Managing Risks In Crypto Exchange Development

Any exchange deals with financial transactions and must therefore comply with certain protection provisions and KYC and AML laws. Cryptocurrency exchanges do not bear their owners' danger of uncertainty and other market risks. Crypto exchanges, however, have their own unique threats. We're going to talk about the threats that exist and how to counter them with your unique white label cryptocurrency exchange offering.

Data loss

Risk:

There is always a chance of all servers failing and of irretrievably losing information. Data leakage threats arise when stored on remote servers in the cloud.

Solution:

A digital currency exchange requires a stable, data-storage backup protocol at a location that is independent of exchange servers. Don't position all eggs in one basket and risk level data on various carriers. It is also critical that backups are made in advance and periodically updated. These data must be encrypted safely and access secured. To ensure that data can be retrieved easily, backup protocols should be monitored periodically.

Loss of exchange money or user funds

Risk:

The serious hacking or unauthorised access by hackers to infrastructure and money as well as the loss of money due to errors pose serious risks for every cryptocurrency exchange. Loss of money might not be a return point for the company, so you can prevent it in any way.

Solution:

Ensuring that software and networks are secure from vulnerabilities in order to avoid loss of resources. You need a security department and a verification code running on servers for development. Programmers should be qualified in vulnerability detection. System managers should monitor the system and track any extraordinary behaviour. Perform an external audit of safety preferably. Often, to further secure consumer funds utilising two-factor authentication.

In order to cope with the theft of risk from user funds, funds must be spread across hot and cold wallets. For fast deposit and withdrawal, hot wallets should be used. Cold must be used to save the majority of the money since it can not be hacked. Independent contractors can also be employed to inspect protection systems against unauthorised access.

In a single article we plan to publish in the future, the risks related to losing funding and how to avoid these losses are a broad topic.

Infrastructure failure

Risk:

There is a rising number of customers and the system is not ready for these loads. As a consequence, there are failures, withdrawal and trade issues, chances of fraud or cash loss. Issues include consumer safety problems, increased hacking risks, long-term failure of exchanges and significant reputational losses.

Solution:

To avoid this, prepare your scaling strategy carefully and conduct high server load simulation tests. So, when the number of users does not rise too fast and allows for all sorts of testing, the best time to start is typically a crypto winter.

In order to avoid failures in the infrastructure, a solution called microservice architecture can be used. This algorithm makes it possible to alter any of the services without affecting the whole network. Such a solution improves the level of protection and ensures that the platform operates continuously.

Inability to comply with regulatory requirements

Risk:

Problems with local or international regulators and failure to follow AML and KYC rules can lead to a number of countries' website blockades and serious problems with Fiat currency exchange banks.

Solution:

The crypto-monetary exchange shall adhere in particular to the international conditions of the AML and KYC and to the laws of the country in which the exchange is operating as well as international standards of regulation, security and safety of investors. For the exchange to work under the law, it is important to manually check fraudulent transactions, identify the customer and comply with other requirements. Sanctions for countries like North Korea, Iran, Syria, Libya are of importance in most jurisdictions. The members of these countries are forbidden from doing business. It must also comply with the tax laws of those jurisdictions in which your platform operates, if the legislation of the State in which you work is provided for.

There is not an entire list of threats, it goes without saying. In liquidity, balance management and third-party resources integration a significant number of risks are concealed. Even in a high-tech business, nobody cancels the human aspect.

Through publishing related articles on our blog, we will progressively try to highlight most of the threats and opportunities to avoid them. Write about the risks that should be further addressed in the near future in analysis on the medium or in social networks.

Espay Exchange is a leading & specialize in the security token exchange, forex exchange solutions and cryptocurrency exchange software development company.