Having invaded the field of finance of late, cryptocurrency has made its presence felt in almost all business realms across the widespread universe. Associated with this sudden growth is the equally proportionate surge in crimes involving crypto, specifically for the money launders. Much more pronounced in a wide range of services across the universe. With this increase, there exists a proportional surge in crimes associated with it, specifically for the money launderers.
It is essential to secure cryptocurrency because anybody aware of one’s public and private keys combination receives complete access to his coins; thereby, the possibility that he might transfer cryptocurrency coins to any crypto address of his preference is enormous. Hence, the need to take up security measures for crypto exchanges in Germany arises. However, quite a handful of risks associated with storing cryptocurrencies exist because they fluctuate rapidly in value. A sudden reduction in value or a total loss can happen instantly.
Inaccessibility to passwords or information might also end up in utter loss. Trading cryptocurrencies is also risky in that it’s highly volatile. This article aims to take you through the security measures pertaining to cryptocurrency exchanges specific to Germany.
Security Methods for crypto exchanges in Germany
The two-factor authentication, or 2FA, is one of the suggested methods in which the security feature of a crypto wallet is improved by demanding an additional criterion to be passed through by the account holder to authenticate and access his account. To be crisp, it’s equivalent to enhancing the security norms by an additional layer. With the first security step being the password, the next layer can be anything like confirmation through clicking the link sent to personal email, entering the One-time password (OTP) sent to the registered mobile number, or sharing the Personal Identification Number (PIN) or answering a security question, or fingerprint recognition, or face recognition, and so on. Hackers require only the password to accomplish a phishing attack. The additional security check employed in 2FA poses a phishing threat.
To carry out a security breach by an insider is enough if he accesses the stored database on passwords. However, while the 2FA is employed, the second level of security happens in real-time and remains valid for a few seconds, which makes insider threats quite a tough job to accomplish. Implementing 2FA isn’t an expensive measure. It requires the authentication software to be downloaded, followed by careful observation of the prescribed steps, and there you are, secured with 2FA.
Encryption is yet another security measure suggested to be implemented in German crypto exchange applications wherein it curbs hackers from reaching the stored information, ensures adherence, and brings down fraudulent actions, thus securing crypto transactions. By encryption, we mean the process of converting the information that can be read by normal humans into a coded message that can be read only by the sender and alternatively be reverted to its original text by specially implemented programs called decrypters.
Hot and cold storage is also one of the security measures employed in cryptocurrency transactions. A hot wallet, also known as a software wallet, is a crypto wallet that always establishes a connection between the cryptocurrency network and the internet. Being easy to use and used for sending and receiving cryptocurrency over the mobile phone or the computer within a few clicks, the hot wallet is used for those cryptocurrency transactions on all days. However, a cold wallet takes off the primary key and stores it, thus finding it difficult for others to access the stored information. Hence, retrieval of keys is time-consuming and is preferred for transactions that happen occasionally. Cold wallets are safer than hot wallets, as they aren’t connected to the internet and are out of reach of hackers, phishers, and threatening insiders.
Network monitoring is one of the security measures that is utilized to monitor crypto networks effectively. Various network monitoring tools are used to achieve this task. SIEM (Security Information and Event Management) is vested with inherent threat detection features that efficiently offer threat detection on a blockchain. These tools run high-end algorithms to locate any severe threat and send alert signals to respective network admins about the same. It checks the network traffic to trace any suspicious activity or unwarranted attempts to access and brushes through the data logs to trace any inconsistencies hinting at a possible cyber attack. On spotting any such threat, it immediately blocks traffic to that specific network by executing the prescribed programs, thereby preventing a huge cyber threat.
Compliance and reporting necessities at the German crypto exchange
Moving on to the Anti-Money Laundering (AML) and counter-terrorism financing (CTF) requirements specific to Germany, the notaries, lawyers, auditors, legal advisors, tax agents/advisors, and registered accountants are the ones who impose the urgent money laundering requirements, and they accomplish it on a secondary level. Also, the local self-regulatory bodies regulate them and are in charge of compliance and enforcement. It is to be noted that every money laundering requirement is systemized in the federal Anti-Money Laundering Act (GWG) and partly in the Banking Act (KWG).
