Crypto Exchange Security Far From Being Infallible
The liquidity provided by cryptocurrency exchanges, as well as convenience and various trading pairs makes investors to depend on them. In spite of the benefits, many traders remain unaware of direct peer-to-peer transactions.
Cryptocurrency exchanges have been converting cryptocurrencies and are likewise custodians and lenders through the provision of funds for margin trading. However, despite that their platforms provided convenience, security remains the concern. Traders entrust their funds to cryptocurrency exchanges using hot and cold wallets. Nevertheless, hacking threats is still remarkable with all platforms.
Despite that a cryptocurrency mean a digital currency developed using a cryptographic system; one would wonder the reason for constant report about successful hack of cryptocurrency exchanges.
Many cryptocurrencies are truly secure because they depend on distributed ledger technology. Ledger technology is a term that encompasses blockchain. Nevertheless, the challenge has to do with holding private keys as digital wallets exceed the horizon of a blockchain.
Hackers constantly attack big cryptocurrency exchanges due to apparent reasons. Some of the big exchanges that have been attacked within the previous two years include Binance, Bithumb and Coincheck.
Last month, South Korean exchange Upbit reported the loss of 342,000 Ether in a hack. The attack led to the suspension of every activity for about two weeks. The “irregular withdrawal” took place during the movement of all cryptocurrency funds from hot to cold wallets due to security reasons.
The report by CipherTrace for the third quarter of this year maintained that the value of losses from fraud and theft related to cryptocurrencies is 4.4 billion USD.
Social engineering, DDoS attacks and malicious code injection via malware are the commonest kinds of attacks on exchanges. Certain attacks could also be due to an inside job.
When it comes to social engineering attack, phishing is the commonest. It involves tricking of cryptocurrency holders into believing that they are a genuine cryptocurrency service, but the victims are unaware that they are giving out their personal data and private keys to hackers.
The malicious efforts of DDos attacks are towards attacking the server or network of a cryptocurrency exchange by directing huge internet traffic to it.
Despite the evolution of the security of big cryptocurrency exchanges, a few inadequacies remain. However, some exchanges can boast of the inability of hackers to jeopardize their operations since their foundation. HitBTC that was established in 2013 is a good example.
HitBTC is one of the oldest cryptocurrency exchanges and it uses sophisticated encryption technology. It depends on cold storage, and motivates users to activate the two-factor authentication and whitelist withdrawals. These are the approaches that the firm uses to establish intense security. The firm explained social engineering scams:
“There are hundreds if not thousands of scammers out there trying to impersonate our employees and steal funds from our traders.”
Hence, every cryptocurrency exchange is susceptible to likely hacking attacks; there is no approach for avoiding them. Nevertheless, certain exchange services (known as decentralized cryptocurrency exchanges) say there is no point of attack on their platform because they don’t hold the funds of users. Staying on a secure blockchain network will make it unlikely for hackers to have their way.
In conclusion, cryptocurrency exchanges’ security remains fallible, as hackers keep threatening the cryptocurrency market. This holds for other markets as hackers target several governments, banks and corporations.
Featured image courtesy of Shutterstock. Source: CryptoPress.