It is no more news that the unregulated nature of the crypto space makes it ideal for fraudulent schemes to thrive while the latest scandals involving crypto exchanges proves that we are a long way from ridding crypto of these nefarious acts. While it seems that exchanges are failing us by exhibiting the same decadence that hackers have exploited over the years, the security responsibility has fallen on the average user to do all it takes to protect their funds from pillaging entities looking to exploit flaws.
As such, it is only fair that we educate our members on the dos and don’ts on crypto exchanges as well as some red flags to look out for.
One Wallet Stores A High Percentage Of The Exchange’s Digital Assets
Individuals are often advised to spread their funds across multiple wallets in order to reduce the risk of losing all their funds in one hack attempt. The same is true for crypto exchanges. However, some exchanges still make the schoolboy error of storing all their users’ funds in one wallet, thereby making them attractive to hackers. More alarming is the fact that the CEO of some exchanges are also their security executives and custodian of the wallets’ keys.
If your exchange is guilty of this, then I would advise that you only store your daily trading funds on the crypto exchange’s wallet so as to reduce the impact of a potential attack on your funds.
Better still, it is more prudent to withdraw all your funds and look for alternatives that understand the importance of not only splitting funds but also go as far as splitting the wallets keys.
Security Tools And Systems Are Archaic
Apart from taking advantage of the storage system of a crypto exchange, hackers also look for ways to access users’ accounts. Users can mitigate against this by using strong passwords and being wary of the numerous crypto deals and offers that litter the internet. Nonetheless, all these strategies become futile if your exchange does not take security as seriously as you do.
For instance, a security-conscious exchange would have, by now, implemented the two-factor authentication (2FA) as a security option for its users. This security system comes with another level of sophistication and complexity that trumps the conventional username and password account security model.
If your exchange comes with this security option and you are yet to enable it, then you are at risk of falling victim of crypto thefts and you will have only yourself to blame. Also, it is advisable for traders with multiple accounts to utilize unique passwords for each account so as to minimize the collateral damage in the event of a data breach on one of the crypto exchanges.
Fictitious Attacks And Poor Customer Service
It is not a new thing for exchanges or crypto firms to fake attacks in order to cart away with the funds of their users. We witnessed a similar case last year that should serve as a warning to crypto traders. Since the crypto space is yet to come up with global standards, nefarious activities could go unpunished and users would most likely be the ones at the receiving end. Therefore, it is important that you take a time out from your rigorous trading activities to consider factors that could highlight the integrity, or lack of it, of your crypto exchange.
For example, a crypto exchange with a poor customer relationship would probably not do much to help its users recover their funds when there are breaches. And most likely, it would not update them on such security setbacks until it is too late. Bearing this in mind, you are advised to only adopt crypto exchanges that have a budding reputation of carrying their users along and are doing enough to reply queries. Apparently, we have how some crypto exchanges, which were able to recover lost funds and bounce back tremendously in the aftermath of a major security breach.
The Manipulation Of Trading Volumes
Experts have always suspected that crypto exchanges are often guilty of wash trading (manipulate their trading volume in order to remain relevant in the crypto market). While this remained nothing more than a lingering suspicion, it was not until the emergence of various studies that it was confirmed that as much as 80% of the trading volume in the top 25 crypto exchanges are fake.
This nefarious act involves the use of bots to place orders without necessarily executing them, which falsely increase the activities of such exchange while implying that it has liquidity. As such, it is common for traders to encounter issues when trying to withdraw their funds. In light of this, CoinMarketCap is working on introducing additional information on its platform that would help users detect exchanges that are wash trading.
The implication of this is that it suggests that such crypto exchanges would do all it takes to make profits, even actions that could inadvertently prove detrimental to the finances of their users. Therefore, you should remain wary of these crypto exchanges and go for the ones that have proven beyond any doubt that the legality of their actions is unquestionable.