Crypto Exchanges & Security Good Practices
The history of cryptocurrency comes with its fair share of turning points that had a massive impact on the industry as a whole. One of the biggest turning points is arguably the hack of Mt. Gox, which was the largest Bitcoin Exchange in 2014 and resulted in a loss of 740,000 Bitcoins that many users were unable to get back. This hack not only contributed to the huge loss in value that Bitcoin experienced at the time but also highlighted the inherent security issues of Bitcoin storage methods and exchanges as a whole. Fortunately enough, exchanges have learned from the downfall of exchanges such as Mt. Gox and have implemented better security practices for their own exchange. Here are some of the current security best practices that exchanges are using today.
Utilizing Cold and Hot Storage
Hot storage allows you to access and transfer your crypto quickly but it also leaves you open to the potential of being hacked. Should a hacker be able to access your private keys and take your crypto, there is nothing that you would be able to do about it. Exchanges understand that this is a possibility and utilize various cold and hot storage methods to make sure that your coins are protected, even in the event of a hack. For most great exchanges, quite a bit of their crypto is stored away in cold storages that can only be accessed by the company.
Setting Up Two Factor Authentication and Device Authorization
Most popular exchanges will either force users to set up two-factor authentication before they can make trades or will give them the option to. With two factor authentification, users will have to verify their identity through their mobile phone, which gives them added security to ensure that they are the only ones accessing their account. Device authorization is also a common feature that requires users to authorize their device via email should an IP address or device not be known to the exchange.
Decentralizing an Exchange Using Blockchain Technology
While decentralized exchanges are not commonplace and certainly need more development, these exchanges would make it so that no one entity is in control of user information and all of the cryptocurrency in the system. Rather, users would be able to engage in peer-to-peer trading that eliminates the need for having to store crypto and private information.
Despite some of the past security issues major exchanges have faced in the past, the industry is constantly seeking new ways to make sure that crypto exchanges are safe to use for all types of investors. For those who are seeking to learn more about how current exchanges seek to protect their user’s funds from theft, here are some of the security best practices of some of the best exchanges.