It's difficult to believe that the 13th anniversary of the birth of Bitcoin is only about 2 months from now. The amount of growth that has occurred in those 13 years is astounding. Over the past few years, it appears that the entire crypto market has been expanding at an exponential rate.
This expansion brings with it both opportunities and challenges. Regrettably, as the market has grown, so have the security threats. The cryptocurrency market is all about personal accountability. You are solely responsible for the security of your crypto assets. Decisions you make or do not make can mean the difference between prosperity and disaster.
In this article, we will provide you with valuable information that will assist you in making some of those difficult security decisions.
What is a Cryptocurrency Exchange?
A cryptocurrency exchange is similar to a stock exchange. Each crypto exchange lists a specific number of crypto assets and facilitates transactions between buyers and sellers. Depending on the exchange, they may or may not charge transaction fees.
Many cryptocurrency exchanges also serve as custodians for their customers' cryptocurrency. Exchanges come in all sizes, some may only list a few cryptocurrencies, while others may list a hundred or more.
There are also two types: centralized exchanges (CEX), with a central authority that controls the exchange, and decentralized exchanges (DEX), which are run on a blockchain and operate in a decentralized peer-to-peer manner without any central authority.
Important Security Features on Exchanges
Anyone with any experience in the crypto market understands the importance of security. There is no shortage of bad actors attempting to separate you from your cryptocurrency. Furthermore, cryptocurrency exchanges are a huge target due to their massive honeypot of crypto assets.
It is critical to review the security measures implemented by an exchange before opening an account. You should look not only for security measures to protect the platform but also for security features that will help keep your account safe. In terms of exchange security, see if the exchange protects electronic data with encryption such as AES-256. Also, check to see if the exchange's website has an SSL certificate. The SSL certificate protects customers' information while securing online transactions. Find out what steps the exchange takes to isolate crypto assets in their custody. Offline cold storage is the most secure way for exchanges to hold their customers' crypto.
Now it's up to you to take the first step in keeping your account secure. As always, creating a strong and unique password is one of the best things you can do to protect your account. If the exchange allows it, you can add a second layer of security to your password by enabling 2-factor authentication (2FA). If you have the option, use an authenticator like Google, Duo, or Authy.
Safest Crypto Exchanges and Brokerages
So, we have defined a cryptocurrency exchange and also identified critical security features that will aid in protecting your cryptocurrencies. Now we'll take a look at a few different cryptocurrency exchanges to see how they stack up.
- Active Crypto Traders
Coinbase
First, we'll take a look at Coinbase (NASDAQ: COIN), the group's oldest member. Coinbase was founded in June 2012 by Brian Armstrong, with Fred Ehrsam later joining as a co-founder. Coinbase has grown from humble beginnings to become one of the largest crypto exchanges, listing close to 100 coins, tokens, and stablecoins. Coinbase went public on April 14th this year through a direct listing on Nasdaq, and it now has a market capitalization of more than $53 billion.
Let's take a look at the security features that Coinbase employs. Coinbase employs AES-256 encryption to protect electronic data, and SSL encryption protects the website from phishing attacks and other threats. Coinbase provides 2-factor authentication (2FA) using Google or Duo authenticators to help protect customer accounts. On top of your password, 2-factor authentication adds a second layer of security. Coinbase also offers two other methods of authentication: a text message code or the use of a security key device.
Coinbase also carries crime insurance, which protects a portion of the digital assets stored in their systems. This coverage, however, has a cap, and customers may still lose money if their losses exceed the cap. Coinbase safeguards its U.S. customers' USD cash balances by storing them in a pooled custodial account at one or more FDIC-insured banks. Coinbase only keeps about 2% of customer funds available online to further protect customers' digital assets, with the remainder kept offline in cold storage. Although no cryptocurrency exchange is entirely secure, Coinbase is one of the most secure.
- Social Investing
eToro
Yoni Assia, Ronen Assia, and David Ring founded e Toro as RetailFX in Tel Aviv in 2007. It began as an online F.X. platform and has evolved into a social trading and multi-asset brokerage firm. The first cryptocurrency trading occurred in 2013 when e Toro launched Bitcoin trading through CFDs (contract for difference). Then, in 2017, e Toro added Ethereum, Litecoin, XRP, and a few others. In 2018, e Toro entered the U.S. market, offering trading on 10 cryptocurrencies as well as a crypto wallet for IOS and Android.
e Toro uses the following security features. SSL encryption protects all customer personal information and secures the website. e Toro offers two-factor authentication to help secure customer accounts. You must first sign in with your password, and you will then receive a text message with a code that you must enter to complete the sign-in process. Furthermore, all customer funds are held in U.S. banks and are FDIC insured up to $250,000.
