer of the crypto asset NEM (in Japanese)
In this case, compensation was paid not in the stolen crypto asset itself, but converted into Japanese yen. The compensation was also not immediate—it was carried out over a period of time, ultimately completed in March 2018.
As this case shows, compensation may be provided for hacking losses affecting assets managed by an exchange, based on certain criteria. That said, the specific content and method vary from incident to incident and are not uniformly predetermined.
Why and how compensation is provided
Behind an exchange's decision to compensate users after a hack lies its position as the custodian of users' assets. Because crypto exchanges take custody of users' assets and are responsible for managing and safeguarding them, they may be held responsible if there were shortcomings in that management.
This is a similar idea to traditional financial services such as banks or securities firms. For example, when a financial institution experiences an unauthorized outflow of assets it manages, certain measures may be taken from the standpoint of protecting users. Additionally, an exchange's business continuity depends heavily on user trust. For this reason, when a hack results in significant losses, compensation may be offered to help restore that trust.
In this way, compensation by an exchange is determined not only by legal obligation, but by multiple factors, including user protection and business considerations.
Why not every case results in compensation
Even when an exchange is hacked, compensation is not guaranteed in every case. This is because compensation is not a uniformly defined system—it ultimately depends on each exchange's own decision.
First, unlike bank deposits, there is no public protection scheme in place for crypto assets. As a result, how an incident is handled in practice depends on each exchange's own policies and internal systems. Depending on an exchange's financial condition, providing sufficient compensation may also be difficult. If a large-scale outflow occurs, the resulting losses can be so large that full compensation becomes unrealistic.
Furthermore, if the exchange in question is based overseas, different rules and practices from those in Japan may apply. Because the operating entity and regulatory environment differ, whether and how compensation is provided can also vary.
In this way, compensation for hacking incidents at exchanges is not guaranteed and is determined by multiple factors. While there is a possibility that compensation will be provided, it's important to understand that it cannot always be expected.
Personal account breaches are often not compensated
As seen so far, when an exchange itself is hacked, compensation may be provided depending on the circumstances. On the other hand, when an individual's account is breached through unauthorized access, such compensation is generally not offered.
The key factor distinguishing these two situations is "where the cause lies." If the issue stems from the exchange's own management systems or security, the service provider may be held responsible. On the other hand, if the issue relates to the user's own authentication credentials—such as falling for phishing or failing to manage passwords properly—it tends to be treated as a matter of individual responsibility and is often excluded from compensation.
In addition, crypto transactions generally cannot be reversed once a transfer has been executed. Unlike bank transfers, there is no established system for reversing unauthorized transactions after the fact, which means that in many cases recovering the assets becomes difficult once the damage has occurred.
Furthermore, in systems like DeFi or self-custody wallets where there is no central administrator, it may not even be clear who bears responsibility in the first place. In such cases, even if the root cause lies within the system itself, there may be no mechanism for compensation to begin with.
In this way, whether compensation is available for crypto losses is determined not by the scale of the damage, but by where the cause lies and the nature of the service involved.
How to protect yourself from crypto hacking incidents
What matters most in preventing crypto hacking losses isn't specialized knowledge, but reliably practicing the basics. Many incidents don't stem from highly sophisticated attacks alone—they arise from everyday habits around managing credentials and accessing accounts.
By covering the fundamentals—settings that prevent unauthorized logins, precautions against fake websites, and proper management of sensitive information—you can significantly reduce your risk. Below are some of the most important measures to keep in mind.
Set up two-factor authentication to prevent unauthorized logins
Protecting your crypto account with an ID and password alone is not sufficient. This information can be exposed to third parties through phishing or data leaks.
This is where two-factor authentication (2FA) becomes important. Two-factor authentication is a system in which, in addition to a password, you must enter a verification code generated by an app such as an authenticator app on your smartphone. This helps prevent unauthorized logins even if your password has been compromised.
SMS-based two-factor authentication is also widely used, but it carries risks such as "SIM swapping"—a technique used to hijack a phone number—as well as other methods of intercepting communications. For this reason, authenticator apps such as Google Authenticator are recommended. These apps generate verification codes locally on your smartphone without relying on network communication, which makes them harder for attackers to target and, in some cases, more secure.
As this shows, two-factor authentication is a relatively easy measure to set up, yet it significantly reduces the risk of unauthorized access. It's a fundamental precaution that should always be enabled for your exchange account and related services.
Watch out for suspicious links and fake websites
One of the more common causes of crypto hacking incidents is unauthorized access carried out through suspicious links or fake websites. Attackers direct users to pages disguised as the official site of an exchange or wallet service, then trick them into entering login credentials or other sensitive information to hijack the account.
These fake sites are sometimes crafted with such precision that they're nearly indistinguishable from the real thing, and victims are often lured in through emails, social media, or advertisements. For example, there was a reported case where a fake site with a name similar to the official service ranked near the top of search engine results (in Japanese). At a glance it may look like the legitimate service, but it's actually an unrelated site, creating a risk that users could access it by mistake.
Because these sites can look nearly identical to the real thing, people may enter their login information without noticing anything wrong. As a result, the entered information can be used to gain unauthorized access to the account, leading to asset outflows. It's important to develop a habit of checking the URL and domain carefully rather than clicking links without thinking.
A practical measure is to access exchanges and wallets only through a bookmark you set up in advance, rather than clicking links from emails or search results. It's also a basic precaution to double-check that you're on the legitimate site before entering any information on a login screen.
As this shows, guarding against suspicious links and fake websites doesn't require specialized knowledge—it's something anyone can practice. Staying mindful of this in your everyday use can significantly reduce the risk of unauthorized access.
Manage your private key and recovery phrase securely
Securely managing your private key (signature key) and recovery phrase is one of the most important measures for protecting your crypto assets. These represent the very authority to control your assets, and once known to a third party, there is an immediate risk that your assets could be moved freely. For this reason, your private key and recovery phrase must be handled with extreme care.
For example, storing them as a screenshot or saving them in the cloud carries a risk of exposure and is generally best avoided. The standard approach is to write them down on paper and store them offline. It's also important to consider storing copies in multiple separate locations to guard against loss or theft.
As this shows, managing your private key and recovery phrase is a critical way to protect your assets that operates on a different level from an exchange's own security. Managing this information properly helps prevent damage from unauthorized access.
Conclusion
Compensation for crypto hacking losses is not a fixed, uniform outcome—it varies considerably depending on the circumstances of the incident. When an exchange itself is hacked, compensation may be provided in some cases. On the other hand, losses stemming from unauthorized access to an individual account, or from self-custody arrangements, are generally not compensated.
What distinguishes these outcomes is where the cause of the damage lies, and whether there is an entity that bears responsibility. In particular, in systems without a central administrator, compensation itself can be difficult to obtain in the first place.
For this reason, when using crypto assets, it's important to take responsibility for managing your own risk rather than relying on the possibility of compensation. Thoroughly practicing basic measures—setting up two-factor authentication, staying alert to suspicious links, and properly managing sensitive information—is effective in preventing losses.
Crypto assets are a convenient technology, but they also carry risk depending on how they're used. Understanding how the system works and taking appropriate precautions is the foundation for using crypto assets safely.
This article is for informational purposes only and does not constitute financial or investment advice. Please consult a qualified professional before making investment decisions.
