Cryptocurrency Exchange Operators Need To Vet Altcoin Source Code Before Adding Coins

Running a successful cryptocurrency exchange is not as easy as people might assume. Not only will operators have to keep an eye on the servers and trading engine to make sure everything runs smoothly, but new coins will have to be added over time as well. However, that doesn’t mean just any altcoin should be added, especially not without vetting the source code.

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The Altcoin Problem On Cryptocurrency Exchanges

TheMerkle_Altcoin Problem Exchanges

Unlike what most people might assume, running a cryptocurrency exchange is not just about finding new customers looking to trade on a new platform. There are a variety of security concerns to take into account. Hacking an exchange platform is a real threat, but some threats come from within as well.

Whenever an exchange operator decides to add a new digital currency – the so-called altcoins – there is always a risk of adding a coin which hides dubious code in its executable. As people are well aware of, adding new coins to an exchange means the operators have to run one instance – or multiple instances – of that digital currency’s native wallet to cope with all of the incoming and outgoing transactions at full speed.

Running any type of program on a server or computer brings additional security risks to the table. Cryptsy found that out first hand, as their official explanation for going bankrupt comes in the form of an added altcoin that allowed hackers to empty wallets over time. Whether or not this is the true story, remains to be seen, and is a discussion we will table for another day.

That being said, this is one of the major dangers when it comes to running an exchange platform that not only focuses on Bitcoin, but on altcoins as well. Very few exchange operators will audit the source code of these coins waiting to be added. In most cases, this will not cause a problem for the platform itself, but there are some exceptions.

Any type of altcoins wallet can hide malicious code in the source, which would give assailants a backdoor into the exchange platform’s servers. Even though the wallet servers are separated from the main PHP part of the platform, a lot of harm can be done this way. If an assailant could take control of that particular server running a fair few altcoin wallets, they can manipulate a ton of funds in a short amount of time.

Exchange operators have the responsibility to vet the source code of every individual altcoin they decide to list. Not just to cover their own behinds, but also to protect users from pump and dump schemes though third-party manipulation. However, those schemes can not be prevented entirely, as not all of these events take place on the backend of an exchange.

Source: Cryptsy Blog

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