Security On Cryptocurrency Exchange
On March 23, 2022 hackers invaded the Ronin Network and stole 600 million USD from the Axie Infinity sidechain. A security breach in the Ronin Network led to one of the largest cryptocurrency attacks in history.
To eliminate cyberattacks, owners should assign cryptocurrency exchange development to professionals. Moreover, there are methods clients can use to protect virtual assets. Let’s review what risks crypto exchanges have and how to shield from them.
How Do Hackers Attack?
Fraudsters practice false promises, when they guarantee a quick capital raise. Often, they play on user ignorance, taking advantage of the lack of experience in blockchain technology. Scammers can list tokens identical to those on a reputable exchange. They can issue a BTC+ token and deceive inexpert users.
With a deep fake technology that allows faking a celebrity, hackers can create phony addresses to lure secret phrases and enter crypto wallets from any device.
Other vulnerabilities hackers employ are:
- Insufficient private key storage,
- Bugs on a crypto exchange,
- Gaps in server protection,
- Corruption of employees.
What methods do hackers use?
There are technically complex solutions for stealing digital money. Yet, the simplest method remains hacking a person, not a code.
Phishing is the most common method of stealing cryptocurrencies. It is used to nip user’s identification data: passwords, bank cards, account numbers. Hackers create fake websites to trap a user into entering personal data there. This data is immediately sent to scammers who use this information to log into an account on a real crypto exchange.
Malware that changes the recipient’s address is also popular. When transacting crypto, a user enters a recipient’s address. At the next step, however, the virus changes this address to the one leading to a fraudster’s wallet. Without checking the recipient’s address right before sending, the sender ends up transferring coins to scammers.
How Can Crypto Exchanges Protect From Hackers?
To protect clients, crypto exchanges must fix vulnerabilities. Moreover, they must develop scenarios for responding to threats. Some exchanges implement unique measures:
- On-chain reserves audit. Gate.io developed software for the on-chain audit of reserves. It is the first crypto exchange to prove 100% of user balances.
- Reconciliation of user balances. In its trading engine, BitMEX implemented a reconciliation mechanism per transaction. A shutdown tool stops operations if there is a discrepancy between a user account and their trading history.
- Coinbase Tracer. It is a Coinbase service for checking the transparency of transactions.
- Surveillance systems. Kraken installed video surveillance in server rooms. Plus, it assigned armed guards to control it.
How to protect websites and servers?
In 2020, hackers intruded the Livecoin servers. They raised the quotes of bitcoin and ether to $220,000 and $65,000, respectively, and stole 2 million USD. To counter such attacks, crypto exchanges can utilize:
- HTTPS protocol to securely transfer data between users and servers;
- Anti-DDoS and CloudFlare firewall to protect from traffic that can slow down the platform operation;
- Web Application Firewall (WAF) to combat network attacks: SQL injections, substitution of access tokens, execution of malicious codes, password attacks;
- Protected DNS so that hackers could not redirect users to phishing sites.
Another approach is to use separate modules. In this scenario, hackers will not be able to tamper cryptocurrency quotes, profitability of instruments or other crypto exchange parameters.
To ensure internal security, exchanges may implement a corporate firewall and a system to monitor access to corporate resources. If one computer is infected, the system will detect the virus at the first attempts to read the data.
How Can Clients Protect From Hackers?
Developers can solve the security problem: elaborate a scheme to counter liquidity pools manipulation, strengthen crypto bridges, prevent user data leaks. With attacks, like phishing, all they can do is to remind a user to check the site and not to store seed phrases on the cloud storage.
The majority of fraudulent cases are related to human nature rather than system vulnerabilities. Here are the tips to safeguard a crypto exchange account:
- A separate email exclusively for crypto activities. Do not share this data on social media, messengers or blogs. This will reduce the likelihood of hacking your mailbox.
- Two-factor authentication. No one but you can access your account without a one-time OTP code. The most well-known code generator app is Google Authenticator.
- Distributed passwords, seed phrases, wallet addresses. When this information is kept in different places, it reduces the risk of losing all assets in case of an attack.
- Cryptocurrencies in different repositories. Experienced traders use several types of storage to protect crypto assets: cold wallets for long–term, hot wallets for daily transactions.
- No following links on social media and messengers. Block or delete phishing messages. Do not open attachments from unknown senders.
- No talking about crypto assets. Do not share how much you have earned in crowded places.
- Thorough transaction checks. Make sure you are sending the asset to the right wallet.
- Thorough platform checks. Before transferring an asset to a third-party service, study it. Make sure it is a safe and trustworthy provider.
Bottomline
Security on crypto exchanges can be easily achieved. For that, developers need to introduce the necessary protection mechanisms: HTTPS protocols, Anti-DDoS and firewalls, protected DNS. There should always be a security team to monitor suspicious activities and address them.
As for clients, they should follow the rules of safe trading: create an email for crypto trading, set 2-factor authentication, keep their passwords safe, stay away from suspicious links and attachments.
‘The security of a crypto exchange starts at the development level. Developers should build on the cases of cyber attacks. That is how they can implement protective mechanisms for the exchange,’ suggests Alexander Riedinger, CEO at Merkeleon.
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