Cryptocurrency investors are continuously exposed to security issues. And not without reason: roughly a month ago, Singaporean cryptocurrency exchange BingX was victim to a severe hacking attack, allowing the perpetrators to extract crypto assets worth approximately $43 million.
To protect yourself and your assets, you should only use trustworthy exchangers. Unfortunately, due to differences in security system development approaches, not all platforms can provide consumers with enough protection.
In this article I will discuss how popular cryptocurrency exchanges protect your security, what technologies are already in use, and what to watch for new players in the industry.
Why Is Crypto Exchange Security Important?
Crypto exchanges are platforms where people buy, sell, and trade cryptocurrencies. However, unlike traditional financial institutions like banks, crypto exchanges are not strictly regulated and do not have guarantees. If an exchange is hacked, as has happened many times, you can lose all your funds. Unlike banks, there is no insurance or refund.
In 2022, more than $3 billion worth of cryptocurrency was stolen as a result of crypto exchange hacks.
In 2014, Mt. Gox lost 850,000 bitcoins due to a hacker attack. This became one of the most high-profile scandals in the crypto world.
In 2021, the largest hack in cryptocurrency history was recorded, when $611 million was stolen from the decentralized exchange Poly Network.
Every year, hackers get more advanced, and the damage is greater. As a result, it is important to learn how to protect yourself and select a reputable platform for dealing with cryptocurrencies. Trading just on well-known exchanges is not a solution. You can pay attention to others. Just make sure the trade is genuinely worth your time. Margex crypto exchange, for example, gets positive evaluations and publicly discusses its methods to maintain consumer security.
Best Security Practices On Crypto Exchanges
Market giants like Binance, Coinbase, and Kraken have long understood that security is not just a bonus, but a necessity. They use a range of measures to protect their clients’ assets. Here are the key ones:
- Two-factor Authentication (2FA)
Turning on two-factor authentication is the easiest and most efficient security solution. Statistics show that implementing 2FA lowers the risk of account hacking by over 99%. How does it work?
The system asks for a confirmation number by email or phone in addition to your standard password. Therefore, without access to your device, it will be difficult to access your account, even if someone manages to find your password.
- Cold Wallets
Most of the big trading platforms perform their transactions with cryptocurrencies in cold wallets. These are devices not having any internet connectivity. This significantly reduces the chances of falling a victim to cyber criminals.
Interesting to note: According to Binance, around 98% of the clients’ funds are in cold wallets. Another old exchange Kraken also stores the significant number of their clients’ funds in cold wallets.
- Data Encryption
The lot of data concerning users like their personal data and transaction history is also protected from disclosure to other people through encryption. This is rather significant since hackers do not only go after cryptocurrencies, but personal data which they can sell on the black market.
- IP Checks and Login Notifications
Exchanges implement systems to monitor user activity. For example, if an attempt to log into your account occurs from a new device or IP address, you will receive a notification. This allows you to quickly react and block unauthorized access.
- Regular Security Audits
Many large crypto exchanges invite independent experts to conduct regular security audits. This helps to identify vulnerabilities and fix them on time.
- User Insurance Funds
To protect their customers, some crypto exchanges create insurance funds. If a hack occurs, these funds can cover the losses of users.
Interesting to note: Binance created a fund SAFU (Secure Asset Fund for Users), which accumulates 10% of all transaction fees and serves to compensate for possible losses.
Coinbase insures users’ crypto assets for up to $255 million in case their online wallets are hacked.
In addition, other developers on the market use all the tools available to prevent as many threats as possible. Here are just a few parts of the security system:
- Hybrid asset storage. Most of the funds are placed in offline multi-signature wallets, which minimizes the risk of hacking.
- Anti-phishing code. Users can create unique codes that will be displayed in emails. This scheme helps protect users from phishing attacks. There are also other anti-phishing systems. For example, tools for verifying the authenticity of messages and URLs.
- Blocking withdrawals to new addresses. Blocking withdrawals to new addresses. Withdrawals to new addresses are blocked for 24 hours to prevent theft in case of account compromise.
Strict security measures protect customers as much as possible. However, they lead to a side effect. The fact is that, due to a strict filter of operations, the percentage of account blocking at the exchange may be higher than at other trading platforms.
How to Protect Your Assets?
In addition to the measures taken by the exchanges themselves, there are recommendations for users that can reduce risks.
Use Complex Passwords
Get into the habit of creating complex passwords and updating them regularly. Never use the same password on multiple platforms. Ideally, use password managers.
Don’t Store all your Assets on an Exchange
Dont put all our eggs in one basket! For those who want to hold their cryptocurrencies for some time, they should consider moving the coins to a private wallet. This could be a hardware wallet (such as Ledger or Trezor) through which one is not even connected to the internet.
Watch out for Phishing
Phishing is where criminals create copies of popular websites or send fake emails in the hope of getting the user to share his/her login information. Do not open any links that you receive through messages or emails and remember to always look at the webpage address before typing in your details.
Monitor Account Activity
Regularly check your account login and transaction history. If you notice anything suspicious, contact the exchange support immediately and change all your passwords.
Final Words
Security on crypto exchanges is not just a technical measure, but a full-fledged strategy, in which both protection from the platform and the attentiveness of users are important. The largest crypto exchanges have implemented advanced security systems that help minimize risks. But ultimately, a lot depends on the users themselves: on how informed and ready they are to protect their assets.
By following simple recommendations like activating two-factor authentication, using cold wallets and complex passwords, you can significantly increase your security and save your money in the world of cryptocurrencies.
