Bitcoin has transformed the world’s perception of digital assets and created an exponentially popular financial market that is partially governed by various crypto exchanges. The best crypto exchanges serve as a doorway to safe and secure crypto trading and help beginner traders to avoid needless risks. By registering on any one of the crypto exchanges, it is possible to dabble in cryptocurrencies in a regulatory-compliant way. As we already know that owning and trading cryptocurrency is not without certain unavoidable risks, but being associated with the best crypto exchanges gives people the relief that they need.
But unfortunately, there are some critical weaknesses still present and reasons for concern attached to even the best cryptocurrency exchanges. In this article, we shall learn all about the risks associated with opening an account with crypto exchanges without proper knowledge of protecting the digital assets you own and choose to keep in an exchange wallet. As cryptocurrency trading becomes more mainstream with each passing day, newcomers need to know all of the benefits and risks of delving into cryptocurrency trading using the best crypto exchanges known for their expertise and technological architecture.
- The most common underlying problem that most the cryptocurrency exchanges have is that their cold wallets are not as secure and well protected as they guarantee. Cold wallets function in a total offline environment without depending on web connectivity in any way. These are considered to be the best alternative to hot wallets because the chances of getting hacked are relatively less in the case of cold wallets. But a lot of people do not know that every single cold wallet is not supposed to function in the same way and that is why its security aspect varies from exchange to exchange.
- Location-based security is not provided by several best crypto exchanges functional in this financial market. When it comes to crypto, location is everything. Different countries regulate cryptos based on the rules handed down by financial institutions and their government. In some countries, crypto trading is banned while in some, the government’s stance towards it is uncertain. Every crypto trader needs to stay informed about the regulatory conditions applicable to crypto trading through exchanges that may or may not be located in the same country. The actual location of exchange servers gives us a clear idea about the law and terms of service.
- Most of the time, those who have no prior experience in crypto trading using an advanced crypto exchange platform tend to think that 2FA or two-factor authentication is enough to keep their digital assets safe from hackers. But the reality is quite different. Although it is better to have two-factor authentication instead of just one, it does not translate to double security as normally crypto exchanges guarantee. The theft of crypto cannot be stopped by simple authentication steps because client-side security vulnerabilities are present in exchange servers and applications. These vulnerabilities can harm the security protocol implemented in the framework of even the best crypto exchanges.
- Decentralized exchanges are the newest alternatives to old cryptocurrency exchange platforms that are based on a centralized framework. DEX was introduced as a secure option for crypto trading and storage with additional services such as staking, yield farming, etc. But if you take a deeper look into the design and working principle of decentralized crypto exchange, you would figure out that it comes with many flaws left unattended that could put a trader’s assets in jeopardy. A typical decentralized exchange utilizes the same front-end as that of a centralized exchange and that is why it becomes easy for notorious hackers to attack the system by gaining access to the front end.
- An important consideration for people trading through the best crypto exchange is to understand how it functions, designs, and infrastructure. But the truth is nobody spends some time getting to the bottom of these crucial aspects of a crypto exchange before registering and opening an account. It is advisable to look at the exchange’s whitepaper, partnerships, goals, and roadmap to get the complete picture of the exchange platform. It helps you conclude whether an exchange is the best match for you or not.