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How secure are crypto exchanges?

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The largest US trading platform for cryptocurrencies goes public – which is considered a milestone for the industry. There are around 200 such offers worldwide. With some experts advise caution.

From Till Bücker, tagesschau.de On Wednesday, the largest US trading platform for cryptocurrencies will venture onto the trading floor. Proponents of Bitcoin and Co. see this as a further step towards broader acceptance of digital currencies as an asset class. According to the company’s own information, 114.9 million shares are to be listed under the symbol “COIN” on the New York technology exchange Nasdaq via a direct placement without the support of investment banks and pricing procedures. This makes Coinbase the first crypto company to be listed on a major American stock exchange. Experts also describe the stock market debut as a groundbreaking event for the regulation of digital currencies.

43 million users

The company from San Francisco was recently valued by investors at almost 68 billion dollars. According to the business magazine “Forbes”, Coinbase could achieve an overall valuation of more than 100 billion dollars in the transaction – making it one of the largest IPOs in recent years. In October 2018, the company was valued at just eight billion dollars in a financing round. In 2012, Coinbase boss Brian Armstrong and Fred Ersham, who is no longer operational as a director, founded the platform to enable easy and fair trading in cryptocurrencies – apparently with success. According to the company, around 43 million investors in over 100 countries use Coinbase to invest. 2.8 million at least once a month.

Coinbase CEO Brian Armstrong | Brian Armstrong is the boss and founder of Coinbase. At least Coinbase is benefiting from the transactions: for 2020, the company reported revenues of around $ 1.3 billion, which was more than double the previous year. The bottom line was a profit of $ 322 million. In 2019, Coinbase had earned a minus of 30 million. The soaring is closely related to the Hype about cryptocurrencies. Bitcoin and Ether in particular have only known one direction since autumn, with minor exceptions: up. Both currencies recently reached a new record high. At the end of September, a Bitcoin had cost $ 10,000. Today, investors have to pay more than $ 60,000 for the oldest and largest cyber currency.

How does trading on crypto exchanges work?

Anyone who wants to trade cryptocurrencies – for example, shares in Bitcoin – has several options. Usually there is different from the stock market no middleman like a bank or broker. Investors can therefore buy and sell mainly via crypto exchanges. In addition to Coinbase, this also includes, for example, the Stuttgart Stock Exchange with its BISON app and the BSDEX (Stuttgart Stock Exchange Digital Exchange) as well as FTX, Binance, Bitstamp, Bitso or Kraken, which are also planning an IPO in the coming year. Investors set up an account at the crypto exchanges and can trade with relatively low transaction costs, store their coins and exchange them for traditional currencies. With traditional exchanges, on the other hand, brokers are always interposed to process the transactions. What is an advantage in terms of transparency is, on the other hand, also a risk. “It can happen that stock exchanges are exposed to hacker attacks and the money disappears,” said Leon Berghoff from the crypto trading company Sixtant. According to a report by the server service provider “Atlas VPN”, there were more than 120 hacker attacks on cryptocurrencies in 2020 alone. A lack of government regulation could also become a problem.

Investors should look carefully

“There are now over 200 crypto exchanges worldwide. Some of them are well done, but others are not”, says Philipp Sandner, head of the Blockchain Center at the Frankfurt School of Finance & Management, in an interview tagesschau.de. Regulation in this country offers the best protection against a total loss of the investment. For example, Coinbase, the Stuttgart Stock Exchange, bitcoin.de or the Berlin crypto bank Bitwala have applied for approval from the Federal Financial Supervisory Authority (BaFin).

Prof. Philipp Sandner | Expert Sandner advises paying attention to licenses. “These four companies should get the licenses pretty sure. With all the others, investors should stay away from it if they are not entirely sure,” said Sandner. Many foreign exchanges have not applied for a BaFin license and deliberately circumvented regulation due to high costs.

Security through a good reputation

In addition, a certain reputation is also helpful. “Once a company has built up a good reputation like the Stuttgart Stock Exchange, it will do everything possible not to damage it,” says Sandner. That is an additional protective mechanism. The reputation also contributes to success at Coinbase. The group has always complied with the rules and is therefore even allowed to advertise. In addition, hackers have never got through. “You can compare it a little with airlines. As soon as an airplane had problems, the whole country suddenly no longer wants to fly with it – and vice versa,” said the crypto expert. Investors should first be careful with unknown and non-established crypto exchanges. The IT measures on many platforms have meanwhile become more professional. In general, however, cybercrime can never be ruled out.