So, as cryptocurrencies are being abused more and more by cybercriminals with every step it makes, the current situation demands urgent security requirements be made to avoid such happenings.
The more cryptos seem to become popular, the greater the inclinations of cybercriminals due to the growing momentum of the achievement made by cryptocurrencies. The cryptos world of today is a subject to sudden changes and therefore calls for modern, standard security protocols.
Consequently, both users and its linked services must seek for security or else they will end up being victims of cyber hacks as it is not only the individuals at risk but the whole markets are destabilized.
Despite this, you cannot accurately tackle the potential risks associated with cryptocurrency exchanges if you are not knowledgeable about them.
This article explores the best security practices that individuals and exchange platforms can adopt to protect themselves.
Table of Contents
Major issues in the landscape of cryptocurrency
- False Initial Coin Offerings (ICOs):
By starting false initial coin offerings (ICOs) and promising new tokens or coins in exchange for investments, cybercriminals trick vulnerable users. Attackers build polished websites to draw in investors, then vanish as soon as they have the money.
- Pump and Dump Schemes:
Hackers use inaccurate or misleading information to raise the price of a cryptocurrency with minimal volume artificially. They then sell the cryptocurrency at the top, which results in large losses for the investors to turn into profit. To execute these scams, attackers frequently organize groups on social media and messaging apps.
- Phishing:
One of the most common ways of tricking users into sharing their login passwords, seed words, or private keys. Hackers gain access to users’ accounts through deceptive emails and text messages asking them to provide sensitive information.
- Fake Wallets and Exchanges:
Users’ money or personal data is stolen by creating fabricated wallets or exchanges that look authentic but are actually fraudulent. In order to gain traction, they promote their fake wallets on well-known search engines and social media sites. A link to download a genuine copy of the software is presented to users who click on the advertisement and go to the website.
However, this software has been modified to provide the users with seed words. Instead of going to the user’s wallet, the cryptocurrency transaction that the user completes ends up in the attacker’s wallet.
- Ponzi Schemes:
Cybercriminals promise high returns on investment and rely on new investors’ funds to pay out earlier investors. They float fake schemes that eventually collapse in the absence of enough new investors to sustain them.
- Social Media Giveaway Schemes:
Cyberspace criminals pose as well-known public personalities on social media sites and offer cryptocurrency giveaways. Users must authenticate their identification or send a cover charge in cryptocurrency to obtain the giveaway, which gives scammers free access to users’ accounts. However, their promised freebie never materializes.
- Smart contract exploit:
Some decentralized contracts rely on smart contracts, which make it easy to exploit a vulnerability in their contract codes to drain funds or manipulate token functionalities and transactions.
Best Security Practices to Mitigate Risks
Cybercriminals can exploit security flaws in centralized networks to access a user’s account. However, this is almost impossible in a decentralized network because its encryption algorithm requires access to the user’s private key.
Two-factor authentication
One of the most commonly used and most efficient means of protecting your account thereafter is to enable two-factor authentication, or 2FA. Simply put, what it does is it mandates an additional authentication step upon logging into your account, by strengthening the security of your account with another form of authentication other than the password, usually through a text message sent to your mobile phone.
There are different types, and each is built differently. It is preferable to use the app-based Google authenticator like Authy, which gives a one-time, time-limited password that is commonly used, better than nothing SMS-based 2FA, vulnerable to SIM swapping attacks.
NCOG Earth Chain employs biometric-based two-factor authentication (2FA), which requires both facial recognition and fingerprint scanning for its users. Implementing this authentication method makes it more difficult for hackers to gain access to the users’ accounts, even though they have login details.
Cold Storage for Funds
Most crypto exchange platforms usually offer both hot and cold storage for funds. Hot storage stores the funds online and makes them vulnerable to cyber hacking, while Cold storage stores funds offline and enhances the users’ funds’ safety.
Cold storage uses offline wallets, which are not connected to the internet. Exchanges should adopt the practice of keeping customers’ funds in cold storage, as this approach limits unauthorized access, safeguards digital assets, and keeps private keys offline.
For instance, major exchange platforms like Binance and Coinbase store only a small percentage of users’ funds in hot wallets for daily liquidity and keep the larger percentage in cold storage. By keeping the bulk of their funds offline, the risk of large-scale theft is significantly reduced.
NCOG Earth Chain uses distributed cold storage, which takes the cold storage game to the next level. Here’s how: Users’ funds are distributed. Instead of a single wallet holding assets offline, user funds are distributed across multiple geographically distinguished locations.
This approach restricts damage to an insignificant portion of funds if one cold storage facility is compromised.
Cold storage allows for enhanced security and long-term storage and grants users full access to their keys.
Advanced Encryption Standards (AES)
When data is hacked or intercepted by a third party, encryptions ensure data cannot be deciphered easily. However, the breachers are persistent and always find a way to exploit the loophole of either user or exchange platform.
Thus, Advanced Encryption Standards was established to safeguard user data; and also, secure communication between servers.
NCOG Earth Chain goes beyond standard with a “Triple Layer Advanced Encryption System” system. This system encrypts data thrice, as opposed to once in conventional encryption, making it exponentially tougher for hackers to decrypt and exploit.
Regular Security Audits
Audits are usually conducted to reveal vulnerabilities in exchange codes and smart contracts. It is a comprehensive assessment of policies, systems, and encryption of a particular exchange.
This measures the effectiveness of the security measures and minimizes attacks from hackers. Security audits can be conducted internally by the exchange platform to evaluate internal controls or externally by a third party for an unbiased evaluation of the exchange platform’s security practices.
It can also be conducted to comply with specific regulations associated with crypto exchanges – known as compliance audit.
