Summary of this article
Crypto platforms strengthen security with audits, cold wallets, and MPC.
Regulatory compliance, KYC, and AML enhance transparency and trust.
Investor education and AI monitoring reduce fraud, phishing, and errors.
By Vikas Kumar Gupta, Country Manager, Bybit India
The cryptocurrency industry is standing at a crucial juncture, experiencing both rapid growth and rising security challenges. As digital assets continue to go mainstream, cybercriminals are adopting newer and more effective techniques to attack everything from exchanges and wallets to decentralized finance (DeFi) protocols.
According to a recent Chainalysis report, over $ 1.7 billion worth of crypto assets were stolen in 2024, with North Korea-linked hacking groups among the most active perpetrators. The growing number of data breaches at large exchanges and decentralized finance (DeFi) projects, combined with an increase in phishing and SIM swap attacks, indicates that there is a high demand for increased security through a better and stronger backup (infrastructure) system, as well as implementing additional security tools (encryption).
In response to these threats, government and regulatory authorities have stepped up their oversight of cryptocurrency to improve security and transparency to combat threats.
Cryptocurrency Exchanges are adapting to the global regulatory standard set by the Financial Action Task Force (FATF) "Travel Rule", as well as complying with local laws in their jurisdiction (for example, the FIU-IND guidelines in India), requiring firms to implement robust know-your-customer (KYC) and anti-money laundering (AML) programs.
Regulatory organisations in the UK (FCA) and Australia (Austrac) are also involved in establishing a framework with a unique set of regulatory bodies and auditing requirements in order to improve the governance of these exchanges. Several exchanges are also working with blockchain analytics companies such as Chainalysis and TRM Labs to provide a new industry standard for accountability and trust by helping them to identify instances of illegal financial activity on their platforms and track stolen assets.
To restore and maintain investor confidence, exchanges are widely focusing on enhancing transparency. Proof of Reserves (PoR) reports verified by external auditors are now being published to demonstrate the protection of users' holdings.
Public audits and transparency reports are becoming a common practice in the industry. In a notable case, after suffering a billion-dollar breach, a leading exchange executed nine independent audits in less than a month, launched more than 50 new security features, supported its cold wallet with a four-layer protection model using MPC and hardware modules, and established ISO/IEC 27001 certification to enhance encryption and data integrity.
Meanwhile, crypto platforms are enhancing their security by employing multi-layered security systems. A large part of digital assets is now stored in cold wallets, which are not connected to the internet and thus not accessible to hackers.
Technology such as Multi-Party Computation (MPC) encrypts private keys into multiple sections and distributes the sections into various locations so that there is not a single point of failure. Similarly, multisignature (multisig) wallets enhance security by mandating multiple private keys for transaction authorization.
AI-powered monitoring solutions will alert you whenever there has been any suspicious or stolen activity on your cryptocurrency account as soon as it occurs. In addition to this, there are many companies that have developed technologies that provide additional security measures to their customers, including (but not limited to) Multi-Factor Authentication (MFA), USB hardware keys, and biometric verification methods.
No matter how well-designed or secured a system is, it can still be compromised because of human error, and unfortunately, phishing, scams, and poor user behaviour continue to threaten online banking.
As a result of this, many online exchanges have developed educational programs for their customers on how to better protect themselves against falling victim to fraud, how to properly store their cryptocurrency in a hardware wallet, and how to implement adequate security measures (such as whitelisting their wallet addresses, limiting the timeframe in which they can withdraw). By transparently communicating with their customers when security incidents take place and providing them with effective solutions and compensation plans to restore trust in the crypto community, businesses can help to improve and rebuild user trust.
(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)
