Crypto Exchange Security Checklist: 7 Features to Verify Before Depositing

December 11, 2025 By Janne Smith No Comments 11 minutes

The 2025 threat landscape leaves no room for guesswork. By mid‑year, attackers had already stolen more than 2.17 billion from crypto services,eclipsing the pace of 2024. A single record‑setting 1.5 billion breach at Bybit showed how quickly operational risks can concentrate when custody design and change controls falter-even as the exchange restored reserves within days.

For customers, deposit safety depends less on headlines and more on verifiable controls: segregation of client assets, robust offline storage policies, strong authentication, and clear incident playbooks.

Professional C-SEC officers at cryptocurrency exchange websites advise to treat security as a pre‑deposit due‑diligence task, not an afterthought-and the next section provides a fast checklist to review before moving any funds.

Note: We recommend connecting to FastestVPN when accessing crypto exchanges. Connecting to a VPN enhances your privacy via AES 256-bit encryption and protects against surveillance.

The 10‑Minute Exchange Security Checklist (Above the Fold)

To further break down the process, here’s a brief list of everything you must verify before making a deposit.

What to Verify Before Any Deposit

Experts on cyber sec recommend validating the following, using only what’s publicly documented by the exchange (Security page, Help Center, Legal/Blog, Status).

• Cold storage percentage and policy: Target >90% offline or a clearly disclosed hot/cold policy with rationale. Find: Security page → “Storage policy.”
• Segregated client assets: Assets held for customers should be segregated and beneficial ownership must remain with customers; sub‑custodians (if any) should meet equivalent standards. Find: Legal/Disclosures → “Custody” or “Client asset segregation.” Key Security Features to Look For in a Cryptocurrency Exchange Before Depositing Funds
• Phishing‑resistant login: Native passkeys/WebAuthn (FIDO2) and optional hardware keys (U2F). Support: “Passkeys/U2F?”
• Withdrawal protections: Address allow listing plus a 24‑hour lock on new addresses. Find: Help Center → “Whitelist/Withdrawal lock.”
• Reserves and solvency transparency: Proof of Reserves paired with proof of liabilities (user‑verifiable leaves/zk) or, better, audited financials/SOC reports.

Note: PoR alone is point‑in‑time and doesn’t prove solvency or controls.

• Security program assurance: SOC 2 Type II or ISO 27001 in scope for relevant systems; recent penetration testing; documented secure SDLC.
• Regulatory footing: Where relevant, MiCA/DORA status in the EU; NYDFS‑aligned custody disclosures in New York. Find: Legal/Regulatory or footer “Licenses.”
• AML/sanctions controls: Clear OFAC/AML statements and recent transparency on enforcement responsiveness. Find: “Compliance/AML.”
• Incident transparency: Status page, post‑mortems, and bug‑bounty program with responsible disclosure policy.

Use this list before any first deposit; if two or more items are missing or vague, reconsider.

Custody Architecture and Segregation of Client Assets

Hot vs. Cold Storage, Mpc/Hsm, and Sub‑Custody Risk

The simplest defense against exchange‑wide theft is minimizing online attack surface. Policies that keep the majority of assets in cold storage (>90%) reduce keys exposed to internet‑reachable systems; hot or “warm” wallets should have low, disclosed thresholds and multi‑party controls.

Modern custody stacks often combine MPC (to eliminate single‑key failure) with HSMs or dedicated signing enclaves, enforcing quorum‑based approvals and change management on address books, spend limits, and key ceremonies. Disclosures worth scanning: hot/cold ratios, signing model (MPC/HSM), operational limits, and emergency kill‑switches. Key Security Features to Look For in a Cryptocurrency Exchange Before Depositing Funds

If an exchange relies on a sub‑custodian, expect equivalent or stronger standards downstream: independent assurance reports, breach notification SLAs, and explicit segregation for your assets at the sub‑custodian. Regulators increasingly view sub‑custody as a first‑order risk, not a footnote. Key Security Features to Look For in a Cryptocurrency Exchange Before Depositing Funds

Segregation and Beneficial Ownership

Segregation is non‑negotiable. Client assets must remain separately accounted for and clearly identified, with the beneficial interest staying with customers-even in insolvency. Some exchanges use omnibus wallets operationally, but they should maintain precise internal ledgers, reconciliations, and audit trails demonstrating which portion belongs to which customer at all times. In plain terms: if segregation and beneficial ownership aren’t explicit in public disclosures, the risk of commingling-and recovery uncertainty in a failure-rises. Key Security Features to Look For in a Cryptocurrency Exchange Before Depositing Funds

