DDoS and Crypto: What are the Risks?
Apart from being crypto exchanges, what else is common between Poloniex, Kraken, Coinsecure, BTC-E and Bitfinex? They’ve all suffered DDoS attacks.
DDoS (Distributed Denial-of-Service) attacks are a form of cyber-attack involving hackers flooding the servers of exchanges with more requests than they can handle. Such attacks often start from multiple sources, making it more difficult for exchanges to curb or stop the attacks.
These attacks aren’t new. Online shopping platforms, banking systems and online service providers have been victims of DDoS attacks with crypto exchanges recently becoming a target. With this in mind, let’s take a closer look at DDoS, crypto and the associated risks.
Basics of Cryptocurrencies
There are three important things that set cryptocurrencies apart from fiat currencies.
- Firstly, they are digital currencies that only have an online version. This means there are no bills and nothing tangible underlying this asset class.
- Secondly, cryptocurrencies are decentralised in nature with no single governing body. This has made them particularly popular as they can’t be meddled with by governments and don’t face the same struggles as banks.
- Thirdly, cryptocurrencies are global currencies. Buying 1 BTC or 1 XRP in the US is the same as buying 1 BTC or 1 XRP in the UK or in Cyprus. These digital currencies eliminate fund transfer barriers, making transactions almost instant.
While cryptocurrencies offer several benefits, there are certain adverse consequences of them being purely virtual. Among them are DDoS attacks.
DDoS Attacks: Tanking Value of Cryptos
For a crypto exchange, a DDoS attack can mean lost revenue, loss of customer loyalty and damage to software and hardware. When an exchange is under attack, users are unable to access their crypto wallets or accounts. Also, users won’t be able to buy and sell cryptocurrencies, losing potential profit opportunities. Such a disruption can, at times, be significant enough to affect cryptocurrency prices. For instance, in 2017, certain bitcoin exchanges were victims of a coordinated DDoS attack, which ultimately tanked bitcoin prices by around $2,000.
DDoS Attacks for Monetary Benefits
There have also been several instances of hackers demanding huge ransoms from exchanges to put an end to the DDoS attack. Since DDoS attacks can affect crypto prices, hackers may try to use such means to make huge profits.
Protection Against DDoS Attacks
The cryptocurrency market could continue to expand for some time. Therefore, exchanges need to address and safeguard themselves against DDoS attacks. It’s important for crypto exchanges to use powerful DDoS protection, which gets triggered the moment there’s an attack. Such DDoS protection systems need to be robust enough to withstand high traffic attacks and intelligently filter the traffic to ensure legitimate user traffic is not affected in any way.
As for traders and investors, they need to ensure they’re trading with regulated brokers and exchanges. For instance, traders in the UK should ensure their broker is FCA regulated. FCA (Financial Conduct Authority) is among the world’s most reputable regulatory agencies that has several regulatory protocols for the protection of customer funds.
If you liked this educational article, please consult our Risk Disclosure Notice before starting to trade. Trading leveraged products involves a high level of risk. You may lose more than your invested capital.