What Security Questions Should You Ask of Your Crypto Exchange?
Every cryptocurrency trader and investor wants to be sure that their funds are always safe, no matter where they are. However, trading inherently comes with many risks, including fraud from exchanges, theft, and hacking which can compromise wallets and cause users to lose cryptocurrency. Here are several questions which you should ask of your cryptocurrency exchange before trusting them with your funds.
Where is private key information stored?
Cryptocurrency exchanges which provide centralized trading services hold private key information for their customers in order to facilitate transactions. If an exchange holds private key information online, it is susceptible to theft, in which case customer funds could be lost or stolen with no recourse. It is best to search for an exchange which holds private key information offline in cold storage, where it cannot be compromised.
Where are user funds stored?
Crypto exchanges offer fiat currency trading pairs, and they must store deposits much like a bank. Similar to private key information, if the data regarding user funds are stored online, they are susceptible to being compromised. The best is to go with an exchange which provides fund storage offline instead.
Do you comply with GDPR?
The newly enacted General Data Protection Regulation (GDPR) regulations provide EU residents more control and privacy when it comes to their personal data and information. With GDPR, businesses must disclose the intended uses of personal data from users, creating an added level of transparency across the board.
There is no doubt that GDPR laws are great security protection for cryptocurrency exchange users, and checking an exchange’s compliance with GDPR should be standard for all EU residents.
Do you conduct security audits?
It is one thing for an exchange to tout their infrastructure and secure network, and it is another for them to allow a third-party to examine their internal security. A security audit gives a qualified outside firm a possibility to examine and report on the security measures in-place on an exchange. An audit helps an exchange to fix any security issues which they themselves may not have found, while also giving you as a user the peace of mind that due diligence is being conducted by the exchange.
Do you hold yourself to a high standard?
Many exchanges operate simply to facilitate trades between parties, providing the bare minimum of support and transparency. If you are sending an exchange a significant amount of money, be it in cryptocurrency or cash, you probably want them to be held to a high standard.
As cryptocurrency trading becomes more ubiquitous, some exchanges are operating similarly to banks, applying to become Electronic Money Institutions (EMI) so they can issue International Bank Account Numbers (IBAN) the same way any other financial institution would. Eterbase is one of the first exchanges in Europe to take this step and secure itself as a fully transparent and trustworthy exchange. Gemini is a US-based exchange regulated by the New York State Department of Financial Services (NYSDFS). Meanwhile, Coinbase offers insurance to customer funds which would payout in case of a security breach. These exchanges are all holding themselves to a very high standard, and hopefully more exchanges will soon follow the suit.
Security and Transparency are #1
It is all well and good to utilize a cryptocurrency exchange which features a beautiful trading interface and a wide array of coin pairings, but it is meaningless if your funds are not being kept safe. These questions can act as helpful guideposts to determine which exchange is best suited to hold your funds and execute your trades without any worry of a security compromise or data breach.