The cryptocurrency firm is booming day by day. This tremendous growth has led to the formation of many crypto exchanges. They came up with several offers, trading methods, revenue strategies, and different fee structures.
As the digital asset class continues to grow in terms of market cap, it is more important than ever to ensure that your assets are safe and that exchanges are using high-grade security measures. Fortunately, exchanges have become more secure as the cryptocurrency industry has moved to higher levels.
Even though the fraudster attacks have increased day to day, protecting your assets against these hackers is a major concern, and your exchange should make the promise much stronger way. In this blog, we are detailing some of the best ways to ensure the security of your crypto exchange. Without further ado, let’s get straight to our topic.
How Fraudsters Hack Crypto Exchanges?
It is becoming more consequential to protect crypto assets at a certain level. The responsibility of keeping it perfect lies with the cryptocurrency exchanger, the user, and other stakeholders in the market. If you invest your assets in any crypto exchange you should take appropriate steps to ensure that the crypto assets remain safe.
Suppose a blockchain user makes any trade under pseudonyms or usernames. In that case, it becomes a primary challenge for most exchanges and they are forced to ensure greater security of their user’s assets.
Let’s take a look at how fraudsters do such exploits.
- DDoS attacks
- ClickJacking attacks
- Eavesdropping attacks
- Waterhole attacks
Here are the 5 ways to check security in a crypto exchange
1. Using Cold Wallet for Storage
Crypto exchanges store their user’s funds in two wallets, one is a hot wallet and the other is a cold wallet. It means that the cold wallet does not connect directly to the Internet and provides a high level of security. The Hot wallet contains liquid funds for the withdrawal process.
The exchange needs to keep most of its user assets in cold storage because they are inaccessible, f in case of any attack on the exchange will not affect users’ funds. Make sure to keep 90% of the exchange funds in cold storage.
To increase the level of crypto security, a customized or white-label bitcoin exchange may use pre-cold and pre-hot wallets. Cold wallets are always safe. Cold wallet hot wallet transferring also raises various risk factors. Hence, some of the exchanges now use multi-sig measures for asset transactions.
2. Two-factor Authentication
Two-factor authentication is an essential concern that any crypto startup should maintain. Their effectiveness greatly helps the user and exchange. Users’ inexperience in creating strong passwords or using the same password across multiple accounts leads to password breaches. This two-factor authentication methodology is to protect the account from such problems.
The hackers have access to users’ credentials, they typically use tactics like keylogging, which installs malicious code on machines. Once a password is stolen or discovered, the hacker waits for the perfect opportunity to use it.
Many exchanges use three or more stages of the authentication process for security, which increases the level of security, trust of users, and challenges for cyber attackers. This security method requires users to upload two or more verification factors to access their accounts. Although, passwords have proven to be very helpful in preventing unwanted persons from accessing accounts. However, their effectiveness is, for the most part, limited.
3. Proper Security Auditing
All exchanges should conduct systematic security auditing at the right time so that all technical flaws and errors can be detected and help the developer to correct the same. None of your data is transferred or leaked, making it vulnerable to cyber-attacks.
Just-in-time security auditing provides crypto exchangers two-key service and acts equally with clients’ insurance. Security auditing increases investor confidence and legal certainty. Many countries rely heavily on audits to ensure their security and compliance. It can curb money laundering and fraud to gain more confidence.
Various types of auditing are available today. However, when viewed at the level of a crypto exchange, the most appropriate is SOC2 (System and Organization Control 2) auditing. It provides protection and security to user data.
4. Message Alerts While Transactions
Message alert is a necessary security measure and it is sometimes mandatory to notify the account holder of any transaction that occurs. Notifying the user of any deposit or withdrawal occurring is a well-established practice. It helps the user and the exchange executor to know if any fraudulent attack is taking place.
Some exchanges deliver email withdrawal notices to customers immediately. Also, they give you the option to click on the active button in the body of the email, which may void the transaction or close your account if any abnormal or suspicious activity is found in your account.
The main purpose of the message alert is to enable the user to verify the information and ensure that the transaction is legitimate.
5. Tracking IP Address for Security
As for the reasons why companies track IP addresses to understand user behavior, there is no downside to this, as it helps companies to spot suspicious persons and take appropriate action if they are confirmed to be a criminal.
In the case of an exchange, the tracking of IP addresses can detect changes in a user’s IP address and send notifications or emails to the user to double-check any suspicious activity that happens on their account.
This security measure is currently not as widely used as other security measures, but its usage creates more restrictions for cyber attackers. Once a crypto exchange account is linked to more than one or two IP addresses it is much harder to bypass which means more security is built in.
Major exchanges by default track the IP addresses provided by the User when logging into the exchange, but only for informational purposes to gather information about the user’s past behavior. Tracking IP addresses does not mislead subscribers in any way.
How to check if a cryptocurrency exchange is safe?
- Steer clear with their license is authorized or not.
- Cross verify the exchange have an insurance policy.
- Confirm they offer customer support like live chat or phone support.
- Make sure that the exchange uses cold storage to keep user assets.
- Invest in a publicly tarded company that they have undergone audits and other regulatory checks.
- The exchange should enable 2FA/ IP Tracking/ Whitelisting to their users.
- If an exchange offers bug boundaries means it provides more security to users.
As any technology grows, so do the attacks by hackers. Fraudsters like this are finding new hacking ways to hack technologies and extort huge amounts of money. You should be sure that your crypto assets are safe from them and that the exchange you are using offers the same security. Above are some of the ways to secure your crypto exchange from hackers.
This should become a top priority for every crypto exchange, as security breaches put users’ funds at risk and tarnish the reputation of exchanges. If you are planning to start your crypto exchange business, make sure that all security is enabled in a well-encrypted manner.