November 09, 2022
In the past decade, rapid technological advancement has resulted in the advent of new payment methods. The emergence of smartphones gave way to the innovation of online applications that provide consumers with a digital wallet that they can use for their financial needs.
Apart from that, a revolutionary way of making payments was also established in 2009, with the birth of the first decentralized peer-to-peer payment system, Bitcoin (BTC). Since then, other similar forms of payment services were also introduced to the public, commonly called cryptocurrencies.
Since the introduction of BTC to the public, there are now more than 7,500 digital tokens in the global crypto market. Even if BTC remains the most valuable and well-known, many other digital currencies are gaining popularity because of backers, influential investors, and additional features.
The cryptocurrency industry has been growing annually, with more and more people investing in various digital assets. In 2020, the market cap of cryptocurrencies reached more than $397 billion.
Although the breakthrough of virtual currency to mainstream status already made it a trillion-dollar industry, it is still in its infancy. And because cryptocurrencies are still decentralized, there is no existing statute or framework to regulate the virtual tokens outside the control of governments and authorities.
The State of Digital Security in Crypto Exchanges
Most crypto exchanges do not have a single access center as a decentralized asset, making it hard for hackers to attack the system. The servers are usually distributed in different areas, which significantly reduces the risk of theft. However, attacks are more often focused on their customer’s digital wallets, rather than the exchanges themselves.
The massive growth of the crypto market in recent years allowed fraudsters to commit malicious activities. More money flowing in the blockchain and stored in cryptocurrency digital wallets makes attacking crypto servers more appealing to hackers.
Reported incidents of fraud in crypto investments across the country increased ten-fold in the past year, which resulted in more than $80 million in financial damages to investors. This amount is just part of almost $2 billion in total losses in the entire crypto market in 2020.
Cybercriminals consistently try to be one step ahead of their targets by using sophisticated means of fraud and hackers will continue to focus on developing new ways to breach the cybersecurity of crypto exchanges. Digital asset exchange platforms need to reassess their existing security measures to prevent immense financial and reputational damage moving forward.
Trends in Crypto Exchange Security
The digital transformation of recent years has contributed to advancements in crypto technology. This includes innovations in the digital security of cryptocurrency platforms to help reduce potential security issues.
The Use of Digital Signatures
In real life, enterprises need to validate the authenticity of transactions to ensure that criminals are not taking advantage of their processes. This is why several identities and payment authentication methods are introduced and utilized by many businesses.
A digital signature is also used in the crypto market to sign and authorize cryptocurrency transactions. It is a cryptographic mechanism that can also be considered a virtual version of the usually handwritten signatures. Digital signatures act as a code attached to a virtual coin that helps ensure that the legitimate owner of the cryptocurrency is in fact transacting and moving the asset.
One method implemented in digital signatures in the blockchain industry is public-key cryptography (PKC). This cryptographic system uses a public and private key that investors can also use for data encryption.
Regulating the Unregulated
Technology in the blockchain industry is constantly evolving, but the policies regarding security have so far been lagging. The lack of regulation in the business is one of the prime reasons for the rapid growth of the crypto market. But the decentralized and unregulated nature of cryptocurrency might come to an end soon.
The crypto industry has been gaining much interest lately from the Securities and Exchange Commission (SEC) as they hint at wanting to enforce regulations in the crypto market. The SEC has expressed concerns over the lack of guidelines in the crypto exchange business.
Apart from that, cryptocurrency regulation has been a frequent point for lawmakers and other government agencies. One of the key themes that arose from the recent crypto regulation talks is to protect investors from crypto crimes and guard against tax evasion.
If implemented, one provision of the statute would be to expand the scope of brokerage to include businesses that facilitate virtual coin trades, like crypto exchanges. In addition, crypto exchanges will also need to disclose tax information about the trades to the Internal Revenue Service (IRS). This will make it easy for the IRS to find potential tax evasion cases related to crypto.
Biometric Authentication for Digital Wallets
As more people invest in crypto and create new crypto digital wallets, the need for more robust digital security measures increases to prevent ransomware and data theft incidents. Crypto wallets are usually accessed and managed using passwords, which have been the trademark of authentication for many years.
But knowledge-based credentials have already been proven unfit for highly targeted crypto-wallets. Many people often forget their passwords, and bad actors continually phish for this information through email, call, or text. Reliance on traditional means of authentication might cost investors and crypto exchanges millions and cause significant reputational damage.
The use of biometrics for digital wallets can be the next big thing because of its reliability for both the investor and the crypto exchange. Using biological data can bolster the account's security without requiring investors to memorize any information, eliminating the chances of losing millions of assets because of a forgotten password.
A Stronger Crypto Security is On the Way
Crypto assets are now mainstream, and more people will invest in digital currencies in succeeding years. From its value last year, the total valuation of all virtual tokens on the crypto market already increased by 600% in November, 2021, capping at almost $2.6 trillion.
Governments are already assessing the need to regulate the blockchain industry after incidents of fraud and theft that have resulted in significant financial losses to investors and crypto exchanges. Furthermore, companies offering crypto digital wallets to investors can integrate biometrics into their digital security process to allow only legitimate crypto owners to access and manage their accounts.
LoginID’s FIDO2 passwordless authentication solution is highly secure, simple to integrate, and reduces onboarding friction. It enables crypto exchanges, digital wallet providers, and financial institutions to offer clients strong authentication and identity verification across desktop and mobile platforms.
To learn how LoginID can equip companies and businesses with the necessary fraud prevention tools, get started by registering for a free account.