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Trading cryptocurrencies can be fun and profitable, but it also comes with significant risks from many different directions. Apart from price volatility and scams that plague the crypto market, one often overlooked risk is the security of cryptocurrency exchanges themselves. Anyone who’s been trading for a few years will remind you that Bitcoin exchanges are vulnerable to attacks and collapse.
The nature of Bitcoin and most other cryptocurrencies means that once your money is gone, it is really gone. There’s nobody to complain to and no way of recovering your funds. So, it’s vital to buy Bitcoin from an exchange with a great track record and excellent security standards.
Here are the most secure exchanges on the market today, as well as some practical tips to help you stay safe in the future.
Coinbase is the most popular Bitcoin exchange in the world. In terms of security, it’s right up there with the best of them, too. The exchange ticks all of the ‘must have’ boxes of a secure Bitcoin exchange, such as two-factor authentication, phone support, and payment industry best practices. The company also states that 98% of customer funds are stored safely offline in what is called cold storage. This keeps your Bitcoin much safer in case of an attack on the Coinbase servers or loss of data. A bug bounty program also helps keep the website safe from hackers.
Coinbase is a leading organization when it comes to Bitcoin security. The team is developing a security technology robust enough for institutional investors to confidently buy large amounts of Bitcoin. The high-tech process involves printers, cell phone signal blocking tents, and bank vaults.
Coinbase also has a platform for more advanced traders with tools such as margin trading and leverage. Keeping it separate from the basic services, Coinbase makes it easy for beginners to start trading without getting overwhelmed.
CEX.IO is another powerhouse Bitcoin exchange with a strong reputation for security. It’s one of the only major Bitcoin exchanges in the world that hasn’t experienced a theft of customers funds. That’s a huge achievement in the cryptocurrency market and something to be proud of.
CEX.IO implements two-factor authentication and other essential security processes like full data encryption and cold storage to keep customer funds safe. It also complies with regulations such as Anti-Money Laundering/Know Your Customer to stay within the laws of countries it operates in and with Payment Card Industry Data Security Standards. The head office is located in London, but CEX.IO offers its services around the world.
Kraken is a California-based Bitcoin exchange with high-security standards and a good track record. The Security Practices page outlines the company’s approach to keeping user funds safe. When you deposit funds with Kraken, they are sent directly to air-gapped cold storage, meaning they are completely separated from the Internet or any connected device. You can also set up a highly secure account recovery with a separate two-factor authentication channel.
At the time of writing, these exchanges have great security credentials. But things change quickly in the tech industry, especially with Bitcoin companies. It’s essential that you stay up-to-date with any exchange or company that handles any of your funds or cryptocurrency.
Determining If an Exchange Is Secure
You might find you can’t use one of the exchanges listed here, or you have another reason to use a different one. In that case, you’re going to have to determine if the exchange is secure enough for your needs.
There are multiple dimensions to cryptocurrency security you need to take into consideration. The first is coin storage security. The ideal solution is to have a minimum amount of coins in hot wallets for day-to-day trading and have the rest in cold storage. System security means the physical security of the data centers, servers, and information systems used to run the exchange.
User account security is essential. You should set a unique password, enable two-factor authentication, and manage processes for handling your verification documents.
Choose Your Exchange Wisely
Cryptocurrency is already a dangerous game to be in. Bitcoin prices can suddenly collapse or you can accidentally lose your private keys and have your money simply disappear. The last thing you need is for the Bitcoin exchange of your choice to lose your funds. This would be like your bank simply losing all of your savings.
Large-scale hacks have crippled Bitcoin exchanges multiple times in the past. The first wake up call for crypto traders was when $430 million of user funds was lost in the Mt. Gox hack. Since then, even bigger hacks have occurred of over half a billion dollars. When these attacks occur, it’s usually the users that foot the bill. It’s essential that you choose an exchange you trust to hold your crypto funds while you trade.
Minimize Your Exposure and Accept the Risks
Even if you choose a secure exchange, there are still important steps you must take to keep your Bitcoin safe. Most importantly, don’t keep large amounts of your crypto portfolio on an exchange. You should move any Bitcoin you aren’t actually trading into your own secure storage systems. If you have a lot of Bitcoin, you should consider getting a hardware wallet and keep multiple backups of your private keys.
No matter how careful you are, there are always risks with Bitcoin. You should accept this fact and only invest what you can afford to lose.