The growth of the cryptocurrency sector has led to the creation of numerous cryptocurrency exchanges, each with varying assets available. Each of these exchanges also offers differing funding methods, trading pairs, and fee structures. Perhaps the most important offering any of these exchanges can focus on is security.
As the digital asset class pushes higher in terms of market cap, it has become more important than ever to ensure that your assets are safe and that exchanges are using top-grade security measures. Fortunately, exchanges have become far more secure as the cryptocurrency industry has matured.
If you are wondering what makes an exchange safe compared to another, and which exchanges are the safest, you have come to the right place. Here we will outline the safest crypto exchanges and what to look for in exchange security.
Here’s a look at the best-of-the-best:
Gemini – Safest Exchange for US Users
Gemini may be the safest exchange in the world. Gemini is a New York trust company that undergoes regular bank exams and is subject to the cyber security regulations required by the New York Department of Financial Services, which are quite strict. Gemini is the world’s first cryptocurrency exchange and custodian to complete a SOC 1 Type 2 exam, SOC 2 Type 2 exam, and earn an ISO 27001 certification.
The SOC 1 evaluates the design and implementation of Gemini’s financial operations and reporting controls, while the SOC 2 evaluates the design and implementation of their security, availability, and confidentiality controls.
The majority of Gemini’s cryptocurrency is held in an offline, air-gapped cold storage system. A small amount is stored in a hot wallet for transactions, but that amount is also insured. The site also uses every common personal security measure including two-factor authentication (2FA) and hardware security keys.
Coinbase – The Safest High-Volume US Exchange
Coinbase is one of the biggest cryptocurrency exchanges in the world and has one of the best reputations for security. The exchange keeps nearly 99% of its users’ digital assets in offline cold storage. Coinbase also requires that you validate a phone number by entering a code they send you through a text message. Coinbase has mandatory two-factor authentication (2FA) on your account, to ensure that your account remains secure. Coinbase is also a publicly-traded company meaning it has undergone extra financial and security examinations to reach that status.
Upon deleting your account, Coinbase gives users the ability to request the information they gave to Coinbase in the first place. You can also request that Coinbase deletes the information from their servers. Coinbase gets extra points for properly handling and discarding users’ personal information.
Kraken – Safest International Exchange
Kraken may be just as secure as Gemini when it comes to exchanging safety. They comply with financial regulations for the US, Canada, Australia, UK, and more. The exchange has never been hacked despite being in operation since 2011. Kraken has a dedicated security team, and its servers are under 24/7 surveillance by armed guards and video monitors.
Kraken keeps 95% of deposits in offline, air-gapped storage while keeping full reserves so they can accommodate withdrawals at any time. They conduct penetration testing, meaning they attack their systems to find weaknesses, while also running bug bounties, meaning they encourage the community to find problems in their security with financial incentives. There is 24/7 live chat and phone support from 6 AM to 6 PM EST Monday to Friday while also offering 2FA.
CoinSpot – Safest Australian Exchange
CoinSpot is one of the safest cryptocurrency exchanges available in Australia. It complies with Australia’s Anti-Money Laundering (AML) laws enforced by AUSTRAC. It is also a member of the Australian Digital Commerce Association.
CoinSpot requires a fairly strict verification process before you can trade on the platform. It uses a multi-cryptocurrency wallet system meaning they provide a wallet for every crypto asset they offer and use bank-level security to reduce the risk of a hack. CoinSpot also offers 2FA which requires users to sign off on transactions using their phone as an extra layer of security.
What Makes a Cryptocurrency Exchange Safe?
There are a variety of factors that make an exchange safe, such as licenses, asset storage, insurance, and account security. Below are some of the most important things to consider when looking at an exchange’s security and what they entail.
Is the exchange licensed with the country it operates from? This can be FINTRAC for Canada, AUSTRAC for Australia, FINCEN or state licenses for US exchanges, or the FCA for UK exchanges, to name a few. If you are looking at an exchange and they do not have any licenses, then steer clear.
FDIC Insurance/Insurance Policies
Does the exchange have an insurance policy, whether through the FDIC or a similar body such as private companies? Any exchange you use must have some form of insurance in the event of a hack, even if they have never been hacked. This ensures that if their security fails, you will be covered.
Does the exchange offer customer support in the form of a live chat or phone support? The exchange needs to have some sort of customer support that is easily accessible if you run into an issue. Be wary of any exchange that has poor customer support or none.
Storage of Assets (Hot vs Cold Storage)
Does the exchange keep the majority of its assets in hot or cold storage? The exchange needs to keep most user assets in cold storage because this means they are inaccessible if the exchange is hacked. Make sure the exchange you are using keeps at least 90% of funds in cold storage, air-gapped if possible.
Publicly Traded Company
Is the exchange a publicly-traded company? If they are, like Coinbase, then it means that they have undergone audits and other regulatory checks to reach that listing. While an exchange does not need to be publicly traded to ensure security, it helps because it means that the exchange has undergone a thorough examination.
Two Factor-Authentication (2FA) and IP Tracking/Whitelisting
Does the exchange require users to enable 2FA or other IP tracking or whitelisting options? These security features help ensure that only the user whose account it is can perform transactions. It is better security if the exchange forces the use of 2FA, as this means they want users to play a role in their account security.
Does the exchange offer bug bounties? An exchange that offers bug bounties is encouraging users to find fault with their programming so that they can improve their security.
It is a good thing if an exchange offers this type of bounty because it means that are confident in their security and that they are intent on continuously improving it. The same can be said of penetration tests.