How Can Wallet Help Prevent Crypto Exchange Hacks

The introduction of cryptocurrencies brought a revolution in the financial market. The increase in the number of cryptocurrencies led to an increase in the number of crypto traders and hence in the number of crypto exchange platforms. However, the road of cryptocurrency exchanges has been full of bumps, nearly due to hacks and security attacks on these exchanges.

One of the reasons that resulted in hacks of big crypto exchange platforms was the weak security of their wallets. The attackers targeted the exchanges’ wallets to gain illegitimate access to users’ funds on the exchanges. These incidents triggered security concerns and the need for better solutions to combat crypto exchange hacks. The professionals of cryptocurrency wallet development company now strive for multi-layer security to ward off such incidents.

However, it is always good to learn from others’ mistakes, so let us gain an understanding of a few major crypto exchange hacks and the reasons behind them :

Bitfinex Hack

Bitfinex, a Hong Kong-based exchange, was hacked in August 2016, resulting in the theft of approximately 120,000 bitcoins worth $72 million at the time of the hack. Even though this crypto exchange claimed that their wallets were secure with multiplier identifiers for each client, interestingly the fraud happened in their “multisig” account. Somehow, the hackers got access to the keys and they withdrew the users’ cryptocurrency to an undefined wallet address.

Mt. Gox Hack

One of the highest and most debatable hacks of all time is of Mt. Gox, which is a Japanese bitcoin exchange. It is said that hackers planned the hack with continuous efforts of many years. It was started way back in 2011 when the hackers got access to auditor’s credentials with administrative rights. Through phishing, they stole the wallet’s private keys and created fake sell orders and transferred approximately 2,643 BTCs into another wallet address. The major vulnerability appeared to be in their coding security where Mt. Gox lost software control and hackers got a chance to overwrite the code to commit fraud. The exchange was again hacked in the year 2014. In February 2014, the exchange froze all their transactions and claimed that they lost 850,000 BTC worth of $350 million to hackers. It was further reported that the hackers were continuously taking out coins from the exchange’s wallets since 2011.

Coincheck hack

In the year 2018, the leading Japanese crypto exchange, Coincheck, got hacked. It was reported that 523 million NEM worth $534 million were hacked. If we would go deeper into the details of the hack, it was outlined that the hacker injected the virus into the internal system of the exchange through an email, consequently stealing the private keys of the wallet. This incident occurred due to the lack of security in the wallet and because all of the coins were stored in the same wallet.

Binance hack

The major shock to crypto enthusiasts happened in May 2019 when 7,000 BTC were stolen from Binance – the leading exchange across the globe. According to Zhao Changpeng, the CEO of Binance, the hackers used various techniques, including phishing, virus and other attacks for their malicious activities. The hackers attacked Binance’s hot wallet and extracted the entire funds in a single attempt. It was inferred that the private keys of the customers were stolen and there was an utmost need to update the API keys and the two-factor authentication immediately.

UPbit hack

The most recent exchange hack on the crypto market occurred on 27th November, 2019. A South Korean exchange named UPbit lost 340,000 ethers amounting to $49 million from an Upbit account to an unknown wallet address. The reason for the hack is that the exchange chose not to implement a smart-contract-based multi-sig account as it would complicate the compatibility issues. Thus it resulted in the hack of ether in just a few minutes of activity.

Given the aforementioned incidents of hacks, it can be concluded that wallets are the most vulnerable to security hacks. Thus, ensuring wallet security is paramount.

How to enhance the security of cryptocurrency wallets?

Security will always be the key to keep the crypto assets safe and secure. The best way to fortify the security of a crypto wallet is to achieve multi-layer security by harnessing the power of various security features.

• Multi-signature support: This feature provides an additional layer of security while processing cryptocurrency transactions. It requires two or more individuals to sign a crypto transaction, thus preventing unauthenticated transactions.

• Biometric authentication: It includes facial or fingerprint sensation to validate the real user. This feature ensures that only authenticated transactions by legitimate users will be processed by the system.

• Two-factor authentication: This feature relates that to validating the processing, a single transaction needs to be authenticated twice. This means once it will be validated by the email and secondly through the SMS on the phone. This creates an extra layer of safety for the users.

• Mnemonic phrase: Mnemonic phrases come in 12, 18 or 24-word phrases. It acts as a layer of security to redeem crypto assets as and when necessary. It is directly linked with the private keys and allows easy and hassle-free recovery of wallet on any other digital device.

• Password-protected access: It ensures that only legitimate users are allowed to access the crypto wallet. This is achieved by the use of a security PIN that the users need to input into the wallet to prove their authenticity and gain access to the wallet.

Keynotes

With the increase in the number of crypto exchange hacks, there is an inevitable need for top-notch security measures. Partner with the perfect cryptocurrency wallet development company that can provide you with all the security features to reinforce the security of your wallet and exchange.

We provide both the white label wallet solution, underpinned by multi-layer security, which can be seamlessly linked to any crypto exchange to fortify its security. Besides, we specialize in delivering highly-secure and scalable white label crypto exchange platform designed for safe, transparent and quick crypto transactions.

of our white label crypto wallet and white label crypto exchange, or connect with our subject matter experts to share your business needs.