One of the biggest reasons for crypto’s inability to achieve mainstream adoption is a lack of trust, especially in the exchange platforms that dominate access to the industry. Over the years, many of the crypto industry’s top platforms have fallen victim to hackers or lost their customer’s funds through mismanagement.
Until last year, many people thought that the blockchain industry was slowly getting its act together, as such incidents became more rare. But in 2022, numerous top crypto exchanges and DeFi protocols bit the dust, shattering the hopes of thousands of investors worldwide. According to Chainalaysis, more than $20 billion worth of cryptocurrency was stolen from users in 2022, severely denting the industry’s reputation.
The largest crypto heist to date occurred in March 2022 when the Ronin Network which supports the popular blockchain game Axie Infinity was hacked. Those responsible made off with $625 million worth of Ethereum and USD Coin. According to U.S. officials, the attack was carried about by Lazarus Group, a North Korean state hacking collective. Binance later recovered $5.8 million worth of stolen funds, but the vast majority was lost to the hackers.
One year earlier, in August 2021, the decentralized finance platform Poly Network was hacked by a lone attacker who reportedly stole more than $611 million worth of user’s funds. The project’s developers issued an appeal on Twitter, now known as X, for the stolen funds to be returned. Within a few days, the funds were indeed sent back to the platform, with the hacker revealing that he had simply targeted it for “fun” and to showcase its vulnerabilities.
The founders of those platforms were guilty of nothing more than sloppy security, but that isn’t always the case. In many instances, the founders themselves turn out to be scammers, as we saw in the case of Anubis DAO, which launched as a decentralized reserve currency that was supposedly backed by bond sales and liquidity provider fees. Although the project did not have a website, it did run a Discord server and operate on Twitter, and grew a massive fanbase. It eventually held a token sale and raised around $60 million in ETH. However, just 20 hours into the ANKH token sale, the funds from the investment pool were sent to another, unidentified wallet and the project disappeared off the face of the Earth. A classic rugpull.
By far the most infamous scam was that of FTX, once reputed to be the world’s second-biggest crypto exchange in terms of trading volume. In November 2022, it filed for bankruptcy after a “run on the bank” by customers who became worried about the platform’s solvency following a report into its financial dealings. FTX ultimately shut down with an $8 billion hole in its accounts, and its founder Sam Bankman-Fried was later convicted of fraud by misappropriating users’ funds to use in risky investments.
Why Do Crypto Exchange Hacks & Scams Occur?
Although crypto is in theory supposed to be secure thanks to its cryptographic and anonymous nature, the reality is very different. That’s especially true for the exchange platforms that allow users to trade crypto. Many of these outfits start off as very small platforms with a tiny staff and have very few security professionals on their teams. Many such exchanges are unregulated too, and that, combined with their inexperience, often leads to flaws and vulnerabilities in their codebase, giving hackers the opportunity to raid their wallets.
Exchanges are prime targets for hackers because they hold enormous volumes of crypto. Although the more responsible exchanges will keep these funds offline in a cold wallet, they will leave a sizable chunk of those assets in “hot wallets” so they remain liquid and can easily be sent to users. These funds are extremely vulnerable to code exploits and social engineering attacks that seek to gain control of employees’ accounts.
The majority of exchange hacks and scams have occurred at unregulated platforms that, very often, don’t even implement KYC checks on their customers.
How To Find A Trusted Crypto Exchange?
For users looking for a safe exchange, it’s key to identify platforms that are working actively and go above and beyond in their efforts to be transparent about their finances and compliant with regulations in order to protect their users.
Compliance signals trust and those platforms that implement KYC and AML checks demonstrate a strong commitment to abiding by regulatory standards. Consumers should therefore be very suspicious of crypto trading platforms that do not implement these rules and allow anonymous user accounts.
Some of the most reputable crypto exchange platforms are traditional financial institutions that originally made their name in more established industries before moving into crypto. MultiBank Group, for instance, has built up a strong reputation for compliance in the financial derivatives trading market and boasts more than one million users worldwide using its traditional trading platform. It holds more than 12 licenses globally with established financial industry regulators and claims to be one of the most transparent platforms of its kind. With the launch of its MultiBank.io platform it’s now moving into crypto. It’s an effort to try and import its strong reputation into the digital asset space and attract investors who appreciate the value of a highly regulated platform. Traditional trading platforms of its kind portray greater trust than many crypto-native exchanges, as they’ve already proven themselves in a tightly-governed industry.
There are still some crypto-native exchanges that appear to be trustworthy. A good indicator is age. Many investors feel much more using a platform that’s known for its longevity. Exchanges such as Binance, Bitstamp, OKX, Kraken and Coinbase have all been around for a number of years, proving their ability to stand the test of time. MultiBank is actually even older, having launched its financial derivatives platform way back in 2005.
Security is a paramount concern regardless of a platform’s age and stance on regulations. Even the most compliant platform can collapse if it’s hacked, so users should always check the security record of the exchange they intend to use. Look for those with minimal hacking incidents in the past, as this exemplifies a focus on strong security to protect user’s funds. A few notable exchange platforms that have withstood all cyberattacks thrown at them include Kraken, Bybit and Phemex.
Finally, don’t forget that reputation matters. Every exchange platform will face challenges around security, and what matters to users is how such matters are addressed. Users can check out various review sites to gauge customer satisfaction and understand how they respond to any incidents.
No cryptocurrency exchange is perfect, but there are certainly a number of platforms that stand head and shoulders above the rest in terms of their trustworthiness. If you’re looking for an exchange platform to trade on, try to identify one that has a strong reputation within the community and a dedication towards being regulatory compliant.