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How to Secure Bitcoin Exchanges

How to Secure Bitcoin Exchanges

01/03/2017
Secure Bitcoin Exchanges

Mary Ann Callahan

Por  Mary Ann Callahan*

The concept of digital society has transformed the way people live, communicate and even do business. Digitization got its hands to almost every sphere of our everyday life. We are not going to dissect and analyze its impact on day-to-day activities in every particular case, we will turn our attention to an alarming money matter instead.

It is indubitable that you are familiar with a notion of digital money in general and bitcoin exchange in particular. But the question arises as to whether you are aware of the fact, how Bitcoin actually works.

Hack me if you can

Bitcoin is an instance of a peer-to-peer electronic payment system with a clearing cryptocurrency of the same name. It is based on blockchain technology, which provides a distributed digital ledger for recording any financial transaction ever made through this system. Bitcoin runs on a cryptographic networking protocol, which allows users to make direct secure transactions, following advanced verification standards like public and private keys, digital signatures and cryptographic hashing algorithms. All completed transactions are accessible by each node in the network, but any sensitive information about the parties is encrypted and not exposed to malicious attacks. Bitcoin payment system allows users to take a greater control over their financial transactions and keep their money safe, moreover eliminating the need for a third-party agent.

Suppose, you have finalized a transaction and obtained the agreed amount of bitcoins in the result. What comes next? Which is the following step to take to receive physical money in return of digital coins?

Look, who is in play!

Bitcoin exchange services are exactly what you need to convert bitcoins into paper currency. Bitcoin exchange is no different from a conventional exchange bank. It adheres to just the same exchange principles: buyers and sellers are automatically matched by the most appropriate bid that will perfectly meet the requirements of both parties. According to CEX.io, you can get around 1167 USD or 1093 EUR (as of 23.02.2017) with only one bitcoin. The rate will differ in terms of the exchange service selected.

What are the most popular cryptocurrency exchange services for you to choose from? Nowadays the market is congested with different online services, providing a platform for bitcoin trading.

Quoine. It is based in Singapore and declares itself “the world’s most advanced bitcoin trading platform.” Quoine exempts customers from any kind of trading fees and provides fast execution of transactions.

Cex.io. London-based Cex.io attracts customers by its long-standing reputation and the flexibility it provides to buy and sell Bitcoins. Alongside with traditional methods, Cex.io ensures that Bitcoins can be easily bought using almost any type of a credit card. It is considerably facilitates the buying process, but nohow makes it less secure due to PCI DSS certificate, validating compliance with the security standards for handling sensitive data.  The core consideration of this exchange is to provide customers with the most stable and reliable service. This is proved by advanced safety precautions used: two-factor authentication, anti-fraud policy, strong encryption methods for data of any nature, as well as AML/KYC Policy.

OKCoin. Beijing-based OKCoin branches out for two bitcoin trading platforms: OKCoin International and OKCoin China. It is considered one of the largest bitcoin exchange services with a volume of two million dollars traded for bitcoins per day.

Kiss your money good-bye

However, a big name and huge popularity do not grant immunity from hacker infiltration. Bitfinex is a good case in point.

A matter of 65 million dollars. 2016 was a peak year for Bitfinex but not in terms of profits. At the beginning of August one of the biggest bitcoin exchanges reported on the security breach and announced that it was robbed of 119,756 bitcoins, totalling nearly 36% of all deposits. Shortly aftewards, Bitfinex transferred all bitcoins to a multisignature wallet, upgraded their servers and moved to a new datacenter as a safeguard against further hacker attacks. Nevertheless, these preventive measures haven’t restored tattered reputation and customer confidence.

Probably, someone got slightly alarmed at what he heard, whereas another one became immensely impressed and rushed to withdraw his bitcoins from the wallet. Give it a pause!

Better  safe than sorry

There are some security standards that are widely used among cryptocurrency exchanges for storing and trading digital currency. Like any other service, dealing with sensitive information storage, bitcoin exchanges should comply with a worldwide accepted Data Security Standard. It binds organizations concerned to adhere to uniform security policies for handling confidential data. Under these principles it is obligatory to integrate and maintain a secure network with encrypted transmission of user data, access restriction methods and regular security tests.

Alongside with these standardized security principles, bitcoin exchange companies apply supplementary security measures like cold storage that allows you to keep your bitcoin deposit offline; hot wallets to withdraw bitcoins upon the first demand of the client; cooperation with external regulators in charge of monitoring Bitcoin cryptocurrency; and integration of additional advanced security protocols.

Digital currency exchanges have always been overlaid with security concerns. Recently, a team of individuals from BitGo, Inc. and CryptoCurrency Certification Consortium (C4) has come up with a draft for CryptoCurrency Security Standard, which is a set of requirements imposed on payment service providers to securely store and manage bitcoin and other cryptocurrencies within their platforms.With the integration of 10 uniform security aspects they aim to standardize diversified practices implemented by bitcoin exchanges and provide safe environment for bitcoin handling.

Keep calm and follow the lead

The best way to accept something is to learn by example. A security picture painted by leading exchanges is worth a thousand words.

Coinbase. You are already familiar with a general overview of Coinbase, so it’s time to emphasize its security policy. Coinbase is remarkable for its multiple-key architecture. According to Coinbase, their innovative multisig approach and two-step verification method ensure easy use and backup, as well as complete security and total user control over bitcoin deposits.

Bitstamp. This bitcoin exchange has its offices in London, Luxembourg and New York. It is the first licensed bitcoin exchange and one of the few exchanges included in CoinDesk Bitcoin Price Index. As for the security policy Bitstamp stands out for its compliance with anti-money laundering policy and integration of PCI scanning tools that guard against different vulnerabilities.

Kraken. Headquartered in San Francisco, it is ranked high among the top digital currency exchanges. Kraken operates in different countries and is considered the most secure. The secret of Kraken policy lies in two-factor authentication, air gapping technique and PGP/GPG encrypting tools to assure customers of the utmost security.

I believe I can… try

What everyone wants to know is whether cryptocurrency is a sure bet to keep money safe. The major “pro” argument, which is quite unobjectionable, is that digital currency is more secure than fiat currency, because it is protected by cryptography. Cryptocurrency cannot be manipulated by any central authority or counterfeited, owing to its security features.

The first and the most popular digital currency is Bitcoin. Bitcoins are transferred peer to peer and all the transactions made with bitcoins are recorded in a shared space. So, it is impossible to fall short of even a single bitcoin. This currency is uniform and available anywhere in the world. The number of confirmed transactions made with bitcoins ranges from 120,000 to 330,000 per day. It speaks volumes, doesn’t it?

 

Artigos em outros idiomas são publicados em International News | Articles in other languages are published in the International News 

 

* Mary Ann Callahan |  Journalist – CEX.IO

CEX.IO

 

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