A decade later, the cryptocurrency market as a whole has grown by leaps and bounds, making many lucky investors rich through innovations like price spikes and non-fungible tokens (NFTs). But there have been problems along with this growth.
Security is still a big issue because scammers always develop new ways to break into exchanges and users’ wallets. Compared to going after individual users, hackers like to go after cryptocurrency wallets because every successful attack on a business gives them a lot of money.
Even though the crypto industry keeps growing, more significant amounts of crypto require accountability and much more robust security. This is true for both white label and custom crypto exchanges. New people will be hesitant to use crypto if safety in the crypto space isn’t improved. This will slow the growth of crypto. Almost every day, we hear about a breach of sensitive data or a cryptocurrency exchange hack.
Also Read: How to Launch your White Label Crypto Trading Exchange in 7 days?
Just try to be a little more serious for now. Cybercriminals have been around since the beginning of the internet. So, it makes sense that they are active in the crypto market, where a lot of money is moving.
There are many ways for cybercriminals to add harmful code to the crypto exchange or at least a part of it. It could be anyone with access to private information, like an employee’s computer or the server.
The hacker-attacked crypto exchange was never a better deal. They are getting increasingly common and also hold a lot of money. Why wouldn’t someone want to get rich quickly by finding a security flaw in a cryptocurrency exchange?
More than 32 hacks and frauds were reported in 2021, and hackers lost more than $2.99 billion. Also, these cybercriminals have stolen more than $19.2 billion in the last ten years from more than 60 major crypto hacks.
Some of these things have been found, but hackers still have many of them; after what many now call “one of the biggest heists on the market,” BitMart, a cryptocurrency exchange, recently started paying back its customers. During the event, hackers could steal its private keys and get away with $200 million in assets.
Also Read: How To Start Cryptocurrency Exchange Platform- A Brief Guide
How are Exchanges for Cryptocurrencies Kept Safe?
What if you’re starting from scratch with your exchange or thinking about buying a “white label” Bitcoin exchange solution? Here are some cryptocurrency exchange security tips to protect your users’ money.
Let’s look at our eight ways to keep a cryptocurrency exchange safe.
#1. Storage for Cold Wallets
When all of a customer’s assets are in hot wallets, their money could be at risk if the exchange system is hacked. Even though the blockchain is a completely open system, attackers may be able to use on-chain analysis to see which wallets are used for hot storage and which ones are used for cold storage and keep track of them. A customized or “white label” bitcoin exchange may use pre-cold and pre-hot wallets to improve the level of crypto security. Since cold wallets don’t connect directly to the internet, they should hold most of your cryptocurrency. Hot wallets act as a liquid deposit for exchanges, letting customers take out large amounts of money.
#2. Multi-Factor Authentication
Many exchanges have had two-factor authentication for a long time. On the other hand, some exchanges now use three or more layers of security. With multi-factor authentication, users must provide two or more ways to verify themselves before getting into their accounts. The process adds another layer of protection on top of the old-fashioned password system. Even though passwords have been very helpful in keeping unwanted people from getting into accounts, for the most part, they don’t work as well as they could.
Also Read: How To Build Your Hybrid Crypto Exchange Platform?
#3. The Account Associated with a Given IP Address
This security measure isn’t used as often as others, but it may be harder for attackers to use. When a crypto exchange account is linked to more than one or two IP addresses, it is much harder to get into it.
The main exchanges keep track of the IP addresses that users enter when they log in, but they only do this for informational purposes to learn about how the user has behaved in the past. But this is done without a clear warning, whether or not the consumer controls his behavior and notices any changes or strange things.
In the meantime, the first exchanges are starting to send users messages if they notice anything strange going on with their accounts, like access from a foreign country, computer, or browser that the user normally doesn’t let access the exchange.
#4. AML and KYC steps
Know Your Customer (KYC), and Anti-Money Laundering (AML) rules should be followed by an exchange (AML). As was already said, the fact that cryptocurrencies are anonymous makes it hard for exchanges to figure out who is trying to scam them. But these exchanges can eliminate these shady groups by using KYC and AML measures.
Coinfirm’s research shows that about 69 percent of the 26 crypto exchanges looked at do not have clear KYC procedures. Another study by CipherTrace found that two-thirds of the top exchanges don’t have to Know Your Customer (KYC) processes, and the other third only have weak KYC processes. Due to the lack of rules and regulations in the cryptocurrency market, AML and KYC go a long way toward regulating the entire crypto exchange market.
#5. Message Alert When the Funds Are Debited from the Accounts
Another important security measure is notifying the account holder when payments are taken out of the account. Along with withdrawal alerts, they also let you know when you make a deposit. This should make the account holders more careful before something terrible happens.
Some exchanges involve a lot more than just sending email notices of withdrawal. Also, they give you the option of clicking the “Active” button right in the email. If you do this, the transaction may be cancelled, or your account may even be closed if strange or suspicious activity is found on our account.
#6. Insurance fund
Some attacks will still happen if you take all the proper precautions. The safest thing to do is always to use an exchange that has a way to pay users back if something goes wrong. A fund for insurance can be set up in two different ways. The first choice is to use an outside insurance company. The second choice is to use a policy made by the company itself.
#7. Withdrawals Are Blocked After Updating Account Information
Changing account information, like email addresses or phone numbers, is a common way for hackers to act. After getting into the account, the attacker must make sure that any withdrawals can be approved through a phone or email he controls.
Crypto exchanges stop hackers from doing the wrong things they often do by blocking withdrawals for many days or even a week after some account settings are changed. If the hack is to work, the person who was hacked must not know about the attack until the withdrawal is confirmed.
#8. Security Audits
Security audits help keep exchanges in check by ensuring their codes and overall operations are up to par. Before choosing a business, a user should check to see if it has been audited and how often security audits are done. Audits are used to help with the regulatory framework and find security flaws. Since the cryptocurrency market is constantly changing, it cannot be stressed enough how important it is to do regular audits.
#9. Presence of an Anti-Fraud Unit
The anti-fraud section is an integral part of the company. Such a section is beneficial, especially for large companies and white label crypto exchanges, because it helps them avoid and spot any bad behavior. All people who work at the exchange should know how to spot and stop fraud before it happens. One of the most important things to do is to train your staff.
On the other hand, a company that has a section just for finding fraud sends a strong message to its clients and shareholders—a warning that the company is serious about fighting con artists and hackers.
Wrapping It Up
Since crypto exchanges are being hacked more often, it’s essential to double-check that their security system is working. Methods like KYC and AML implementation, multi-factor authentication, insurance fund, audit, and cold wallets improve the security layer of exchange and give users peace of mind.
If you want to start your cryptocurrency exchange and build a secure one, you can work with an experienced cryptocurrency exchange development company. If you wish to start from scratch with a custom exchange or use a “white label” exchange, they ensure that each exchange has the best security features on the market.