With more than a few hacks and dozens of exchange platforms shutting down in the last 12 months, 2019 can be broadly described as a worrying year for many cryptocurrency traders.
However, though the industry has suffered setbacks as of late, it appears that these challenges have made it stronger, as cryptocurrency exchanges learn from the mistakes of others, to make trading both safer and more accessible.
A Bad Year for Exchanges
Kicking off the year with a bang, the New Zealand-based exchange Cryptopia was the first to be hacked in 2019, after approximately $15 million in crypto-assets were exfiltrated from the platform back in January.
Since then, there have been several prominent exchange hacks throughout the year, with $7 million stolen from DragonEx and $13 million in EOS, along with $6.2 million in XRP swiped from Bithumb back in March. Similarly, just two months later, arguably the most significant hack of this year occurred, when Binance, the world’s largest cryptocurrency exchange by trade volume, had 7,000 BTC stolen after hackers abused API keys and 2FA codes to empty its hot wallet.
The most recent hack occurred just last month, after 342,000 ether worth $50 million was drained from the wallet of Japanese cryptocurrency exchange Upbit. Fortunately, in the case of Upbit and Binance, all lost funds were covered in full by the two exchange platforms, ensuring users did not lose any money—but this practice, is unfortunately relatively uncommon, since most exchange hacks typically end with only partial reimbursement.
What did all these exchanges have in common you might ask? The answer is simple—poor security. For the vast majority of recent exchange hacks, hackers are able to exploit a vulnerability in the way funds are either moved from cold storage to the hot wallet, or in the way the hot wallet is secured, allowing them to siphon off funds without proper authorization.
In light of this, savvy cryptocurrency traders are now beginning to place a major emphasis on security, since this is paramount to ensuring trading profits can actually be realized.
The Search for Security
Fortunately, several exchange platforms are now beginning to take steps to massively improve the security of user funds—adding a host of new security layers that would make even the most determined hacker wince.
Out of these platforms, the Singapore-based digital asset exchange ecxx is attempting to re-define the industry standard, by offering security that rivals Fort-Knox. Although this is certainly a lofty claim, there is no denying that ecxx is certainly pushing the bar when it comes to security, by being one of the few platforms to offer IP-binding, making it practically impossible for unauthorized parties to withdraw funds.
Beyond this, thanks to its strategic partnership with Ledger, ecxx now benefits from the multi-authorization cryptocurrency wallet management system offered by Ledger Vault—this requires that withdrawals are verified by three separate exchange departments before they are actioned.
It’s not just ecxx stepping up to the plate either. As customers begin to demand accountability and robust custody over their funds, other prominent exchange platforms are beginning to take note. Among these, Binance is has gone further than most, by performing “significant overhauls” to its security systems and adding support third-party security keys shortly after being hacked in May.
As we previously touched on, many modern cryptocurrency exchanges are going through a period of self-innovation of sorts, which means customers can now expect to benefit from more than just secure cryptocurrency trading facilities.
This has manifested itself in a variety of ways, with exchanges now offering users improved trading incentives, in addition to new investment modalities that allow investors to gain exposure to cryptocurrencies with less risk and fewer barriers.
Perhaps the most promising of these new investment options are security token offerings (STOs)—which essentially enable investors to purchase equity in the form of crypto-asset tokens.
However, STOs can only be legally offered by regulated platforms, which has seen at least one exchange platform look to the MAS Fintech Sandbox program as a way to fast-track this entirely new asset class to market. As such, should ecxx or another platform be successful in bringing STOs to cryptocurrency investors, then 2020 could very well be the year of the security token.