Trust is the cornerstone of any successful crypto platform.
In digital assets, where transactions and holdings are virtual, users must feel confident that their trust in crypto investments is not compromised. This week, the CrowdStrike incident demonstrated that even without an external attacker, cybersecurity can still fail, highlighting the importance of robust internal controls. Additionally, human error is always a risk, but numerous best practices can be implemented to prevent breaches or respond quickly to stop intruders.
Moreover, the collapse of prominent crypto entities, like FTX, which went from a market cap of billions to $0 overnight despite millions in sponsorships and other deals, underscores the importance of trust and security in this space. These incidents have shown how quickly fortunes can change, shaking user confidence overnight.
Here are some of the best practices for security measures to build trust:
Cold Storage
This is storing most users’ crypto assets in offline cold storage, which is not connected to the internet, significantly reducing the risk of hacking. For example, major exchanges like Binance allocate a significant portion of their funds in cold storage for added security.
Although this adds security, If access keys are lost, users may permanently lose their assets. There have been instances where individuals have lost millions due to misplaced drives, leading to desperate measures like dumpster diving.
User Education
Educating users on security best practices is crucial for safeguarding their investments in the volatile and often confusing world of cryptocurrency. Learning the basics is the first step. Users don’t need to understand how blockchain technology works, the importance of private keys, and the risks associated with hot and cold wallets. Due to the complexity and constantly evolving nature of crypto security, user education can feel like a full-time job, but all they really need to know is what is relevant to them and what not to do.
For instance, while the blockchain itself is immutable and secure, poor security practices can still lead to significant losses. If a user reuses passwords across platforms – say, using the same password for Crypto.com and Facebook – the risk increases exponentially. Once an account is compromised, the funds can be transferred out quickly and irreversibly. Knowing the users name (from Facebook) you can go to their mobile phone carrier, get a new sim and hijack the OTP token.
Educating users on these aspects is not just about preventing immediate threats but also about fostering a culture of security awareness. This holistic approach helps users navigate the crypto space safely, making informed decisions that protect their assets from the myriad risks present in the digital world.
Insurance
Offering insurance for digital assets can provide users with peace of mind. In case of a security breach, having insurance coverage can help recover losses and maintain trust. For traditional banks, FDIC insurance covers up to $250,000; however, the equivalent for crypto, such as policies offered by private insurers, is still developing and varies widely.
Insurance for crypto assets is often expensive and may not cover the full value of lost assets, leaving gaps in protection.
Although their collapse was high profile, it’s much better than getting hacked because FTX is actually repaying its customers by monetizing its assets and investments. According to the bankruptcy plan, FTX has collected between $14.5 billion and $16.3 billion by liquidating its assets and proprietary investments held by Alameda and FTX Ventures. This has provided enough funds to pay back nearly all customers and creditors, with claims of $50,000 or less receiving at least 118% of their allowed claims in cash. Others will receive 100% of their claims plus additional compensation for the time value of their investments.
Fraud Detection Systems
Deploying advanced fraud detection systems is essential for monitoring suspicious activity and responding swiftly to potential threats. These systems can identify unusual patterns and behaviors, such as large or atypical transactions, helping to prevent unauthorized access and fraud. For instance, locking accounts for a specified period or until identity verification can be completed can prevent further unauthorized transactions.
These systems can sometimes be overly sensitive, leading to false positives. Like traveling overseas when your bank suddenly wonders why you’re in Paris on Saturday after your last charge was in Austin, TX on Friday – triggering a possibly expensive international call to unblock your card. Legitimate users might get locked out of their accounts, causing frustration and a potential loss of trust. Balancing security and user experience is crucial to avoid alienating customers.
Bug Bounty Programs
As a hacker myself, I’m a bit biased, but I think encouraging ethical hackers (White Hat) by offering rewards (maybe even crypto!) for discovering and reporting security vulnerabilities can help identify and mitigate potential threats before they are exploited.
These programs leverage the skills of a diverse group of security researchers, often finding issues that in-house teams might miss. For example, at the Pwn2Own 2023 competition, a team managed to exploit a Tesla Model 3’s system, earning them a $100,000 reward, plus the car itself! Though difficult to reproduce, they performed several attacks on a vulnerability in the infotainment system, highlighting the importance and effectiveness of such bug bounty programs.
Still, while beneficial, bug bounty programs require careful management to ensure vulnerabilities are addressed promptly and that the program is not exploited by malicious actors posing as ethical hackers.
Conclusion
Ultimately what you are building with all these measures is Trust.
In an industry where security and stability are paramount, building and maintaining user trust is essential. No one wants to put their money into a platform perceived as unsafe, untested, or unstable. This is why we see so many users gravitating towards older, trusted platforms like E*TRADE or Morgan Stanley, which have established a solid reputation over the years.
With numerous fintech platforms like Venmo and Robinhood now adding crypto to their offerings, it is crucial to ensure that the integration is robust and secure. Users who already trust these platforms must be rewarded with a solid implementation, reinforcing their confidence. New users, on the other hand, should be able to join with the assurance that their investments are protected by best-in-class security measures.
By adopting comprehensive security practices such as cold storage, user education, insurance, fraud detection systems, and bug bounty programs, crypto platforms can protect user assets and foster a secure environment. This not only ensures compliance with regulations but also instills confidence among users, making them feel safe and valued.
In the end, a trustworthy platform is one that consistently prioritizes the security and satisfaction of its users. By doing so, crypto platforms can build a loyal user base, attract new customers, and thrive in the competitive fintech landscape. Security is not just a technical requirement but a fundamental aspect of trust in the digital asset ecosystem.
