As interest in cryptocurrency investments is increasing, so is the rising cybercrime rate in the sphere. It’s no secret that crypto scammers took a record $14 billion in 2021. So, no one would argue that security should be top of mind for all fintech companies, and especially so for crypto exchanges, as they serve as a gateway to crypto.
In our previous article, we’ve already discussed hacks that crypto exchanges can use to secure users’ funds. These include:
- Hardware security modules (HSM)
- The main concept of multi-party computation (MPC)
- Multisignature or “multisig”
- Two-factor authentication
- Know Your Customer (KYC)
We highly recommend you go back to this article for full details on the above-mentioned hacks. Today, we’ll discuss other security features that make a crypto exchange safer.
Systematic security audits will ensure that a cryptocurrency exchange doesn’t contain any bugs or technical flaws, so it’s not vulnerable to cyber-attacks and information leaks. Moreover, security audits increase investors’ trust and show that an exchange complies with regulations.
There are many types of audits, but, considering exchange-related services, the most suitable is the System and Organization Control 2 (SOC 2) audit focusing on the security and protection of your customers’ data.
Data security audits are not enough. An exchange should test security measures on the (almost) real security battlefield. Many companies offer penetration tests – different hacks simulations helping to find system vulnerabilities and bugs to fix beforehand. It can help to prepare and be ready for attacks. We recommend you conduct such tests at least annually.
Crypto exchanges often hold users’ funds both in hot and cold wallets. Since a cold wallet isn’t connected to the Internet, meaning that it provides higher levels of security, it should hold a major part of the user’s crypto funds. Usually, hot wallets hold liquid deposits that can be used for withdrawals.
Don’t forget to require multiple signatories for the user when transferring funds from cold storage.
A distinctive feature of many centralized crypto exchanges is that they can act as custodians for their users. Structuring custodianship and establishing custody operations play a crucial role in a CEX’s structure and Scalable can help with that. We have our own custody technology that will ensure your users’ funds’ safety.
Tracking IP Address
Companies usually track IP addresses to examine users’ behavior. However, it can be useful for security purposes, as well. An exchange can detect changes in a user’s IP address and send notifications or emails to the user to double-check any suspicious activity on his/her account.
One of the crucial security precautions is notifying the user when a withdrawal or deposit occurs. It enables the user to check the information and make sure that the transaction is legitimate.
Introduce operation limits. For example, one can trade not more than 1 BTC until passing a KYC/AML verification or one can’t trade with leverage until reserving some part of the funds on the exchange. Don’t forget to require MFA for every operation, especially for withdrawal.
Every exchange should implement a feature of automated logout. Let the user choose the time (30 min – 1 day), after which automatic logout is performed. It’s a very convenient option, eliminating the human factor.
History of Active Sessions
History of active sessions and recent activity will also let the user react fast if seeing suspicious activity on the account. If someone logs into the account, his IP address will be displayed there, and the user can change the password.
This security feature can be amplified by sending PUSH notifications or emails to the user, in whose account the suspicious activity was detected.
Community Education & Rewarding
The human factor tends to always be the weakest point of a security system. But how can one eliminate the risk if a human factor has already been reduced to almost zero? It can be done by educating the community about the security risks and the importance of security measures on your platform. You can do it in the form of articles, videos, posts, webinars, or any other social connections.
Take a tough stance on hackers and scammers. Browse the net for phishing sites, impersonating your exchange, and encourage your users to report scams.
Another engaging activity to implement is a bug bounty program that rewards security researchers for submitting vulnerabilities they’ve found.
As the crypto sphere is developing, so are crypto hackers, intent on designing new tools and tactics to break through security barriers. In terms of security, one can’t rely on luck. It should become a top priority for every crypto exchange because security breaches put the users’ funds at risk and tarnish exchanges’ reputations.
We at Scalable Solutions take security seriously. Testament to this is the fact that we haven’t lost any security battle since 2013. So, if you are planning to start your crypto exchange business, we are ready to provide you with a highly secure solution.