What makes an exchange more trustworthy?

In the accelerated growth of the cryptocurrency market, the reliability and security of exchanges have become crucial for users and investors. Until now, the way to choose an exchange was by the volume it operated. But now, after everything that happened with giant exchanges like FTX or Binance itself, the factors to make that decision are very different.

Precisely, a report by Cointelegraph Research, in which Bit2Me has participated, has analyzed these 40 new factors for a new paradigm of cryptocurrency exchanges. Regulation, legal certainty, location and customer service are some of the new parameters to currently be analyzed.

Reasons why an exchange is more reliable

In a market as volatile and changing as that of cryptocurrencies, it is essential to choose a reliable exchange to buy, sell and exchange cryptocurrencies. However, with so many exchanges available on the market, it can be difficult to know which one is the most reliable.

In that sense, if you are a new user and want to choose a "Good Exchange", it is good that you take into account the following characteristics:

Cybersecurity

Computer security is one of the main reasons that contributes to the reliability of an exchange. Let us remember that cryptocurrencies are digital money and, therefore, cybersecurity is an essential factor to guarantee their protection.

Thus, some of the most important cybersecurity measures that cryptocurrency exchanges can implement include:

1. Security audits: Security audits are a process by which an independent auditor evaluates the security systems of a cryptocurrency exchange. These audits aim to identify any vulnerabilities or weaknesses in the exchange's security systems that could be exploited by malicious hackers.
2. Secure code scanning: Secure code scanning is a process by which the source code of an application is analyzed for security vulnerabilities. These vulnerabilities can be exploited by attackers to compromise the security of the application.
3. Periodic penetration tests: Periodic penetration testing, also known as pentesting, are a type of security assessment that is performed to identify vulnerabilities in a system or network. These tests are performed by simulating a hacker attack, using techniques and tools similar to those used by real hackers.
4. Implementation of advanced security protocols: It is very important to implement advanced security protocols, such as two-factor authentication (2FA), data encryption, and event monitoring. The first of these, 2FA, adds an extra layer of security by requiring users to enter a random code generated by an app on their phone, in addition to their password. Data encryption, meanwhile, helps protect sensitive data, such as user passwords, from being read by unauthorized people. Finally, event monitoring on the platform helps users and exchange administrators detect unusual actions and prevent them from being carried out without additional authentication.
5. Be transparent about your security practices: Any cryptocurrency platform must publish information about its security practices, such as its fund storage policies and security protocols. This helps users understand how their funds are protected. For example, on Bit2Me you can visit Bit2Me Security, where you will find all the company's cybersecurity information very clearly.
6. Certifications and security standards: In this way, the exchange will have to go through audit and certification processes that guarantee users respect and compliance with quality and computer security standards. Some of the most relevant standards in this sense are ISO 27001 and ISO 22301, which guarantee data protection and operational recovery in the event of computer disasters.

By taking these measures, cryptocurrency exchanges can increase user trust and create a more reliable platform for cryptocurrency trading.

Guarantee and protection of funds

The guarantee and security of funds is the most important factor to consider when choosing an exchange. Remember that exchanges store large amounts of cryptocurrency from all their users, making them an attractive target for malicious actors. Therefore, it is essential to choose a platform that uses the most advanced security measures to protect and secure user funds.

Some of the most important security measures an exchange should have include:

1. Custody insurance: Escrow insurance is another way exchanges can protect their users' funds. These insurances cover user funds in case the exchange is hacked or suffers another type of financial loss. For example, in the case of Bit2Me, we have a partnership with Ledger Enterprise that helps us provide a secure environment for the storage and custody of cryptocurrencies. In addition, we also have insurance of up to €150 million backed by Lloyd's Bank.
2. Cold storage of funds: Cold storage is a security technique that involves keeping user funds on physical devices that are not connected to the Internet. This reduces the risk of funds being hacked.
3. Implementation of scaled wallets: the idea is that user funds are in cold wallets, most of the time. Only a small fraction is in hot wallets, for fast operations, while the rest requires multi-signature operations to be managed. The idea is to isolate the funds as much as possible so that in the event of a hack, they cannot be accessed, limiting losses as much as possible, which will then be covered by custody insurance.
4. Publication of financial reports: Exchanges must publish financial reports so that users can evaluate the health of their accounts. This can be done by publishing the exchange's base wallets and Proof of Reserve data for those funds, thereby adding a high level of financial transparency.

Regulation and transparency

Regulation is another important factor to consider when choosing an exchange. Those that are regulated by a government authority are more likely to comply with applicable laws and regulations. This can help protect users from fraud and abuse.

Some of the regulatory aspects that an exchange must comply with include:

1. Registration with a regulatory authority: In this way we can be sure that we are dealing with an exchange duly registered with the regulatory authorities and, therefore, it is an entity that operates legally and that offers us guarantees as users. To this we can add the fact that it is important that the platform is clearly registered in a country with good regulation, that it is not a tax haven and that the regulation is additionally pro-consumer.
2. Compliance with applicable laws and regulations: This means that applicable laws and regulations, such as those against money laundering and terrorist financing, must be complied with. This includes, for example, the use of KYC/AML (Know Your Customer and Anti-Money Laundering), FATF-FAFT, OFAC, MiCA, among others that may apply according to the regions where the exchange operates.
3. Privacy Policy and Terms of Use Disclosure: Finally, we must have clear and concise access to the privacy policies and terms of use of the platform so that users know how their data is collected and used, in addition to knowing the rules and fair use of the platform, avoiding carrying out operations that could contravene the security of the same and of the user himself and his operations.

Other important factors

In addition to the factors mentioned above, there are others that can affect the reliability of an exchange, such as:

1. The history of the exchange: Exchanges with a history and reputation for security and reliability are more trustworthy. This can be clearly seen not only in the world of centralized exchanges, but also decentralized ones. For example, Mt.Gox suffered two hacks The first being in 2011 (400 thousand dollars) and the last in 2014 (437 million dollars), causing its closure and leaving thousands of users without their cryptocurrencies. In contrast, Bit2Me, which has been operating since 2014, has not suffered any hacks.
2. Customer service: Good customer service allows users to resolve their problems quickly and efficiently. This is important because customers can have any kind of problems and helping them resolve them so that they can use and enjoy the platform is essential.

For this reason, when choosing an exchange, it is essential to consider all the factors mentioned above. In this way, users can be sure to choose an exchange that meets their expectations not only of service, but also of trust, reliability and transparency.