Is Poloniex Safe?
In the past, crypto enthusiasts had two options if they wanted to get their hands on Bitcoin – they could either mine the coins themselves or join a Bitcoin forum and beg one of the members to trade the coins to them over-the-counter.
The increased demand for Bitcoin soon brought about the first Bitcoin exchanges on the Internet. These were centralized or peer to peer platforms where users could buy, sell, transfer, or trade Bitcoin for fiat currencies.
Nowadays, it’s quite challenging to decide on the right exchange with so many to choose from. In order to help you with this task, today we’ll be talking about Poloniex, a popular platform with traders around the world.
The focus will be on Poloniex’s security measures and whether or not you should trust this exchange with your funds.
Poloniex is an American crypto exchange founded in 2014 and headquartered in crypto-friendly Wilmington, Delaware. Its founder, the entrepreneur Tristan D’Agosta, used to work as a musician and freelance composer before showing an interest in crypto projects.
In 2018, the platform was acquired by Circle, a peer-to-peer payment technology company under whose guidance the exchange started complying with US financial regulations. Among other things, Poloniex is famous for being the first crypto exchange to hit $1 billion in trading volumes.
The disadvantage of using Poloniex if you’re a beginner is that you can’t deposit and trade with fiat currencies. If you haven’t traded with crypto before, you would have to use another platform to convert your money. On the other hand, Poloniex makes up for the lack of fiat support by offering a pleiad of digital coins, from the most popular to the most obscure ones.
Poloniex uses the maker and taker fee schedule that takes into account your trading volume as well. If they’re trading less than 600 BTC, makers are charged 0.15% while takers are charged 0.25%. The maximum amount that you can withdraw from the exchange is $2,000 unless you complete a higher level verification check to access a higher tier of $25,000.
Shortly after Circle acquired Poloniex, the exchange was recognized by FINRA as a Broker/ Dealer and registered as an Automated Trading System (ATS). This means the exchange complies with AML and KYC policies and verifies the user’s identity before accepting his/her application.
Poloniex has been a favorite among traders until 2019 when the platform experienced a major security breach. On May 26, 2019, Poloniex survived a flash crash as a result of a serious price drop of an altcoin called CLAM. In less than an hour, the CLAM/BTC margin trading pair was frozen causing severe losses for Bitcoin margin lenders.
To solve the situation, Poloniex decided to “socialize”, i.e. borrow customer funds, and try to cover for the loss by taking 1,800 BTC from active BTC margin loans. Unfortunately, this created an even bigger mess as it spread the loss to active BTC lenders too. These 1,800 BTC equaled $13.5 million back then!
In June 2019, Poloniex reimbursed 180 BTC to 10% of the affected users. The next step was paying back the trading fees in BTC to users who have suffered losses in the crash. In 2020, the exchange deposited a payment of 0.0047 BTC to every impacted customer and announced that 1,100 customers have now been fully repaid.
This significant breach has definitely cost Poloniex the trust of the majority of its customers, most of whom have turned to other exchanges after the incident. On the other hand, the company has been quick in taking action to solve the problem in a transparent manner and has apologized multiple times to the damaged parties.
If you really care about securing your account, enabling the two-factor authentication method (2FA) is a must. If you use the same combination of an email address and password on multiple platforms and social media, there’s a bigger chance they’ll get stolen at one point.
To prevent this, all you need to do is activate the 2FA when you register for an account and add an additional security level to your account. Every time you log into your account, the system will ask you to provide a one-time passcode generated by either your mobile device or a third-party authenticator app.
It’s definitely worth investing in a hardware security key (e.g. YubiKey) rather than relying on an SMS code sent to your smartphone.
Self Freeze Email
In case of an unauthorized login, i.e. an attempt to log into a user’s account from an unknown IP address, Poloniex automatically sends a self freeze email to the user in question. The email will be sent from firstname.lastname@example.org and it will include the subject “Successful Login from New IP”.
The email will contain a link to freeze the account if the user feels his/her account has been compromised and prevent the outsider who managed to gain access from making any changes. If your account is frozen, you won’t be able to trade or withdraw funds.
API Key Security
API keys give you access to your account without having to log in or pass the two-factor authentication method. Therefore, it’s very important to enable the feature right before you use the API key and deactivate it when you’re done. Otherwise, you’re putting your account at risk.
Another necessary step is to delete the API key when you’re no longer using it and use a new one for every application or platform.
Poloniex has experienced not only the thrill of being on the top with the highest trading volumes and the number of customers but also the perils of being too close to the bottom due to one incident.
In the end, what matters the most is the perseverance of the exchange and the readiness to tackle the challenges that the crypto industry throws into its way.
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Disclaimer: Digital currencies and cryptocurrencies are volatile and can involve a lot of risk. Their prices and performance is very unpredictable and past performance is no guarantee of future performance. Consult a financial advisor or obtain your own advice independent of this site before relying and acting on the information provided.