The Malaysian Securities Commission has added Atomic Wallet, a Web3 wallet service, to its list of financial firms prohibited from operating in the country. According to the commission’s website, Atomic Wallet was flagged for "operating a digital asset exchange (DAX) without registration."
Background on Atomic Wallet
Atomic Wallet describes itself as a secure, decentralized, and anonymous crypto wallet for staking and swapping over 100 digital assets. However, the company has faced significant challenges in recent years.
2023 Hacking Incident: A $100 Million Loss
In 2023, a group of users sued Atomic Wallet in the United States after the Web3 wallet provider fell victim to a cybersecurity breach. The losses exceeded $100 million, with some users reporting losing entire crypto portfolios, according to an analysis conducted by Elliptic.
The exploit was reportedly connected to a North Korean hacking outfit, Lazarus Group, which allegedly transferred the stolen funds to Cambodian crypto exchange Huione Pay. A United States federal judge dismissed the class-action lawsuit later that year, citing a failure to prove the court had jurisdiction over the Estonian crypto firm.
Atomic Wallet’s Response: A $1-Million Bug Bounty
In December 2023, Atomic Wallet launched a $1-million bug bounty to find security flaws in its wallet software. This move was seen as an effort to regain user trust and improve the company’s cybersecurity posture.
Worsening Cyber Threats: Centralized Exchanges and Web3 Wallets Under Attack
Losses from crypto scams, hacks, and exploits increased by approximately 21% year-over-year in 2024 as hackers zeroed in on centralized exchanges and Web3 wallet private keys as targets. In a blog post published on Dec. 19, Chainalysis said $2.2 billion in funds was stolen in 2024 in 303 incidents, up from 282 in 2023.
Chainalysis found that private key compromises accounted for the largest share of stolen crypto in 2024, at 43.8%. Centralized exchanges emerged as the most common targets. "In 2024, we saw a big shift in crypto attacks, with centralized entities becoming far more prominent targets," Jean Rausis, cybersecurity specialist and co-founder of DeFi ecosystem SmarDex, told Cointelegraph.
Regulatory Implications: Malaysia’s Ban on Atomic Wallet
The Malaysian Securities Commission’s decision to ban Atomic Wallet from operating in the country highlights the growing concerns around crypto regulation. As more countries begin to crack down on unregistered digital asset exchanges and Web3 wallets, the industry is facing increased scrutiny.
Atomic Wallet joins several other cryptocurrency-related firms barred from operating in Malaysia, including Crypto Trade Malaysia and Best Exchange. The company’s inclusion on this list underscores the challenges it faces in rebuilding trust with regulators and users alike.
Conclusion
The ban on Atomic Wallet by Malaysia’s securities regulator is a significant development in the ongoing cybersecurity saga surrounding Web3 wallets. As the industry continues to evolve, it is essential for companies like Atomic Wallet to prioritize security and transparency to regain user trust and comply with regulatory requirements.
By staying informed about the latest developments in crypto regulation and cybersecurity, investors can make more informed decisions about their investments. As the market continues to adapt to changing circumstances, it is crucial for regulators to strike a balance between protecting users and promoting innovation.
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