According to the Chainalysis Crypto Crime Report 2023, in 2022 alone, a staggering $3.8 billion in cryptocurrency was stolen from exchanges and DeFi platforms, which is a 58% increase from the previous year. Since 2012, more than $4.5 billion in crypto has been lost to hacks, scams, and exploits.
These numbers highlight the importance of strong security measures to protect your funds that crypto exchanges need to implement. This article will cover the top security features you should look for when selecting a crypto exchange to safeguard your investments.
Two-Factor Authentication (2FA)
Two-Factor Authentication is a security measure in which users are required to provide two different authentication factors to verify their identity. Only after entering two verification passwords, can you access the credentials or transactions.
Nowadays, even social media applications, Gmail, and more platforms use this feature for high-level security, so make sure that this fundamental security measure is incorporated into your selected exchanges.
Cold Storage for Digital Assets
A cold wallet is a crypto wallet that does not connect to the internet. Consequently, they are immune to cyber threats such as malware, spyware, or cyberattacks.
Many confuse the two terms “cold wallet” and “hardware wallet” and use them interchangeably, but this isn’t true. In fact, a hardware wallet is a kind of cold storage.
Whenever you sign transactions with hot wallets, you risk revealing your private keys to hackers via your internet connection. A cold wallet helps you solve the problem.
Moreover, users will have full control of their holdings instead of having to rely on a third-party service provider, which might be inconvenient and utterly much less private.
Multi-Signature Wallets
Multi-signature (multi-sig) wallets require multiple private keys to authorise a transaction. If the user wishes to make a transaction or a withdrawal, then it requires multiple security keys to perform the transaction. Without a single key, users cannot withdraw funds from their wallets.
End-to-End Encryption
End-to-end encryption ensures that data is encrypted on the sender’s side and only decrypted by the target recipient. Encryption plays a pivotal role in securing sensitive information transmitted over the internet. Trustworthy cryptocurrency exchanges employ advanced cryptographic techniques to protect users’ data during transactions and account interactions, preventing unauthorised access to sensitive information during transmission.
DDoS Protection
Distributed Denial of Service (DDoS) attacks aim to make the exchange services temporarily unavailable to the users by overwhelming the server, and this sort of attack is very common not only for exchanges.
By implementing the Anti-DDoS feature, crypto exchanges can detect the target server or network from the DDoS attacks. Moreover, the exchange platform will be protected from a flux of user traffic from various sources, which is typically a sign of DDoS attacks.
Regular Security Audits and Penetration Testing
To help identify and rectify vulnerabilities within their infrastructure, leading exchanges conduct regular security audits and penetration testing. Security audits are comprehensive reviews of the platform’s code, infrastructure, and protocols, while penetration testing simulates real-world cyberattacks to identify vulnerabilities before malicious actors can exploit them.
Practically, some exchanges such as Kraken, CoinSpot, and CoinJar also employ a Bug Bounty Programme, which allows developers and users to try to break into their platforms and report to receive prizes. Please refer to Kraken Australia reviews or CoinSpot reviews Australia to have better insights.
KYC and AML Compliance
Though Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures may cause you inconvenience and make you feel uncomfortable sharing some personal information, they are in fact key security measures of an exchange that you should look for. KYC and AML are regulatory requirements designed to prevent illegal activities such as money laundering and fraud. Implementing robust KYC/AML processes protects the exchange and its users. CoinSpot, in particular, has been commended in many CoinSpot reviews for its strict adherence to KYC/AML regulations, ensuring a safer trading environment.
Biometric Authentication
Biometric authentication adds a high level of security by using unique biological characteristics like fingerprints or facial recognition to verify a user’s identity. When you set up biometric authentication on your wallets or accounts, unauthorised access will be prohibited even if someone knows your password.
Exchanges that implement biometric authentication provide an additional layer of protection against unauthorised log in, since biological traits are nearly impossible to replicate.
Conclusion
The crypto industry is evolving and can bring you significant profits. However, it comes with the risk of being prone to large-scale cyberattacks, frauds, and scams. Therefore, prioritising security features like Two-Factor Authentication, cold storage, and end-to-end encryption is crucial. With billions of dollars at stake, exchanges that implement robust security measures significantly reduce the risk of losing users’ assets. While no platform can guarantee 100% safety, opting for an exchange that takes security seriously is the best way to protect your investments. Be sure to assess each exchange’s commitment to security through regular audits, penetration testing, and compliance with industry standards.
