Posted 2 years ago | by Ben Armstrong

New Research Finds Security Flaws at Leading Exchanges

A recent interview with the co-founder of exchange security firm Taurus Group, Jean-Philippe Aumasson, uncovered some interesting information. Aumasson said he and his team, working with Omer Shlomovits of ZenGo, found serious flaws in how some major exchanges store cryptos.

One of the biggest issues is how multi-key security technology can be exploited, and also how some of the design assumptions that were made when building the system could lead to big problems later on.

Many crypto exchanges use multiple keys (or a single key that has been split among a few people) to ensure that when funds are moved, a group must approve the transfer. While this is a good idea, there are some issues with how it has been implemented by exchanges.

Multi-Key Madness!

A big assumption that some crypto exchanges made when implementing a distributed key scheme is that none of the keyholders would be antagonistic to the group. This means that if the wrong person were to take control of one of the key components, they could effectively hold the exchange hostage, or force the group to payout a ransom.

Clearly, this is a serious design oversight, and it is something to be aware when trusting an exchange with tokens. One possible solution is to use a decentralized exchange that doesn't take possession of your tokens, or at least make sure that the exchange has dealt with this potential problem.

Is Decentralized Trading the Solution?

For people that just want to trade tokens on an unlevereged basis, a decentralized exchange would eliminate the custodial risks of dealing with an exchange that takes possession of private keys. For derivatives traders, it is probably important to make sure that the exchange's security protocols are well understood, as poor security could lead to large losses.

A Spanish crypto payments platform was recently hacked for around $1.4 million, which is a small amount of money in the financial markets. Despite this, the firm is having a hard time covering the losses, which may be passed on to the people that trusted the firm with their tokens.

With the rise of DeFi, and smart-contract based derivatives, the need for centralized exchanges may shift over the coming years. The idea of an exchange that acts as a custodian for client funds is undoubtedly a hangover from the established financial markets, and may not be needed in the future.

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About Ben Armstrong

ef4f73e9ddeb61becab57469962fa946?s=90&d=blank&r=g New Research Finds Security Flaws at Leading ExchangesBen Armstrong is a YouTuber, podcaster, crypto enthusiast, & creator of Better known as BitBoy Crypto, he works hard to educate and inform the crypto community.

Ben has been involved with the world of cryptocurrency since 2012 when he first invested in Bitcoin. He used Charlie Shrem's BitInstant & lost Bitcoin in the Mt. Gox hack.

In 2018, Ben decided to go "full-time crypto" and focus all of his time and energy into expanding the reach of crypto.

If you have any questions or comments please feel free to email him at or contact him on Twitter @BitBoy_Crypto.