The Risks of Leaving Your Digital Assets on an Exchange Platform
What are the risks of leaving cryptocurrency in an exchange, and how can you recognize a secure exchange?
Leaving cryptocurrency in an exchange poses a risk of hacking, mismanagement, or participating in fractional reserve banking. Exchanges are highly targeted by hackers due to the billions of dollars worth of cryptocurrency they hold. In the past, over $1.65 billion worth of crypto assets have been stolen, and the amount continues to increase every year. Additionally, sometimes exchanges can be fraudulent or unreliable, as demonstrated by the QuadrigaCX and Mt. Gox controversies. It is better to use a reputable and highly secure exchange.
Secure exchanges have a valid HTTPS certificate, a secure password, and offer two-factor authentication (2FA) options. Cold storage, the ability to whitelist IP and withdrawal addresses, and other security measures, such as multi signatures, suspicious behavior alerts, email encryption, and phishing protection, can also enhance the security of an exchange. Some exchanges also offer funds insurance.
According to the Icorating Exchange Security Report, the most secure cryptocurrency exchanges of 2021 are Kraken, Cobinhood, Poloniex, BitMEX, Bitfinex, Bitlish, BitMart, BtcTurk, Coinbase Pro, GOPAX, HitBTC, and KuCoin. However, it is still risky to trust exchanges, and it is recommended to use them as temporary storage and transfer funds to a personal wallet.