NCOG employs a third-party (external) audit using AI-powered tools, which identifies irregularities or security gaps that can be exploited in real-time. They also employ a bounty bug approach that compensates ethical hackers who identify current and potential flaws.
Decentralized Exchange Models (DEXs)
The move towards DEX is an emerging trend that mitigates the contemporary centralized market’s associated risks. DEX allows users to preserve control of their private keys, restricts third parties from holding funds, and significantly minimizes the risk associated with exchange-level hacks.
Governed by smart contracts, DEXs facilitate peer-to-peer trading in the absence of a centralized intermediary. But, like all other encryption models, DEXs are not without risks—the vulnerability of smart contracts is a major concern, coupled with governance issues that may arise.
NCOG Earth Chain has developed a hybrid system that combines the liquidity of centralized exchanges with the security of Decentralized Exchange Models. DEXs offer security for users while trading without losing custody of their private keys with the use of a “self-custody” feature, thereby reducing the risk of centralized exchange hacks.
Regulatory Measures
Strict regulatory measures enforcement provides a shield against nasty attacks from cyber criminals looking to exploit the platform for illicit activities.
KYC and AML regulatory measures are examples and are enforced in some cryptocurrency exchange platforms, designed to prevent fraud and money laundering. These exchanges require users to provide authentic information that verifies their identity and documents that they are real participants.
Verification of users’ identities builds trust among regulators, investors, and users alike. Additionally, it is easier to track down stolen funds with a verified user base in cases of a security breach.
NCOG Earth Chain has an established AI-driven KYC verification system that only grants access to legitimate users because of its real-time user information processing and verification. The likelihood of cyber hacking or fraudulent activity is greatly reduced since it is programmed in a way only real users are granted access.
Multi-Signature Wallets
Remember how two-factor authentication works? Well, just like 2FA, multi-signature (multi-sig) wallets add an extra layer of security to users’ accounts. However, instead of a password, they require multiple private keys to authorize a transaction.
Hence, in an instance where one private key has been intercepted, the hacker does not have access to move funds since more than one private key is needed in this type of wallet.
The approach is particularly operational and practical for institutional users and exchanges holding huge sums of cryptocurrency. The multi-signature wallet also ensures that multiple parties within an organization approve large transactions, thereby acting as an internal control mechanism.
NCOG Earth Chain prevents any single individual from accessing large sums of funds without approval from multiple parties with its multi-sig system for all transactions over a particular threshold.
User Education and Awareness
While it is worth pointing out that cyber enthusiasts and beginners are major victims of cyber hacking and scams, it is also important to know that a significant portion of security breaches occur due to user negligence.
Common drawbacks include the use of weak passwords, failure to set up 2FA, fake airdrops, and falling for phishing attacks. Exchange platforms should actively engage in creating awareness and educating users on best security practices.
Various approaches include tutorials on how to enable 2FA, warnings about common phishing scams, and resources for securely managing private keys. Some exchange platforms, like NCOG, even offer compensation or discounts to users who adopt security best practices.
NCOG Earth Chain provides this educational platform on a platter of gold. known as the “Security Hub.” This hub offers interactive tutorials, real-time threat alerts, and quizzes that incentivize users to adopt better security practices. Users who score high on security awareness assessments are rewarded with lower trading fees.
Insurance Coverage
Prevention is known to be the best strategy, but having insurance in place can alleviate the impact of a security breach. However, because all insurance policy coverage are not developed equally, it is important to review its specifics and weigh the scope covered.
Some cryptocurrency exchanges offer insurance policies that cover losses from hacks or theft.
With insurance, users have additional peace of mind, knowing that they won’t lose everything to cyber hacking if an exchange hack occurs.
NCOG Earth Chain offers all-inclusive coverage for all insurance users. The policy covers hacks and human error losses, such as losing their private key(s) or sending funds to the wrong address.
Current Cryptocurrency Regulations
As it stands, financial market regulators are bashing down on areas with rampant cyber-crimes, and the Biden administration released its roadmap to mitigating crypto risk early last year.
From 2014, however, the cryptocurrency community has been trying to regulate itself through Cryptocurrency Security Standards (CCSSs), a standard designed by experts in security
. The goal is for a simple user interface through which the security of different cryptocurrencies can be measured and compared. The hope is to mitigate loss from human error, fraud and the forces of nature.
Cryptocurrency Security Standards cover ten criteria:
- Audit: monitoring and review of the security of its cryptocurrency and its structure.
- Keyholder Authentication: How the verification of identity and authorization of keyholders is carried out.
- Keyholder Authorization: Definition of keyholders’ roles and responsibilities.
- Key Compromise Policy: Response to a suspected or confirmed interception of a cryptographic key.
- Key Generation: Generation and protection of cryptographic keys.
- Key Recovery: Recovery of cryptographic keys in emergency events.
- Key Storage: Storage and backup of cryptographic keys.
- Number of Keyholders: Number of keyholders required to carry out a transaction.
- Wallet Creation: Wallet creation and configuration in storing cryptographic keys.
A level of compliance is attached to each criterion in this order: Level I (Basic), Level II (Standard), and Level III (Advanced).
Following these regulations with a high level of compliance, helps cryptocurrency providers brings a great deal of confidence to markets, which are still considered largely volatile.
Conclusion
Choosing a reputable exchange with a strong security system cannot be overemphasized. As highlighted throughout the article, NCOG Earth Chain has developed an innovative approach to cryptocurrency security.
Their platform merges advanced cryptographic algorithm, AI-driven tools, and decentralized finance mechanisms to create a cyber-hacked trading environment for users.