Cryptocurrency is based on Blockchain technology which follows the model of decentralization while transferring the funds from the sender to the receiver end. Digital currency tends to solve the challenges related to the involvement of an intermediary, tracking of the transaction, the security of funds while maintaining privacy and maintenance of transparency while transferring the funds. As the industry started to grow, rather than be the solution for problems, the mentioned challenges were somehow witnessed in the industry itself. In this article, we are going to understand the problems to scale security and transparency issue along with their advocated solutions in the crypto industry.
Issues Related To Security | Improving Security In Crypto Industry | To Scale The Security And Transparency Issue
CNBC reported that Binance was hacked and $40 million have been lost. Bloomberg reported that Cardano was hit by DDoS attacks. Headlines related to exchange hacks, cyber-attacks, vulnerable wallets, and many issues related to the security of the crypto industry have become common these days. Investors and crypto enthusiasts have become slightly hesitant in investing their funds in crypto markets. Some of the common issues faced in the industry are:
- Exposed Crypto Wallets: Hot or online wallets were already prone to cyber-attacks related to malware, viruses, and many more. But, recently news flashed related to hampered security of highly encrypted cold or hardware wallets also.
- Cyber Attacks: The bruises of the infamous attacks of Mt. Gox are still not dried among the crypto community. Cyber attacks are getting sophisticated with the growth of industry. Also, DDoS(Distributed Denial of Service) attacks are also becoming prevalent.
- Double Spending: People intended to hamper the network sometimes try to benefit from utilizing the same coin twice in the same transaction.
- 51 percent attacks: When certain mining pools become too powerful to control (proof of work mechanism) more than 50 percent of computational power, they tend to manipulate the mining and thereby create security issues.
Fortunately, concerns related to the security of data and funds are well known to exchanges and service providers and many projects including that of exchanges have already started working to solve the problems related to security and coming up with following solutions:
- Crypto wallets can be made secured with the help of few features like auto rejection of duplicate payments, more than two-factor authentication, and by adhering to the higher standards of security with a multi-layer approach.
- Cryptocurrency custody solutions are also coming into picture after Fidelity announced the services under the banner of Fidelity Digital Asset Services where a third party supposed to secure your funds while you are involved in trading.
- Dapps, websites, crypto wallets, as well as crypto exchanges, are working to increase the strength of firewalls and introducing new compliance approaches to assure security.
- Many of the crypto services providers are present in the crypto industry to assure the security by educating the team of the company, detecting the threats on the network, monitoring leaks, and also alerting the people associated with potential threats.
- Crypto enthusiasts must look for reputed exchanges for trading and do not get captivated by lucrative offers by the so-called fake sites. Even if the well-known exchanges got hacked, there will be a maximum possibility of getting your funds back.
Thus, security is invariably an important consideration when it is associated with financial transactions. Thus, by deploying several solutions and providing the required confidence to the crypto community, challenges related to security can be sorted out.
Issues Related To Transparency | Improving Transparency In Crypto Industry |To Scale The Security And Transparency Issue
Recently, news flashed that renowned crypto exchange Bitfinex misled investors by locking up $850 million with a shady capital firm. Also, another company QuadrigaCX was forcefully made solvent by the owner of exchanges by siphoning his own investments into customer withdrawals. Adding to the above cases, many crypto exchanges are involved in trading and reporting fake volumes of in and out of cryptocurrencies. These cases portray that transparency is also one of the important concerns of the crypto ecosystem. Basically, two major issues are the challenges for maintaining transparency.
- Proof of Solvency: Investors are least aware of the financial details of the internal operations of the companies they are investing their funds in as the company did not reveal their reports due to fear of losing the competition in markets.
- Proof of Legitimate trading volumes: Wash trading and fake trading volumes by the exchanges are the common practices employed to captivate the interest of investors and traders.
Issues related transparency are considered by the crypto community seriously and several companies enthusiastically coming upfront with various solutions like:
- By providing the average solvency to clients rather than revealing the complete internal data to maintain healthy competition in the crypto marketplace, issues of transparency can be sorted out. For instance, services provided by Arpa.
- By publishing quarterly financial reports, proof of reserves or custodial protocols exchanges are assuring the status of solvency to their potential investors like that of Poloniex crypto exchange.
- Some of the exchanges assure transparency and legacy by backing their crypto coins with stablecoins along with providing the information related to security audits too like that of the Gemini crypto exchange, Kraken exchange, and many more.
- Some websites provide metrics of real volume on crypto exchanges, giving details of inconsistencies related to traffic of websites and trading volumes. For instance BTI, Nomics, and many more.
Thus, various solutions are considered in the market to solve the problems related to “Proof of solvency” and “Proof of legitimate trading volumes” like sharing of internal financial reports, metric representation of real trading volumes, and other relevant information.
With the rise of security and transparency issues, the crypto community is trying every effort to scale the security and transparency issue and captivate the fresh investments. Cryptocurrencies are here to stay and to ease the problems related to payment and financial system, so the problems need to be addressed as soon as possible to maintain the interest and investments of the crypto community, and also adding new funds to the industry.