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Security is a trending topic in the blockchain industry: How to protect your funds against hackers? How to store the private key? Who should be responsible if a DeFi platform is hacked? These and many other questions related to security issues cause a headache both to the cryptocurrency service providers and their clients.
With the market maturing, a lot has been learnt by trial and error. Past hacker attacks have forced the venues to improve their security measures. At the same time, as the number of cryptocurrency users has multiplied across the globe, the regulators started taking steps towards creating a legal framework that should give more security and guarantees to traders and investors.
Lykke is committed to guaranteeing the highest standards of security for its users
At Lykke, to ensure that our system is secure and free from illegal activities, we combine both the technical security measures and the highest compliance standards. On the compliance side, there’s a number of measures that allow us to create a safe trading environment in which our clients can be sure not to be unknowingly involved in money laundering or similar crime.
The three tier KYC
Lykke has a three tier Know Your Customer verification system. When a new customer downloads the app or registers to use the web terminal, they start immediately at the first tier. The first tier allows the user to explore the app and see what cryptocurrencies and national currencies are available for trading. However, at tier one you cannot deposit funds or trade. The second tier is the one that allows you to start depositing money and trade cryptocurrencies. The procedure to upgrade to the second tier is very easy and fast: you just need to get your ID, selfie, and proof of address verified. All these data are safely stored in our system. At the second tier, you can trade all available pairs with zero trading fees and make crypto and fiat withdrawals within the monthly approved limit. The third tier allows professional traders to extend their monthly deposit limits. To get approved for the third tier the users have to submit a Source of Funds document.
AML & CFT
Anti-Money Laundering and Combating the Financing of Terrorism regulations are an important component in a crypto exchange’s security architecture. Since the very beginning, Lykke has maintained high standards in the fight against money laundering and financing terrorism. From this point of view, Lykke has become an example in the crypto space and the fintech industry both in Switzerland and on the European level. Lykke collaborates with Chainalysis to identify and report suspicious transactions within the AML and anti-crime legal frameworks. Chainalysis is a recognized leader in the industry in which we trust to perform due diligence risk assessment for our on-chain transactions. Our high AML & CFT compliance standards is what gives our users the peace of mind because they know that they do not trade against persons or entities involved in illegal actions.
The OpenVASP initiative
In March 2021, the Financial Action Task Force (FATF) released a package of proposed updates to its 2019 regulations. In summary, the proposals suggest considering DeFi protocols and stablecoins’ operators as Virtual Asset Service Providers (VASPs). This implies that such non-custodial service providers will also have to comply with AML and CFT regulations. The core idea of such regulations is the traceability of transactions, commonly known as the “Travel rule”. Under the Travel Rule, the service providers have to record and exchange the ID data of the originators and beneficiaries of all transfers of digital funds to enable traceability of transactions.
In July 2021, the European Commission came out with a similar proposal, aiming at extending the European AML / CFT regulations to all cryptocurrency service providers and not just certain categories that fall under these regulations at the moment. The main idea of the proposals is to make all crypto transactions traceable and ban anonymous custodial cryptocurrency wallets. In other words, the European Commission is advocating introducing on the European level a sort of a Travel Rule and extending its application to a wide range of cryptocurrency service providers.
However, these developments are not a surprise for cryptocurrency companies and their compliance teams. At the end of 2019, Lykke, together with other three Swiss blockchain industry leaders - Bitcoin Suisse, SEBA, and Sygnum - created a working group to develop an open source technological solution necessary to comply with the Travel Rule regulations. This is how the OpenVASP association was born. At the moment, the association comprises more than a dozen of industry leading members and offers a fully-functional protocol that enables the Travel Rule compliance within the OpenVASP network.
Security Measures from the technical point of view
Apart from creating a safe environment in the cryptocurrency marketplace, Lykke offers its clients a cryptocurrency exchange platform with a robust architecture and enhanced security measures to access it. Lykke is a centralized exchange, which means that the users’ trading wallets are custodial. To protect the funds in Lykke’s custody, we implement such standards as encryption of the hot wallet keys and constant monitoring against potentially harmful activities. Moreover, the users’ funds are protected by ensuring that the access to the user’s wallet is only possible through a two-step authentication process.
Setting up your account and secure trading
Even if trading through a web terminal at a big screen is handier, you need your mobile device to generate your private key. Moreover, your encrypted key is stored on your mobile device. When setting up the account for the first time, the user has to fulfill the following steps to ensure the access to the wallet is secure. You will need your cell phone to perform these operations:
- Create a password and a PIN code and safely store them offline.
- Verify your cell phone number and your email address. These data are essential for you to access your wallet.
- Put down and safely store offline the 12-word seed that represents your encrypted private key. These words are also needed to change the password or PIN, and it can be done only from the mobile device.
In case you don’t want to use your cell phone to confirm transactions when trading at the web terminal, you can set up a Google two factor authentication access.
At Lykke, we are committed to creating a safe and crime-free trading environment together with maintaining high security standards on the technical side of the question.
Download the Lykke Wallet App and start secure crypto trading now!