How to Protect Yourself from Exchange Hacks
Crypto exchanges get hacked. Billions have been lost to exchange hacks. Here is how to protect your funds whether you use centralised or decentralised exchanges.
Exchange hacks are a feature of the crypto landscape, not a bug. Centralised exchanges hold billions in user funds, making them the highest-value targets in the crypto ecosystem. FTX ($8B), Binance ($570M), Bybit ($1.5B in 2025) — major exchanges get compromised regularly. Here is how to protect yourself.
The Self-Custody Principle
The fundamental protection: not your keys, not your coins. Funds held on an exchange are the exchange's liability, not yours. When an exchange is hacked, withdrawals freeze. When an exchange goes bankrupt (FTX), users become unsecured creditors. The only guaranteed protection against exchange risk is holding your own private keys in a self-custodial wallet like Steyble. If you must use an exchange, use it for trading only — withdraw to your wallet after each session.
Exchange Security Best Practices (For Funds You Must Keep There)
- Enable hardware 2FA (YubiKey) — stronger than authenticator app against SIM-swap
- Whitelist withdrawal addresses — funds can only be withdrawn to pre-verified wallets
- Use a dedicated email address for exchange accounts — not your main email
- Enable withdrawal delay (24-48 hours for new addresses) — buys time to detect compromise
- Check exchange proof-of-reserves: Binance, OKX, Bybit publish monthly Merkle tree proofs
The Risk Tiering Approach
- Active trading funds (use exchange): keep only what you actively need to trade
- Settlement funds (brief exchange visit): withdraw to self-custody within 24-48 hours of buying
- Long-term holdings (never on exchange): always in self-custodial hardware wallet
- Emergency liquidity buffer: small amount in Steyble wallet — immediate access + self-custody safety
- Rule of thumb: anything over £1,000 should be in self-custody for amounts you cannot afford to lose