Since cryptocurrencies are becoming popular nowadays, more people are starting to trade on crypto exchanges. However, even well-known crypto exchanges with a high amount of daily users are not completely secure. The recent case of the Coincheck hack ($530 million was stolen in a Coincheck heist) has proven this very thing. So is there any way to make a profit by trading crypto assets and still stay safe?

For most crypto traders, the primary factors for selecting an exchange are commissions and commission traded instruments. However, crypto investors should pay attention to the security aspect of the platforms as well. The following are factors to consider when deciding whether a crypto exchange is secure and reliable.

The verification process on the crypto exchange must be complicated

A reliable exchange should adopt, at a minimum, a Know Your Customer (KYC) and Due Diligence procedure for the verification of the identity of its clients. Such KYC and Due Diligence measures shall comprise of client screening, verification of the customer's identity, and establishing the purpose of the business relationship, etc.

The adoption of such KYC measures demonstrates that the exchange understands the need to comply with the Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) regulations, thereby minimizing the risk of that crypto exchange closing down in the future due to any possible violations of the law. If the verification process also requires the verification of an email address or phone number, it makes the process even more secure.

Investors may have data protection and privacy issues when providing their personal data to such online services, however, the adoption of AML and CTF procedures will protect the exchange from “bad traders,” which can affect the price by pumping and dumping, hackers, and other fraudulent activity.

Use a truly decentralized exchange

Most of the so-called decentralized exchanges are regulated by centralized servers. So they are accessible to any hackers. But if access to the decentralized exchange is possible only after downloading a special client, whose operation is supported by multiple nodes, it is more secure. Of course, to figure this out, the person should be an IT professional or a blockchain developer. However, some information can be found on the exchange’s website or blog (e.g. on Medium).

With decentralized technology there is no central point of failure; all deposits, withdrawals, and order books are transparently stored on the blockchain. However, decentralized exchanges are still young and there may be shortcomings.

In light of the above, there may be doubts whether or not all of these measures are sufficient enough to protect crypto assets, especially if they can be converted into big sums of money. Coin holders can consider the following alternative methods to operate crypto assets in a more secure way.

Use a cold wallet

Another solution if you want to make profit and do not trust exchanges is to store the coins in your own wallet, preferably a cold one (one that can be operated without an Internet connection). A cold wallet is a program for storing data and conducting transactions that you install on your computer (the most famous one is Bitcoin Core). The key is to keep the cold wallet not on the same computer but on a flash drive or external hard drive. However, cold wallets take a lot of space, ranging from 50 to 80 GB, and they are not ideal for quick, daily transactions, especially for short-term traders.

Nevertheless, cold storage is not completely risk free and still susceptible to external damage and theft.

Trust your crypto assets to a bank

When Coincheck was hacked, Japanese trust banks offered to manage the crypto assets. As institutional investment in crypto assets grows further, more banks around the world are likely to offer such services.

Using crypto funds and services for tokenizing assets

Another way to make profit on crypto assets in a secure way is to use services for asset tokenization and trade tokens inside this service on the secondary market. There are several projects making this possible. Take Blackmoon for instance, which has created a strong foundation for the future secondary market inside the platform. Blackmoon offers a vision for a new standard for tokenized investment funds that will bridge the gap between the fiat and crypto investment universes. The Blackmoon platform focuses on all the aspects of tokenized investment vehicles, from technology and infrastructure, to legal compliance and corporate structuring.[1] Therefore, services like Blackmoon can manage crypto assets and even turn traditional assets into cryptocurrency.

There are a couple of parameters to finding the best crypto exchange, however, the risk of failure on an exchange cannot be eliminated. Of course, it does seem that the crypto market is moving in a more transparent and secure direction, but it might be a while before we see positive developments materialize.


The author, Oleg Seydak is Founder and Chief Executive Officer of Blackmoon Crypto.

Oleg graduated from Bauman Moscow State Technical University in 2009. He holds an MS degree in intellectual control systems, MS in Finance and an advanced degree in Management from Higher School of Economics. In 2014 Oleg, in partnership with Ilya Perekopsky, founded a fintech platform for continuous securitization of loan portfolios – Blackmoon.

[1] Due to the fact that cryptocurrency markets are unregulated and decentralized, the provision Blackmoon's services is not governed by any specific regulatory framework or investor protection rules. Investment in cryptocurrencies carries a high degree of risk and volatility, and is not suitable for every investor. Therefore, you should not risk capital you cannot afford to lose. Please consult with an independent professional financial or legal advisor to ensure the product meets your objectives before you decide to invest. Under no circumstances shall Blackmoon have any liability to any person or entity for (a) any loss or damage in whole or part caused by, resulting from, or relating to any transactions related to the asset tokens or (b) any direct, indirect, special, consequential or incidental damages whatsoever. Please consider our Risk Disclosure and our Terms of Use before using our products. Social media posts about the Blackmoon platform are generated by members of the Blackmoon community and do not contain advice, recommendations, or solicitations on behalf of Blackmoon.