People are now living in the era of technological breakthrough. The ever-changing digital environment makes it easier for the community to become more tech-savvy and innovation-oriented. So now the terms like blockchain and cryptocurrency come as no surprise. No matter whether you are a guru or a newbie to FinTech, you stay relevant with the latest updates in BTC to USD exchange rates, market trends and potential risks to bitcoin environment.
We used to transfer our money via the internet in a considerably safe way, so what are the cyber threats posed to cryptocurrency exchanges? These threats come from hackers who always poke their noses in everything, but according to the dramatic statistics they seem to have found their place in the sun in the cryptocurrency environment, hopefully not for long.
Threat for exchanges
Hackers have become obsessed with the idea of attacking bitcoin exchanges which led to quite an unfortunate statistics: one third of all bitcoin exchanges were somewhen hacked, causing a loss of billions of dollars.
MtGox was one of the biggest exchangers at the time – 70 percent of all transactions were handled by them. Everything collapsed after hackers had stolen 850 thousand bitcoins to the value of 450 million dollars. Thousands of people lost their bitcoins and never got them back.
Bitfinex is another example – an exchanger based in Hong Kong was exposed to a theft of 120 thousand bitcoins, and because the bitcoin prices have increased since the MtGox times, the total loss amounted to 78 million dollars. The attackers withdrew bitcoins from some users’ wallets and Bitfinex decided to “distribute” the loss among all the users, rather than leave it the way it is.
The exchangers’ security level increases and so do the hackers’ interest to bitcoins and the desire to steal them. It makes the situation more complicated and intensive. The trouble is not about bitcoin and blockchain technology itself. The decentralized nature of cryptocurrency is supported by a well-designed secure system. It is almost impossible to steal bitcoins and compromise the blockchain because it is based on a distributed ledger system, which is different from traditional ones. Some cybersecurity experts say: “Everything can be hacked” and centralized systems are much more hackable than the decentralized ones.
Although cryptocurrency has a decentralized nature, the cryptocurrency exchanging websites are more susceptible to hackers’ attacks than the traditional financial services. One of the reasons for this is that bitcoin exchanges are at the intersection of crypto and traditional financial spheres. On the one hand exchanges act like traditional banks, which apparently means that conducting financial operations is similar to the transaction process maintained by conventional banking websites. But since the cryptocurrency phenomenon has just emerged in the financial sphere, all “banking” operations are not refined enough. One of the issues, reflecting this idea, lies in the lack of a deposit guarantee, that protects you from the losses in case your money is stolen. The deposit insurance is established in most countries now and you could certainly say that it plays a substantial role in the banking industry, thereby in the cryptocurrency sphere as well.
The young industry of cryptocurrency
The intersection of two financial spheres, the traditional and absolutely new one, is not the specific problem of cryptocoins thefts, the initial problem is the young age of cryptocurrency, or in other words, the lack of standards.
The number of cryptocurrency exchanges continues to grow each year, some of them are more reliable, some are not. And the problem is that until recently there were no specific security standards for crypto exchanges, thereby each of them invented their own, making the cryptocurrency market unstable and less investable.
Nevertheless, the C4(Cryptocurrency Certification Consortium) has recently released the CCSS(Cryptocurrency Security Standards), describing 10 security aspects. This set of requirements defines the security with three levels, where first level is the lowest one and the third proposes the highest security. It involves all different kinds of security approaches, such as multi signature, proof of reserve and audit logs. Some of them proved themselves to be trustworthy over the last eight years, while others are completely new, but at the same time are assured to be foolproof as well.
CCSS is probably the first big step towards making the crypto business more secure for both: platforms providing such services and the end-user. This step is the first, but definitely not the last, because there’s a lot more work to do.
Probable future of the Bitcoin exchange market
For the years of bitcoin existence, the bitcoin community has obtained many benefits, as well as encountered many problems. Since the exchange rate of bitcoin continues to grow, alongside with the interest to it, the consequences of mistakes once made are going to gather momentum. Now it’s time to re-analyze everything and go beyond.
Standardization is the first essential step to take. The C4 have already made it by providing the community with the CCSS, but, as stated earlier that’s only the beginning of the way.
There is a scenario that is very likely to happen and it is approved among most of bitcoin market players. A very strict and harsh standardization will take a significant part of it, comprising the substantial improvement methods of regulation and implementation of the new financial tools. This will result in the fact that small niche exchanging platforms will be absorbed by the top ones, simply, because they won’t be able to survive a strict regulation. The requirements to the remaining platforms will be very severe, in this way we’ll see a purification of the whole cryptocurrency exchanging market.
The exchanges will become much safer and at the same time more convenient in use. Moreover, it is very likely that they will be provided with the depositor’s insurance system. In case hackers have stolen your money, exchanges will be able to restore your funds fully, or partially.
In conclusion, bitcoin exchanges will undoubtedly have a lot of challenges on their way. The challenge will come from not only hackers who penetrate into the security systems, thus, in a sense, motivating the bitcoin community to improve it, but also from a highly competitive market of a brand new cryptocurrency environment. That brings us to the idea that all the cyber threats posed to the exchanges will only make the bitcoin exchanging market and the cryptocurrency itself, stronger and more stable to any incidents.
This is a guest post by Mary Callahan ([email protected])