Cryptocurrencies are the hot favourite target of hackers today. It makes money in no time! Though cryptocurrencies claim to be secure enough on the basis of blockchain technology, it is the exchanges which place its security in question.
Cryptocurrency exchanges are used to trade these virtual coins. It basically acts as a middleman like the brokers in forex trading. They earn commission basically in the form of transaction fees and any other miscellaneous fees charged by them. The crypto fans willing to trade the coins have to register on these exchanges by linking their personal and financial details.
These trading platforms have to be online 24*7 and hence making an easy way for hackers to reach the target. If your exchange deals in fiat as well, then along with your crypto possession, your bank details are at risk. And there have been such exchange hacking incidents in the past which makes these more agonizing.
As per the recent survey organized by Encrybit, an upcoming cryptocurrency exchange, 40% of the participants said security on an exchange is the most bothering concern for trading.
Why is Security of Cryptocurrency Exchanges so important?
The purpose of cryptocurrency was to gain back the trust which was lost due to centralized system. So, these exchanges got to maintain its purpose.
A lot of Personal and Financial Information is stored
As mentioned above, the users willing to trade on an exchange have to go through the authentication process. Then and then you are allowed to buy the coins and initiate the trade. This delicate information can be misused when an exchange gets hacked.
A large amount of cryptocurrencies and cash
Exchange platforms are a pool of various coins and cash (if dealing with fiat). If the hackers get successful in their deed, it’s like a jackpot won. It is needless to say how the cryptocurrencies are worth in today’s world.
Money Laundering issue
As you might be aware, the blockchain ledger keeps your identity anonymous and only your public address is listed with the transactions occurred. This anonymity feature gains interest of criminals and terrorists to change their black money into white.
Threat from Government Regulation
Not all governments are happy with the onset of cryptocurrencies. Few of them have already banned and some are in thought process whether to accept it or not. Any strict and sudden restriction from the government can result in abrupt shut down of exchanges and thus losing all your money.
Loss of Password or Private Key
While trading on an exchange your coins are stored on exchange’s wallet and you do not own the private key of that wallet. So, if you forget the password to your exchange account, you are at loss. It is advisable to transfer the coins on your personal wallet and keep the private key secure.
How can Exchange take preventive measures?
It is practical that not all of the above mentioned concerns can be prevented by an exchange. But of course, there are some preventive measures which can be undertaken to make it more secure.
Compliant with Information Security and Cryptocurrency Standards
There are some regulated standards for information and cryptocurrency security. When such standards are followed by an exchange, a level of trust is gained. An exchange can receive such certificates only when they actually follow the policies.
Micro-withdrawal wallets with Multi-layer encryption storage method
To provide more protection to traders’ fund on an exchange, micro-withdrawal wallets with multi-layer encryption storage method can be used. With this, the traders will not be worried about their funds lying on the exchange.
Storage of Miscellaneous funds in cold wallet
Along with the micro-withdrawal wallets for traders, an exchange can transfer the miscellaneous funds on cold wallet and only keep the necessary amount of funds on the online exchange. So, in case if any threat is faced, only small amount of funds get affected.
Withdrawal of funds from whitelisted IPs
Another precautionary measure so that an individual trader’s funds aren’t accessed by illegal authorities. The trader can provide the IP address of the system from which funds are likely to be withdrawn. So, if any other IP is detected in the withdrawal process, it is blocked immediately.
At the end…
Seeing such high security concerns of traders in the crypto community, Encrybit has decided to take all the possible preventive measures listed here and offer a secure trading environment. High security on trading platforms is also necessary as it may attract other users who are still afraid to try their hands on cryptocurrency trading.