Cryptocurrencies, and especially Bitcoin, have gotten a lot of bad publicity and reputation over the years. This has come as a result of them being used by some for nefarious reasons and in other cases, because their price volatility has seen many lose their money "investing" in them.
Nonetheless, in the same breath, this has raised the curiosity of many Afrikans who are not ICT inclined to start buying and using the likes of Bitcoin in their day-to-day lives. This uptake and popularity is evidenced by how South African founded and now international cryptocurrencies exchange, Luno, now has 1,8 million customers.
Timothy Stranex, Co-founder and CTO at Luno.
"Luno has never been hacked and now have over 1,8 million customers who trust us to look after their Bitcoin and Ethereum. Unlike most exchanges, Luno has bank level security based on our experience working directly with banks. We store funds using multi-signature security with independent security partners. Private keys are split across different bank vaults around the world. This means that it is impossible for a single individual or group to steal them," explained Timothy Stranex, Co-founder and CTO at Luno, to iAfrikan on the importance of security when it comes to building and running a cryptocurrencies exchange.
"In addition to powerful technology, we also have an incredibly smart and competent team working behind the scenes to ensure that Luno really is the safest and easiest platform to buy/sell, store or transact with cryptocurrencies like Bitcoin and Ethereum. This includes people from major tech companies like Google and Amazon as well as major banks like Morgan Stanley and Barclays," added Stranex.
Security and multisignature wallets
As Stranex pointed out how Luno takes security seriously and the fact that they haven't been hacked before, some in the cryptocurrencies ecosystem have highlighted how exchanges that use multisignature (multisig) wallets, like Luno does, are more likely to get hacked. Put simply, a multisig wallet requires more than one key to authorize transactions on it, but, more importantly and why some think it is a security risk, in the case of exchanges like Luno it also means their customers don't have access to their wallet keys.
However, Stranex says they have put in place several mechanisms in place to ensure that Luno does not suffer the same fate of other exchanges which were hacked and customers lost all their Bitcoins to criminals.
"There have previously been some high profile hacks of Bitcoin Exchanges. However, these didn't happen because Exchanges are inherently unsafe - they were the result of poor security from companies that weren't committed to keep their customers' money safe," said Stranex.
This is why, according to him, Luno is unlikely to get hacked as it maintains a multi-signature hot wallet and furthermore splits the key between themselves and information security company, BitGo. A hacker would have to break in both systems to access the key.
"Luno takes security even further. Sensitive customer information- especially passwords - is stored in a hashed form so absolutely no one can access it (not even Luno's team.) We also carry out regular financial and security audits to test the systems. Storing money in a Luno Wallet is as secure as storing it in a bank."
It is clear from Stranex that security is paramount in building and running an
exchange. More importantly as more and more people are starting to use Bitcoin either as an asset, currency, and in some growing cases as a money remittance solution. Digital security is even more important for a cryptocurrencies exchange considering that all the assets and transactions they handle are digital and on the Internet.
The question remains unanswered however, is it still not risky not to allow customers to have their own keys?
"There are pros and cons to both having your own private key and not having it. Although some people may prefer to store their private key themselves for the element of control, this carries huge risks and is too complicated for the majority of users. For example, if you store your private key on your phone, you will completely lose access to your money if it's lost, stolen or hacked. Luno makes that process simpler and safer by taking your private key and securing it across multiple bank vaults on different continents, with strict access controls like retina and fingerprint scanners," said Stranex.
The other solution that some have suggested is that we should perhaps start looking at making exchanges more decentralized. Stranex doesn't seem to agree with this.
"Decenteralised exchanges have a place and are a nice idea in theory, but centralised exchanges are the best option for most Bitcoin users. Luno stores private keys because this makes for better security and a simpler platform to use."
Perhaps, for non-technical custimers a centralized exchange is the solution especially if we want to increase adoption of Bitcoin and reduce the "friction" of creating your own wallet. Maybe exchanges should have both options, but for now this remains a theoretical discussion as Stranex points out.
Building an exchange
Apart from security, which is definitely key when one is building an exchange, other technical factors need to be considered. This is necessary especially considering that adoption of cryptocurrencies is still at early stages and the market is likely to going to grow even further.
Some of those factors to consider include:
Data analytics: this mostly speaks to an exchange's ability to analyze client data in real-time.
Scalability: choosing a cloud partner, like Luno did with Amazon Web Services, is key because their infrastructure needs to be able to accommodate the growth of an exchange without any disruption of services. The ability to elastically scale services globally without consuming precious engineering resources is very important for a growing exchange.
"Using Amazon Web Services lets Luno build fully scalable systems, capable of handling millions of customers. Using AWS means that all of Luno's data is securely stored, always accessible to us, the servers are maintained correctly, and there's no risk of running out of storage," said Stranex.