Cryptocurrency exchanges are online platforms that allow users to buy and sell cryptocurrencies. The combined monthly trading volume of the biggest platforms in the industry exceeds hundreds of billions in US dollars, and it’s something that catches the attention of many individuals, both good and bad, especially cybercriminals. Since crypto exchanges came around, they have been targeted regularly by these criminals who have managed to succeed more times than you can imagine.
According to Chainalysis, cryptocurrency exchanges have lost coins worth almost $2 billion over the past nine years due to hacks. The stolen funds have been a result of around 54 different incidents. This year alone, there have been around five hacks with the most recent one being that of Cashaa, where the exchange lost 336 BTC to criminals after they implanted malware on its computers. However, most hacks took place in 2019, where 11 platforms were breached with crypto worth around $263.6 million lost.
What security experts have found is that hackers don’t typically exploit vulnerabilities in digital currencies since they are quite challenging to hack. Also, they rarely target individual wallets. Mostly, they focus on cryptocurrency exchanges themselves. The majority of cryptocurrency exchanges are centralized, which makes them easy targets since they have a single point of failure. This makes it easy for cybercriminals to embed malicious scripts on the platforms’ source code. These platforms are also prone to phishing.
With that in mind, you may be wondering what factors to consider when choosing the safest cryptocurrency exchange? Below we will go over a few things you can check for when selecting the most secure platform to buy and sell digital currencies.
What To Look Out For
If you decide to use centralized exchanges, then go for those that have sound security practices. Some of these practices include:
Platforms That Utilize Cold And Hot Storage
The best-centralized platforms will use hot and cold storage. Hot storage allows a user to access and transfer their coins quickly. But it represents a risk since if the platform is hacked, user funds can be lost. Exchanges understand this, and that is why they use cold storage. These are offline wallets or vaults for storing cryptocurrencies that can only be accessed by the crypto exchanges and no one else. Typically, a platform should hold at least 90% of all client funds offline.
A good example of a platform that utilizes this strategy effectively is WhiteBit, crypto to fiat exchange that is focused on the European and CIS market but operates globally. The platform stores over 95% of all assets on cold wallets guaranteeing security in case of a security breach. The platform also offers a margin trading terminal where users can trade with leverage from x5 up to x25 with high liquidity fiat pairs such as UAH, RUB, EUR, and TL.
Since its launch in 2018, the platform has never experienced any security incidents. On top of cold storage, the exchange uses WAF to detect and block breach attempts on top of employing 2FA and anti-phishing software to add an extra layer of security to user accounts. Additionally, the exchange has European exchange and custody licenses.
Nominex also stores its users’ funds in multi-sig cold wallets. This is key in case a hacker breaches their security; there would be minimal losses. The exchange also employs two-factor authentication, which helps secure accounts more by requiring users to enter codes from their phones whenever signing in or signing on transactions.
Setting Up Two-Factor Authentication (2FA) And Device Authorization.
Top platforms will either force you to set up two-factor authentication before you can make trades on the exchange or offer you the option to do so. 2FA allows users to verify their identities using their mobile phones with apps like google authenticator or codes sent to their phones. This adds an extra layer of security when logging on the exchange or even sign on transactions. Another security measure is device authorization, which requires you to authorize your device using an email address if you try to access your account using a different IP address or unknown device.
Does The Exchange Have An Insurance Cover In Case Of A Hack
For centralized exchanges, its not a matter of how but when hacks will occur. Even the best platforms will be breached at a certain point in their lifetime. Therefore, when this happens, you want to be sure your funds will be returned to you. An exchange like Binance has an insurance fund that caters to security breaches. When the platform was recently breached, losing around $40 million in crypto assets, it just tapped on the fund to reimburse its users.
You Can Opt For Decentralized Exchanges
If security is of the uttermost importance to you, then you can opt for decentralized exchanges. DEX ensures there isn’t a single entity that is in control of user information and the assets held on the platform. Users here engage in peer-to-peer trading, and this eliminates the need for the platform to store crypto assets and private user information. Owing to the many flaws of centralized exchanges, now we are witnessing many platforms adopting more properties of decentralization since it promotes security, transparency, and empowers the individual.
On top of checking for the factors we have named above, you can use hardware wallets to store your coins instead of leaving them on exchanges and only leaving a few that you need to use to trade or send to other users. By doing your due diligence, you are guaranteed security and peace of mind.