Proof of Reserves vs. Proof of Solvency and Financial Assurance

The Limits of PoR

Traditional Proof of Reserves is mostly an on‑chain asset snapshot at a point in time. It typically doesn’t cover liabilities, the effectiveness of internal controls, or whether assets were borrowed to window‑dress a snapshot. The PCAOB’s Investor Advisory has cautioned customers not to treat PoR as an audit or as meaningful assurance about solvency. Better signals include independent financial audits, SOC 2 Type II covering critical systems, or PoR paired with formal proof of liabilities.

Better Transparency Patterns

A stronger standard pairs asset proofs with liabilities proofs: users get a verifiable Merkle “leaf” and can confirm inclusion without exposing balances; zk‑SNARK circuits can also assert that leaves sum to total liabilities and are non‑negative-closing common PoR gaps. Open‑source implementations and regular attestations improve trust and repeatability, especially when exchanges publish verification code and step‑by‑step user checks. If you see PoR + liabilities with user‑verifiable leaves and zk proofs, you’re closer to a real proof of solvency.

For readers who want to validate the approach, look for repositories and technical notes that describe how Merkle roots are constructed, how inclusion proofs work, and how zk circuits enforce constraints-then confirm the exchange’s published root matches your leaf.

Account‑Level Protection That Should Be Non‑Negotiable

Passkeys/u2f Hardware Keys and Phishing Resistance

In 2024-2025, passkeys (FIDO2/WebAuthn) moved from “nice‑to‑have” to baseline. Enterprises report rapid rollouts, and consumer adoption surged in 2024, with major platforms enabling passkey sign‑ins across billions of accounts. For exchange users, the benefit is tangible: hardware‑backed authentication resists phishing, SIM swaps, and OTP interception. Specialists advise enabling passkeys and registering at least one backup security key wherever supported; check your exchange’s settings or Help Center for passkey/WebAuthn support before depositing.

Anti‑Phishing Codes, Device/Session Controls, API Key Scopes

Exchanges should help customers verify authentic communications and clamp down on account drift over time. Look for: anti‑phishing codes embedded in official emails, device approvals and removal flows, visible session histories, and granular API permissions (read/trade/withdrawal scopes, IP allowlists). If you can’t set these from the Security page in minutes, treat it as a red flag.

Withdrawal and Deposit Safeguards

Allow Listing and Timed Withdrawal Locks

Address allowlists restrict withdrawals to pre‑approved destinations; a 24‑hour lock on newly added addresses buys time if a takeover occurs. Well‑designed UIs make allowlisting obvious and show change histories, while lock disablement should also have a 24‑hour cooling‑off period. Keep these protections enabled at all times, and test them with a small transfer before your first significant deposit.

Travel Rule Experience and Transparency on Holds

If an exchange pauses a deposit or withdrawal, it may be performing Travel Rule checks (verifying originator/beneficiary information). Strong platforms explain requirements up front, provide status visibility, and guide users through ownership declarations or third‑party verification. Expect clearer, more consistent handling in the EU as EBA Travel Rule guidelines applied from December 30, 2024.

Operational Security, Audits, and Bug Bounties

SOC 2 Type II / ISO 27001, Secure SDLC, Pen Testing

Independent attestations don’t make a platform unhackable, but they do evidence disciplined processes. SOC 2 Type II validates control design and operating effectiveness over time; ISO 27001 confirms an information‑security management system is in place. Look for scope statements that actually include the exchange’s critical systems (custody, wallet ops, KMS), recent penetration test summaries, and secure SDLC documentation. Absence of third‑party assurance is a signal to proceed cautiously.

Responsible Disclosure and Bounty History

A mature security culture invites scrutiny and fixes issues fast. Signs include a clear responsible‑disclosure policy, an active bug‑bounty program with defined SLAs, and candid incident write‑ups. In 2024, for example, Kraken disclosed and patched an isolated funding bug quickly while underlining strict bounty rules-illustrating both rapid mitigation and process discipline. Review an exchange’s bounty page and past disclosures before trusting it with capital.