Germany’s primary financial regulator BaFin which is authoritative in monitoring and supervising banks and other institutions of finance issued the Auslegungs- und Anwendungshinweise (translated as interpretive and application notes) for the execution of apt diligence and internal preventive measures to stop money laundering. BaFin is additionally responsible for issuing licenses to operate and conducting investigations when breaches to compliance of any intensity are encountered. Regulatory compliance is achieved in Germany by following the KYC (Know Your Customer) formalities, including verification of identity, Screening of transactions, Screening of sanctions, and the person’s exposure to the political atmosphere.
Best practices to ensure employee security
Suggested security measures for employees include background verifications, essential security training, and enforcement of strict adherence to best practices. Before enrolling a person as an employee in any crypto exchange in Germany, he must go through a thorough background check. This has to inquire about the person’s conduct in previous places of work, educational institutions, and the society he dwells in. As an extra mile, a check on his friend’s circle projects a better picture of his character. The authenticity of these background checks matters much.
He who endures the background check must be led through the knowledge of the basic security measures he should hold on to throughout his tenure.
This comprises keeping a reliable backup of important information in a separate personal drive, usage of tough passwords and keeping them secure, refraining from clicking on unauthenticated links and downloading from insecure attachments, updating the unique system with anti-virus, handling personal external drives with care, connecting personal system only with secured wifi connections, and never to leave the desk with the system unlocked.
Auditing and testing at crypto exchanges in Germany
A security audit and the associated testing carried out at cryptocurrency exchanges find greater significance to the business. An entire evaluation of the system implemented permits the knowledge of the available loopholes in security features and the hidden unattended risks.
The three prime keys to performing audits in cryptocurrency exchanges are to assess the usage of the crypto exchange, jot out the existing high-profile risks, establish apt controls failing, which intensifies the current threats, and keep the responsible executives in touch to address any additional risks encountered.
One of the testing methods is penetration testing, also termed a pen test. This follows the procedure of simulating a cyber attack on your system to run a thorough check on identifying and addressing possible risks. The five levels or steps involved in crypto exchange penetration testing are,
- Discovery – Imbibing the details about the architecture of the crypto exchange under testing
- Evaluation – Figuring out the possible threats and attacks
- Functional Testing – Intense testing on the different existing functions in the crypto exchange under consideration
- Reporting – Preparation of the findings as a document
- Remediation – Working on the loopholes, performing retests, analyzing the results, confirming results with the norms, pentest certificate issuing
Yet another is the vulnerability assessment. Those professionals conducting the assessment jot down the map of all the connected devices, note the services and their versions in use, and outline a list of vulnerable systems. Both internal and external vulnerabilities are listed. Professionals use the database of the vulnerabilities they are already aware of to match the security breaches in the system under examination.
Collaboration of crypto exchanges with law enforcement
It is essential to collaborate with law enforcement to enhance security measures in every germany crypto exchange because the grounds for withdrawing the security measures associated with the movement of regular money, assuming them to be an additional headache, raises undesired challenges for financial regulators who forced to encounter issues revolving around financial stability, stopping the evil of money laundering, and the worse practice of providing funds to encourage terrorism.
Fighting successfully against these crimes in cryptocurrency demands a healthy and sustained collaboration between financial regulators and experts in security-related technologies, which are prone to be focused with expertise in forward-thinking to scheme-proven constructive regulations that would serve the purpose.
To report suspicious activity of any intensity happening at cryptocurrency exchanges, beginning with the filing of the Suspicious Activity Report (SAR) by the victim. There is a provision in a SAR to report more than one suspicious activity that was encountered. Though the cryptocurrency exchanges find it tedious to segregate the suspicious activity under the already existing categories in SAR, the number of cases recorded keeps shooting high. Care must be taken at the cryptocurrency exchanges to file suspicious activity of any degree about,
- Coordination of fraudsters to alter the asset price or trading volume, termed “wash trading.”
- Cyber crimes carried out targeting privileged customers and reputed financial institutions
- Any action associated with bribery or financial corruption, including cross-boundary transactional flows, transactions involving massive amounts, and forgery by fake identities.
On a final note, the strict adherence to security measures at the cryptocurrency exchanges will, in the future, bring forth a tightened, secure feeling in the hearts and minds of every customer, thereby expanding the boundaries of crypto invasion. When sustained, a careful check on the adherence to proposed security measures will result in the field of crypto exchange Germany, a much-lusted area of investment, growth, study, innovation, and research. Periodic upgrades parallel to the new technological advancements at every crypto exchange in Germany will elevate the security measures in the field of cryptocurrency, an unbeatable one.