Best Cryptocurrency Exchange

Four Things That Make Your Holdings In Crypto Exchanges Vulnerable

Four Things That Make Your Holdings In Crypto Exchanges Vulnerable
Written by publisher team

Last month, Coinmarketcap reportedly showed cryptocurrency prices to rise due to an apparent flaw. In October 2021, according to various media sources, two Australian cryptocurrency exchanges reportedly exploded, acquiring $50 million worth of clients’ coins. Since cryptography is a relatively new technology for some and transactions are done anonymously, it is very difficult to keep track of where the tokens are.

These are not isolated incidents. There have been many fraud cases with cryptocurrency exchanges in the past.

What makes cryptocurrency exchanges vulnerable?

While there were very few cryptocurrency exchanges in 2008 when the world’s oldest cryptocurrency, Bitcoin, appeared, the launch of Coinbase in 2012 and then Binance in 2017 opened the door.

Unlike stock exchanges, which are subject to mandatory audits at regular intervals, cryptocurrency exchanges are neither regulated nor required by law to audit themselves. Some of them just do self-audits.

“Cryptocurrency exchanges have had major hacks in the past, so it is not recommended to hold long-term investment positions on centralized exchanges. Always use cold storage or hardware wallets to safely store your cryptocurrency investments. One also needs to do due diligence, research before investing a penny. in any cryptocurrency,” says Hitesh Malviya, founder of itsblockchain.com, the oldest crypto and blockchain media publishing site in India.

Here are some of the problems that investors may encounter when dealing with cryptocurrency exchanges.

Hacking threat

Cryptocurrencies are decentralized, but the exchanges on which they are traded are centralized and vulnerable to hacking. One of the most common types of hacking is DDOS (Distributed Denial of Service), where hackers make so many service requests on a server that it becomes overloaded and eventually crashes, disrupting the service.

“Centralized cryptocurrency exchanges have one point of failure and are vulnerable to DDoS and cyber attacks,” says Sharat Chandra, an emerging technology expert and advisor to blockchain startups.

Data tracking error

In December 2021, many cryptocurrency investors and enthusiasts were shocked to see the price of their crypto assets soar to an astronomical level on Coinmarketcap, a global cryptocurrency exchange owned by Binance. This was due to a software issue and was later corrected.

Similarly, in October 2021, according to reports from various media sources, due to a software issue with one of the institutional traders registered with Binance, a large sell order was accidentally executed without any buyer on the other side of the trade. As a result, the bitcoin price of Binance customers in the US dropped to as low as $8000, the flaw was immediately corrected and no investor suffered any loss.

“Such outages, across the largest cryptocurrency exchanges, can be problematic for investors. However, these are extremely rare events. Exchanges spend millions of dollars building infrastructure to prevent such incidents. However, in the event of such severe outages, from Some users may be affected,” says Edul Patel, CEO and co-founder of Mudrex, a global algorithm-based crypto investment platform.

human error

Human errors can also sometimes wreak havoc. Recently, a trader misspelled while entering a sell order from his NFT bored monkey for $3,000 instead of $3,00,000. The BBC reported that by the time he realized his mistake, he had lost $2,97,000.

BBC

On the crypto blockchain, transactions happen instantly, irreversibly, and anonymously, so it is very difficult to keep track of whether something went wrong and who did it unless that person was imminent.

Such errors occur at the level of cryptocurrency exchanges as well. One such incident, reported by the Financial Times in October 2021, resulted in an incorrect transfer of $24 million from London-based crypto exchange DeversiFi to a customer; The customer subsequently refunded the erroneous transfer in good faith.

Different crypto exchanges can deploy different mechanisms to combat this bug. One of the simplest could be to perform an additional step where the person entering the data needs to double-check that the data is entered correctly. Some exchanges and NFT platforms are considering doing this, with some already implementing this additional step, Patel says.

Fraudulent actors

There have been many cases where investors have been deceived into their hard-earned savings because they did not perform their due diligence before investing. This was also because a lot of cryptocurrency exchanges allow the listing and trading of unverified and non-audit cryptocurrencies.

However, this issue is addressed to some extent by many cryptocurrency exchange platforms. They have made their KYC process more stringent and are also conducting audits of public crypto projects on their exchange so that frauds like this do not recur in the future.

“Rug-pull scams like the famous Squid gaming token that rose to astronomical levels only to later plummet had an anti-dumping mechanism. Investors should stay away from launching new tokens that promise unrealistic gains. It is important to take a look at Tokens for new token projects and carefully evaluate the “use case” and “token speed (times of token rotations in a given period)” to give an informed opinion.” said Sharrat Chandra, a blockchain and emerging technology expert and advisor to blockchain startups.

What should investors do?
Some of these errors are now being addressed by many crypto exchanges and stakeholders. Jack Dorsey, the former CEO of Twitter recently expressed his desire to create a hardware-based Bitcoin wallet for more secure transactions. Binance also recently announced a partnership with CertiK, an exchange-listed crypto-audit firm to audit projects based on the ERC-20 and BEP-20 protocols.
What cryptocurrency investors can do on their part is store the purchased crypto tokens in cold wallets (hardware dependent) so that they don’t get hacked.
“Some exchanges use multi-signature cold wallets to hold digital assets securely, and self-hosted wallets are the most secure option for holding digital assets,” Chandra says.
“With the cryptocurrency market unregulated, and more than 80 percent of the cryptocurrencies we see today maintaining their prices based on hype and speculation, whenever we see a bear market cycle, most of it can become worthless,” Malvia said.

.

About the author

publisher team