(Newswire.net — January 18, 2023) — Cryptocurrency exchanges came into the spotlight in 2022 after the collapse of notable companies like Voyager Digital, FTX, and Celsius. Their collapse led to significant concerns about the health of crypto exchanges, most of which are global, unregulated companies. In the aftermath, outflows from most exchanges rose, and most crypto investors gave up on the industry. This article will look at some of the top things to consider when looking for a secure crypto exchange.
Audited financial statement
Most crypto exchanges are private companies, meaning that they are not mandated by law to publish audited financial statements. Some companies in the industry do, and they are usually a better choice. Other companies don’t publish their audited statements, but they are audited by blue-chip companies like Deloitte.
Most recently, some companies in the sector have started to publish their proof of reserves. Proof of reserves is a way for addressing issues about the transparency of assets maintained on exchanges. It is an important vetting approach for ensuring that crypto is backed by real assets. Proof of reserves uses the Merkle tree approach, a data structure designed to securely encrypt blockchain data.
These reserves don’t always guarantee that an exchange is safe or won’t go bankrupt. However, they tend to give investors peace of mind that their funds are a bit safe.
Insurance
Another thing to consider when looking for a safe crypto exchange is the company’s insurance policy. Because of the risks associated with digital currencies, many exchanges take out some type of insurance policy.
For example, according to its policies, Coinbase carries crime insurance for some assets held on its platform. However, this insurance differs from the Federal Deposit Insurance Corporation (FDIC), which protects bank savings.
Other exchanges have created their own insurance features. For example, Binance created the Secure Fund for Users (SAFU). The company committed a certain amount in fees to the fund. At the time of writing, the fund had BNB valued at over $300 million and BTC worth over $295 million.
Terms and conditions
You should also consider the cryptocurrency exchange’s terms and conditions when signing up. The implosion of FTX revealed that some exchanges were using customers’ funds to lend to external parties. In this case, the firm had loaned money to Alameda Research, a hedge fund owned by its parent company.
Similarly, Voyager Digital had loaned funds to Three Arrows Capital which contributed to its collapse. Therefore, before you deposit funds, ensure that you read the fine print to ensure that your funds are safe.
Reading the terms and conditions will help you find other issues that could impact the safety of your cryptocurrencies.
Reputation
Another thing to consider when finding a safe crypto exchange is to look at the company’s reputation over the years. In most cases, you should go for companies that have been in the industry for a long time and have survived the bull and bear markets. The ideal company should have a good reputation among its past customers. You can look at its user reviews online to find some of the most popular complaints.
Further, you should consider the safety standards set by the company. A good starting point is that the firm should store most of the users’ coins in cold storage, which is not connected to the internet.
Summary
In this article, we have looked at what to look for in a safe crypto exchange and the top things to consider. Other things to consider are whether the exchange is regulated by one or more major regulators, its liquidity, and customer service. On liquidity, you can use websites like CoinMarketCap and DeFi Llama to track the volume of cryptocurrencies that the company trades every day.