Crypto.com
Four entrepreneurs Bobby Bao, Rafael Melo, Sai Wan, and Gary Or, founded Monaco in 2016. Monaco was a blockchain-based payment system. In 2018, Monaco rebranded itself as Crypto.com. On November 14th, 2019, Crypto.com announced the launch of the Crypto.com exchange. Initially, the exchange supported 9 cryptocurrencies, but that number has now expanded to more than 150 coins, tokens, and stablecoins.
Crypto.com is very serious about security and arguably has the most stringent security in the crypto space. This makes it one of the safest cryptocurrency exchanges you will find. First, 100% of all customer funds are kept offline in cold storage vaults. Crypto.com is partnered with Ledger and uses its institutional-grade custody solution, Ledger Vault, and the cold storage also carries $500 million in insurance coverage. Crypto.com also protects customers’ fiat currency by depositing it into highly regulated banks all over the globe. To protect customer accounts, Crypto.com provides 2-factor authentication, along with a passphrase, password, biometric identification, and email or phone verification.
Crypto.com uses Amazon Web Services (AWS) with the following security features to protect its infrastructure.
- Network and web application firewall.
- Controlled encryption in transit with integrated Transport Layer Security (TLS) across all services.
- Automatic encryption of all traffic.
- Business continuity planning for outages and attacks prevention.
- Logging, monitoring, automatic threat detection, and real-time analytics.
Crypto.com also has a variety of internal security measures, including.
- A dedicated internal team that screens all deposits for KYC, AML, and Alcohol, tobacco, and firearms (ATF) compliance.
- All withdrawals undergo request screening to flag suspicious transaction amounts and velocity.
- Manual approval of large fiat and crypto transactions.
- Industry-leading AI analytics tools.
- Strict access control measures for both cold and hot wallets.
- Penetration testing via numerous attack vectors and external audits.
- Hacker one bug bounty program for responsible vulnerability disclosure.
- Low Minimums
Webull
On May 24th, 2017, former Alibaba Group (NYSE: BABA) employee Wang Anquan founded Webull. Initially a stock trading platform, Webull added crypto trading in November 2020. Webull now supports 11 cryptocurrencies and has plans to keep adding more. Currently, you can not transfer crypto into or out of Webull.
To safeguard all data sent to its servers, Webull uses AES-256 encryption by Plaid. AES-256 encryption is the industry standard for financial institutions. Webull also monitors your account for unusual transactions and logins from unknown IP addresses, using an intrusion detection system. A 2-step verification process is used to keep your account secure. When you log in, Plaid will send you a message containing an authentication code which you must enter to complete the login process.
The Most Secure Option: Hardware Wallets
There are so many different crypto wallet options that it can make choosing the right one difficult. The wallet that is right for you will depend on how active you are with your cryptocurrencies. Do you just buy and hold, or do you move them around more frequently?
It will also depend on how security-conscious you are.
If you are looking for maximum security, you will want a hardware wallet securing your crypto. A hardware wallet is a cryptocurrency wallet that stores your private keys. The hardware device can be connected to your computer or smartphone when depositing or withdrawing, then disconnected when done. Breaking that connection to the internet is key to isolating your wallet from those who want to steal your crypto. Two of the best you can buy are the hardware wallets by Ledger and Trezor.
Are Cryptocurrency Exchanges Safe?
Nothing is 100% secure and without some degree of risk, especially anything that resides on the internet. If possible, you should avoid keeping large amounts of cryptocurrencies on exchanges. But that is not always practical for everyone, especially if you are actively trading. If you do your homework and choose a reputable exchange with strong security features, you can reduce that risk substantially. It all comes down to how much risk you are willing to accept for the convenience of having crypto assets on an exchange vs. having to transfer them back and forth.
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About Donald Hancock
Donald’s expertise lies in the technical analysis of both stocks and crypto.