Minimizing risks on cryptocurrency exchangesApr 19, 2023
Cryptocurrency exchanges are gaining more and more attention due to the multitude of advantages and easements they provide users, such as the best exchange rates, fast exchange speed, and versatile instruments for cryptocurrency trading.
However with the growth of popularity crypto exchanges become a target for different kinds of fraud. In this article we'll speak about the main risks and the ways to avoid them.
Risks for cryptocurrency exchanges users
Hacking and theft of funds from a cryptocurrency exchange
The most dangerous risk associated with cryptocurrency exchanges is the possibility of a hacking attack on a cryptocurrency exchange. Such attacks can be experienced on both centralized exchanges and smart contracts of decentralized networks, therefore network decentralization is not a guarantee of your fund's security. For example, in November 2022, the FTX exchange was hacked and more than $600 million was stolen from its crypto wallets. What's more, even large and trusted exchanges like Binance can be victims of hacking attacks. In October 2022, Binance experienced a hack where $570 million was stolen from the exchange through a bug in a smart contract, resulting in the creation of extra Binance Coins (BNB).
|Source: Google News|
How to keep your crypto safe from possible exchange hacks?
Before choosing a cryptocurrency exchange, do research and become sure that there are no suspicious signs. Choose a reliable exchange that includes:
- Two-Factor Authentication (2FA);
- The ability to whitelist user IPs;
- Whitelist for withdrawal addresses;
- Security tools like multi signatures;
- Suspicious behavior alerts;
- Email encryption;
- Phishing protection;
- Funds Insurance.
It's good practice to frequently monitor your accounts for unusual activity and be mindful of phishing scams targeting cryptocurrency users.
Do not use an exchange as a storage of your cryptocurrency
If you are not a trader and buy crypto assets for long-term holding - exchanges are not the best way for it. When you leave your cryptocurrency on an exchange, you're essentially entrusting it to secure your funds. Storing money on an exchange means that you don't have complete control over your assets making them vulnerable to potential hacks.
Remember that the most secure way for long-term holdings is to use a trusted wallet. By withdrawing your funds to a crypto wallet, you're keeping your assets secure and at the same time still maintaining access to them when needed. If you don't know how to choose a crypto wallet - this article is for you.
The danger of scams and fraud
While blockchain technology assures security and reduces the possibility of impersonation, cryptocurrency scams are still rampant. And users of cryptocurrency exchanges are a priority target for scammers. The most common types of cryptocurrency scams include investment scams, phishing scams, upgrade scams, SIM-swap scams, and fake crypto exchanges. These scams are designed to trick users into giving access to their private keys or other private information to scammers.
How to avoid scams and fraud?
Be vigilant and exercise caution in your dealings with any exchange or investment opportunity. Always research the exchange beforehand and ensure that it's a reputable and legitimate company. Cryptocurrency users should also note that the hallmark of scams is the promise of great benefits in a short time. It's crucial to do due diligence, fully understand the investment opportunity, and be cautious when transferring funds. By taking these steps, users can protect their assets and safeguard themselves against cryptocurrency scams.
While cryptocurrency exchanges offer a lot of benefits for traders, it's important to be aware of the risks associated with their security system. To reduce these risks, users need to DYOR all the information before making any investment decision, be aware of different types of scams and have a healthy dose of skepticism about everything. Remember, the key to protecting your crypto assets is to be aware, informed, and empowered.