Bank Frick published a blog article investigating security incidents among crypto exchanges over the past seven years. Its main finding: The industry has become more secure.
As the crypto industry is evolving, security standards are improving as well. Last week, Bank Frick released a new blog post that clarifies misconceptions about security issues in the digital currency space.
The report’s findings show that although exchange hacks make the headlines quite frequently, and the amounts stolen are usually not small, security has improved over recent years. Bank Frick’s blog post also shows that the problem is way less severe than claimed by the media.
Bank Frick’s analysts looked at a range of different datasets. Most of this data is publicly available on the internet and covers the period from 2011 to 2018. Bank Frick admits that the data might be incomplete, as not all incidents are being reported, but it is robust enough to show the trends.
Less than 2 percent of exchanges are affected by security incidents
The blog post shows that while the overall number of incidents has increased over the last years, which are carried out analogously to the rising BTC price, the problem has become much less severe.
The majority of security breaches happen on digital exchanges, and the number of exchanges has snowballed over the past seven years. While the number of incidents has increased, the ratio of exchanges affected has decreased significantly. In 2011, 25 percent of exchanges were affected by a security incident; in 2018, the ratio is down to two percent.
The amount of bitcoins stolen has decreased over time
Another figure media outlets enjoy showcasing is the total losses measured in fiat. This amount has grown over time, which is not surprising given the price increases of cryptocurrencies over the past years.
One bitcoin lost in 2011 was worth $1, but one bitcoin lost in 2018 is worth $10,000 – of course, the value of bitcoins stolen measured in fiat went up. However, the losses in terms of bitcoin have decreased over time.
The crypto industry has become significantly more secure
The data shows the industry has become more secure overall, and security incidents are limited to a small number of exchanges. According to Bank Frick’s blog post, no bank has ever been compromised to date, and there were only two incidents where a cold storage system was affected.
Regulations are changing as well, and custody providers have to meet higher security standards. Just recently, the German government has decided to introduce new anti-money laundering regulations in 2020. Starting next year, cryptocurrency-related businesses such as digital exchanges, custodians and wallet providers will need a Bafin-issued license.
The further professionalization of the industry and the emergence of institutional-grade custody providers will lead to even higher levels of security.
But lastly, part of the responsibility is also with the user. Where there is money involved, there is always the risk of theft. That’s the case in the crypto industry, and it’s no different in traditional banking. Thus, users need to ensure they only work with regulated exchanges that have strict compliance and security measures in place and cooperate with experienced custody providers.
The idea, however, that crypto is inherently more dangerous than traditional banking, is a media monster and not consistent with the data.
Image: ©Bank Frick