A lot of new cryptocurrency exchanges are growing daily and rapidly worldwide. With the increasing number of cryptocurrency exchanges in the world today, a lot of them are faced with the risk of cyber attack.
So, it is crucial for all investors who want to invest their money, and a lot of their money should look out for red flags when choosing cryptocurrency exchanges, as they should also do their homework and a proper background check on the cryptocurrency exchange as relating to their fees and security safeguard.
With the increasing interest of investors who are willing to trade, in this rapidly growing space, there is a need for security to safeguard cryptocurrency exchanges. Cryptocurrency exchangers are just like the e-brokerages from the investor’s standpoint.
The global cryptocurrency market has been valued above $700 billion, but the market is still lightly regulated. Some experts in cryptocurrency exchanges say people who want to invest their money in cryptocurrency should choose an exchange that suits their individual needs.
Generally, any good cryptocurrency exchange would offer a safeguard against money laundering, and set in some procedures to know their customers, like a cell-phone application for trading and tracking the price, and a quick and easy way to move cash between bank account to the site’s wallet.
But beyond these universal must-haves, there are still some key consideration that needs to be set in place to ensure ease of use and security.
Many exchanges have several servers that are hosted at different locations preferably different countries, just to be safe. As the popular saying goes, “never put all your eggs in one basket”.
Disaster mitigation of cryptocurrency exchanges in simple terms is best understood as the process of responding to a major failure or let down of the system as the system switches to another server that is being hosted in another location.
The disaster could be natural or man-made, so incorporating cryptocurrency to managing and mitigating disaster is attainable. Let us assume that there is a hack, and the attacker gained full control of the entire infrastructure of the exchange.
Using false user pairing, the attacker can easily trick the 2FA user channel. But even when the hacker injects false user pairing into the HSM, perhaps the HSM fails its periodic consistency check, it will automatically shut down the signing plug-in until reactivated by an administrator.
Basically, the shutdown of the server is to ensure that the hacker stays out of the server if a server is hacked or broken; and during this time the exchanger has to switch to its other servers, to ensure continuity of trades.
For example, Binance has multiple servers offshore, even though they have multiple offices in Asia. Their servers allow them to be able to handle more than 130 coins consistently, and if a server gets broken, they rely on the other servers while they fix the broken one without causing a halt to any trade.
Exchanges Server Distribution
Basically, cryptocurrency do not have a central computer, but they are distributed across a network of typically thousand or computer. A network without a central server is called a decentralized network. Since cryptocurrency has no central computer, it means no third-party escrow intermediary is required to hold the funds of the customers in the exchange process.
Due to cryptocurrency decentralized network, transactions are faster and at a cheaper rate. The removal of the third part authenticator actually reduced the charging rates and the lag time before a transaction is processed.
The distributed servers of the cryptocurrency exchanges have made this system even more difficult to potential malicious hacks. Because of the decentralized network, every entry points that hackers could have used to hack the system have been blocked. Meaning for a hacker to get into the system, they have to compromise more than half of the whole network.
Overseas Server Location
In other for an exchange to further improve, they engage themselves in acquiring some foreign servers. Some bit exchangers like coinbase, bitterex and the likes, makes use of cloudflare for caching. And cloudflare has servers in most part of the world.
So, you may notice that perhaps you are in say Europe, and you are making connections to servers in the United State of America, when there is a closer server to your location, say probably in Sofia (Bulgaria), or Belgrade (Serbia).
Safeguarding Cryptocurrency Transactions
A lot of cryptocurrency exchanges are keeping the vast majority of about 97% of its assets in a cold storage. This is the best protection they can have. The underlying ideology behind this is to get their assets totally offline, out of the reach of hackers.
But despite this, to properly function normally, they still need to have a type of wallet they can use to connect online with their users. The wallet cryptocurrency exchanges use to connect with its user online is called a hot wallet.
The hot wallets are controlled with APIs, and the hot wallet is used to approve the order of customers who want to withdraw of deposit in their accounts. Because this cryptocurrency exchanges have to validate the transaction of its users with their wallets, the keys must be live.
In a transaction authentication of a cryptocurrency, the wallets are designed with specialized software that can calculate the balance of the user by keeping track of all incoming and outgoing payments. The wallet is also designed to calculate the fee that the user would pay to the miners of the network to confirm or authenticate the transaction.
Once a user sends a certain amount of cryptocurrency, the transaction gets broadcasted across networks, and within a few seconds the receiver would see a pending transaction on his or her wallet.
Then a miner would add the transaction and mine a block which includes the transaction. Once enough blocks have been mined, the transaction would be confirmed with ease.
Cryptocurrency offers a new frontier for many investors around the world, and there is no doubt that with the necessary safeguards in place, it can be a veritable goldmine.