If you are a newbie into crypto which is the major focus of this app (MyCryptoDictionary), you surely have your fear, uncertainty and doubt (FUD) on how easy or difficult it might be for you to pick up an exchange to start your cryptocurrency trading journey with confidence that you are possibly in a safe and secure hands. Anyway, I will try my best in this article to open your eyes to some things that you may need to watch out for before you conclude on which exchange to possibly start with.
Also at the end, you may get some recommendation of platforms have personally traded on with no issues in other to help you get started trading crypto on a secured crypto exchange.
Thus, let’s get started and don’t also forget you can always connect us via our telegram to have one-on-one free help from our team on this platform.
How big an issue is a security when it comes to crypto and exchanges?
It is very important for us to start by first dissecting how big an issue is a security when it comes to crypto and exchanges because no matter how much you have invested in crypto without it been properly secured, you risk getting wrecked.
Unlike the fiat bank where most have details of their customers and identity to easily help their customers uncover and recover their money when fraudulently taken over by an unauthorized person, the crypto world is not the same and most times it almost impossible to uncover the true identity of fraudsters and hackers in cases of lost funds. As a newbie, you need to understand you are in a less regulated and monitored atmosphere as of now (though later in future thing will hopefully get more regulated and better) to make sure you protect yourself and your crypto fund and investment as much as you can to prevent losing it to the bad eggs in cryptosphere.
According to a documented report by Radius, about $15Billion worth of different cryptocurrency had been lost between 2013 and 2018. About 80% of those losses came from crypto exchanges hacks while others include scam ICOs, Ponzi schemes like the popular Bitconnect (I lost money in that too, thus learnt my lessons bitterly) and so on. This helps to remind any newbies stepping into the cryptoworld that the first point of your focus is to be how to secure your crypto fund and best platforms to start with.
Crypto exchanges account for larger portion of hacks and losses experienced so far in the cryptoworld, because they are like the gateway to making crypto easily transferable from one form to another, and also handles fiat deposit and withdrawal. Thus, you cannot do without them neither can they be neglected 100% in your crypto journey. They will always be needed at a point in time even if you choose not to trade crypto but just buy and hodl as they are one of the major platforms influencing the day to day value of any crypto coin or token.
5 Important Security Features To Check About An Exchange Before You Put Your Fund There
Image credit: Cubeitz.com
There are a lot of ways to check if an exchange is secured enough to trust with your hard earned money with fewer chances of losing it and I will do my best to explain in a simple term for you below.
Most top, established and well-known crypto exchanges like Binance, Huobi, Bittrex, Coinbase and other are beginning to sit tight and take issues of security serious considering unforgettable bitter experiences of exchanges like Mt. Gox where traders lost fortune and till now many are still fighting legally to retrieve their lost funds from the exchange years later. At a recent event, the Vietnam Cryptocurrencies and Digital Assets Dialogue 2018 held on Sept 15th to 16th, Huobi’s head of marketing and events, Ethan Ng put forward a number of suggestions for industry standards aimed at addressing the issues of security and protecting user funds on a crypto exchange.
In that speech, Ng called for the exchange industry to collectively do more to protect the public by adopting standard security practices and working with government regulators to create smart regulations that both protect the public and encourage innovation. Considering his suggestions, let’s look at some important security features to look out for in an exchange before you entrust your funds there.
1) Cold Wallet (Check the crypto dictionary by tapping the term):
You need to cross check if an exchange keeps most of the users’ funds in cold wallet or hot wallet. If you discover that, they have a larger percentage of users fund in hot wallet, it a red signal to take to your heels and avoid entrusting your funds with such exchange. Why? Because the hot wallet is 100% connected to the internet 24/7 which makes it an easy prey for hackers to break in and steal a huge amount of funds.
2) Mode of Listing Crypto Coin/Token For Trading
There are a lot of exchanges springing up daily in crypto with eagerness to earn as much as possible with less concern for users. One of the ways to identify such is that they list just any coin/token without internal check except for fees collected from the project developers to list them on their exchange. The negative effect of such careless act is that they often list fraudulent project which gives their developer more chances to use the exchange to manipulate trades and cause losses for users. Look out for exchanges with more of a community-focused model of listening like community voting, internal auditing of the project and the team behind it and lot other things to make it a bit difficult for fake and scam project to easily scale through.
3) User Account Multi Security Layers
If all it takes to log in to the exchange is a username and password, be wary of such platform. At least, there should be provision for 2FA, mobile and other multi-layer security features to make it more difficult and less straightforward for hackers or unauthorized users to access your crypto fund account.
4) Rate of Real versus Bot Traders
This might be insignificant but very important, have been a victim of some exchanges using more of bots than real trading and a few months ago I intended to trade with a platform and after studying the trading pattern which I discovered its mostly bots. I swiftly, withdraw my fund because most of those exchanges don’t last. About 50-70% of bots trading activities are not real (means no real money used) but are just used by some exchange to boost their trading volume and convince newbies of been an exchange with large trading volume. If you ever discover such on any exchange, you had better get your funds off or you risk losing it in the long run.
Bot trading is not a taboo as some real traders use it to stay up to market 24hours daily but when it is taking up the largest percentage of the whole exchange daily trading activities, it becomes a red light not to ignore that your money might just be in the wrong platform.
5) User Protection Fund
Based on experience, fraudulent hackers will always device new methods of breaching a crypto exchange security and none is 100% immune to it. Thus, exchanges like Huobi and some other top platforms now have users’ protection fund. What that means is that the exchange must have a huge amount of backup fund kept safely off the exchange which is theirs to access and compensate their users in cases of unavoidable users funds lose which may be due to their exchange been hacked or compromised. If an exchange those not have such funds, it’s not recommended to entrust your fund with them. It’s a sign that in case of losses caused by them, you may suffer a permanent loss of your crypto assets and funds on their exchange.
Image credit: Huobi blog
I had mentioned some tested and trusted exchanges in the cause of our discussion but have also promised to specifically talk more about one of my favourite that I use personally which is Huobi Global (note that you have the choice not to use it but in case you want, to see some of what they meet up from the list above). Among the features they keep a good score on are:
>> They have dedicated user protection funds to compensate clients for losses incurred due to exchange security failures by maintaining a 20,000 BTC Huobi Security Reserve fund as well as the Huobi User Protection Fund, which is funded by 20% of all HTs bought back by Huobi.
>> Thorough wallet protection. Huobi stores most of their users’ funds in cold wallet and about less than 5% in the hot wallet which is a green light for traders like me.
>> Strong internal controls to prevent fraudulent coins from being listed on exchanges and to separate good projects from the bad via their pioneered SMARTChain evaluation model.
With some of the features, they have become one of my go-to exchange where I trade crypto frequently. To get started, register via my referral link HERE (you are free not to use my link but in case you decide to, I had said a big thank you).
Kindly do your own researches before you invest in any crypto project because the above is for information purpose only, and not to be taken as professional or legal investment/trading advice.