Regulatory Posture, AML/Sanctions Controls, and Jurisdiction

Mica and Dora Readiness in the EU

In the EU, MiCA’s CASP regime has applied since December 30, 2024, with member‑state transition windows ending no later than July 1, 2026. Meanwhile, DORA-live since January 17, 2025-elevates operational‑resilience expectations (incident reporting, third‑party risk registers, testing). Practical takeaway: check whether an exchange is authorized (or in transition) under MiCA, and whether it publishes DORA‑aligned operational‑resilience statements. These signals show preparedness to meet rising European baselines.

Nydfs Custody Guidance and U.S. Enforcement Signals

For U.S. customers, New York’s updated custody guidance (September 30, 2025) reiterates that equitable and beneficial interest must stay with customers, sets expectations on sub‑custodian oversight, and stresses disclosures around insolvency. On AML/sanctions, recent Treasury/OFAC actions against non‑compliant venues demonstrate why exchanges must implement robust screening and escalation. Customers should look for explicit NYDFS‑style custody language and current sanctions/AML statements.

Insurance, Disclosures, and Incident Response Transparency

What Insurance Does-and Doesn’t-Cover

Some exchanges carry crime insurance for hot‑wallet losses, but coverage is limited, subject to exclusions, and usually doesn’t compensate for account‑takeover losses. Disclosures should name the type of policy, scope, and any caps. A helpful data point: leading U.S. venues publicly state that most assets are stored offline (e.g., “over 98% in cold storage”), with only a portion of hot‑wallet balances insured. Treat “insured funds” claims skeptically unless the policy, limits, and exclusions are clearly stated.

Incident Response SLAs and Transparency Reports

Before depositing, scan for a status page, defined communication channels, RTO/RPO targets, and a history of prompt, substantive post‑mortems. Prior incidents handled quickly and transparently-paired with visible improvements-can be a positive signal. If you can’t find a status page or any historical incident write‑ups, assume limited operational readiness.

Red Flags and a Professionals Due‑Diligence Workflow

Red Flags

Watch for these warning signs:

• No passkeys/U2F support; only SMS 2FA
• No withdrawal allowlisting or 24‑hour lock
• Vague custody claims; no hot/cold ratios; no MPC/HSM detail
• PoR without liabilities proofs, no auditor info, or one‑off, outdated snapshots
• Inconsistent regulatory statements (e.g., unclear MiCA status)
• No bug‑bounty or disclosure policy; thin or absent incident history
• No AML/sanctions disclosures while serving sanctioned geographies

If two or more appear, either size the deposit accordingly or walk.

The 15‑Minute Workflow

Experts’s quick evaluation flow:

1. Security page: note cold/hot ratios, MPC/HSM, and authentication options.
2. Reserves/assurance: open PoR and check for liabilities proofs or audited financials; note auditor and date.
3. Licensing: verify MiCA authorization/transition where relevant; in the U.S., look for NYDFS‑style custody language.
4. Withdrawals: confirm allowlisting and a 24‑hour lock; try a small whitelisted test.
5. Security culture: find a bug‑bounty page and at least one substantive incident post‑mortem.
6. Compliance: read AML/sanctions statements and look for references to OFAC/EU standards.

How Professionals Evaluates Partners (Perspective)

Criteria Professionals Prioritizes

From a company perspective, real experts favor partners that can evidence strong custody segregation and key management; offer passkeys and withdrawal allowlisting by default; maintain independent assurance (e.g., SOC 2 Type II or ISO 27001) and timely pen‑test cycles; demonstrate clear MiCA/DORA progress in the EU and NYDFS‑aligned custody language in the U.S.; and publish transparent incident and bounty histories. This approach aims to protect customers’ deposits while keeping the user experience straightforward and auditable.

Conclusion and Takeaway Checklist

Print‑and‑Use Checklist

Before depositing your first dollar, verify:

• Custody: disclosed hot/cold policy (>90% cold preferred), MPC/HSM signing
• Segregation: customer assets segregated; beneficial ownership stays with customers
• Login security: passkeys/U2F available and enabled
• Withdrawals: address allowlisting + 24‑hour lock on new addresses
• Assurance: PoR with liabilities or audited financials/SOC 2 Type II
• Regulatory footing: MiCA/DORA status (EU) or NYDFS‑aligned custody language (U.S.)
• Transparency: bug‑bounty, status page, recent incident post‑mortems

The view is straightforward: verify these seven items before you deposit $1. Your capital-and your peace of mind-are worth the extra minutes.