Ever since bitcoin was launched in 2009 as the first decentralized digital currency, it has had an increasing impact on the way many people do business. After bitcoin, hundreds of other cryptocurrencies have been created, and crypto trading involves hundreds of millions of dollars each day. Cryptocurrency trading is done on crypto exchanges, and there are almost as many exchanges as there are cryptocurrencies. Some exchanges are small, while others are large, well-known sites that manage hundreds of thousands of transactions per day. This article will focus on one of these large exchanges and answer the question: Is Kraken safe?
Let's start with a little history:
Birth of Kraken:
In 2011, Mt.Gox was the world's largest bitcoin exchange, with about 80% of bitcoin transactions worldwide. Visiting its offices, Jesse Powell noticed some unsettling errors and decided to begin work on an exchange that would not be affected by the perceived security issues. This led to the founding of Kraken in 2011. Mt.Gox itself would end up filing for bankruptcy in 2014.
What is Kraken?
Of course, Kraken is a cryptocurrency exchange. In other words, it's a web service where registered users can trade cryptocurrencies. But Kraken not only allows trading between cryptocurrencies but these digital assets can also be traded with fiat currency (what some people call “real money”; namely, national currencies like the US Dollar, Brazilian Real, Japanese Yen, etc.). Currently, Kraken trades in 20 cryptocurrencies (Bitcoin, Ethereum, Litecoin, Bitcoin Cash, Ripple, Zcash, Dash, EOS, Stellar, Ethereum Classic, Monero, Qtum, Augur, Cardano, Cosmos, Dogecoin, Tezos, Gnosis, Tether and Watermelon) and five fiat currencies (US Dollars, Canadian Dollars, Japanese Yen, Euro and Great Britain Pounds).
Kraken offers services not typically found on other exchanges, such as both dark pool and OTC trading, margin trading, and futures trading. Some of these features might be overwhelming for newbies, but are very much appreciated by expert traders.
Some exchanges have suffered various forms of cyberattacks, and some have been hacked, with losses totaling hundreds of millions of dollars. So, one of the first issues a crypto exchange must face is security.
How Safe is Kraken?
Kraken was built with security in mind. After all, it was perceived security issues in Mt.Gox that led to Kraken's creation. Powell understood that a successful exchange had to start by earning its user's trust. Kraken is one of the first-ever exchanges to keep their customer's money safe using a proof of reserves audit. Yes, trading on Kraken exchange is generally safe.
So, what security features are in place?
- Cold wallets: 95% of all deposits on Kraken are kept in offline, cold wallets. In the case of hacks or server failures, most funds are protected.
- Server security: Kraken's servers are stored in cages, under 24/7 surveillance by armed guards and video monitors. All-access to servers is tightly regulated and controlled.
- Information security: all accounts and other sensitive information are totally encrypted, at both system and data levels.
- Testing: Kraken maintains a team of experts dedicated to testing the system's vulnerability to any kind of cyber attack.
- Mandatory 2FA, via Google Authenticator or YubiKey.
- No account recovery via Phone/SMS.
- E-mail confirmation for withdrawals.
- PGP signed and encrypted emails.
- Multi-tiered verification system (more on this below).
But security isn't the only factor. In order to be successful, an exchange also needs to be trustworthy. Users need to feel that they can trust the company with their money, accounts, personal information, and other sensitive data.
Is Kraken Trustworthy?
Security can be implemented with surveillance, encryption, 2FA, and other protocols. But trust must be earned by actions that make users feel comfortable with the way the company handles both funds and information.
What has Kraken done to make users feel they can be trusted?
Proof of reserves audit:
Kraken has been audited to prove that its reserves exceed the amount of funds users have on the platform. In other words, in case of a crash, hack, or other catastrophic failures, Kraken has enough reserves to cover all user's funds. Users can cryptographically verify that the funds in their individual accounts are covered by the exchange's reserves.
Kraken's CEO is well known, as well as the company's headquarters in San Francisco. Also, the company's investors are public.
Kraken maintains relations with German banks, the Government of Tokyo and has been featured in Bloomberg, the New York Times and the Wall Street Journal.
In a nutshell, Kraken is a secure, trustworthy crypto exchange platform, that allows trades between several fiat currencies and crypto tokens. When compared to other exchanges, Kraken is one of the best choices for trustworthiness.
Is Kraken Safe to buy Ripple?
Kraken offers a secure, trustworthy platform for buying all the tokens it supports, including Ripple. However, in some countries, it is necessary to have a Tier 3 level verification in order to buy Ripple. So, is Kraken safe to actually buy ripple from? Yes.
Kraken's Multi-Tier verification explained:
As mentioned above, Kraken's user verification is multi-tiered. Each tier has certain limits and requirements. Most users use tier 1 or 2 verification, with higher tiers for users who trade in higher volumes or have certain requirements. Here is a brief explanation of all tiers:
- Tier 0– This tier only requires an email address. User in this tier, however, can only navigate the site and see how everything looks and works, but are not allowed to trade.
- Tier 1– Users can only make deposits and withdraws in cryptocurrencies only. However, trading is enabled in both digital and fiat currencies. This tier requires users to input their full name, date of birth, country, and phone number. There is no deposit limit, but withdrawals are limited to 2,500 USD per day or 20,000 USD per month.
- Tier 2– Deposits, withdrawals, and trading in digital currencies are available. Tier 2 users can deposit and withdraw fiat currencies depending on the country where they live. In fiat currency, limits are 2,000 USD per day and 10,000 per month. Cryptocurrency withdrawals are capped at 5,000 USD per day and 50,000 per month.
- Tier 3– Higher levels of fiat currency funding are available to Tier 3 clients. This tier requires a valid Government ID and a recent proof of residence. Fiat deposits and withdrawals are limited to 25,000 USD daily and 200,000 USD monthly. Withdrawals in digital currencies are limited to 50,000 USD per day and 200,000 USD per month. Countries such as the US, Canada, Japan, and Germany, require a Tier 3 verification in order to deposit and withdraw in fiat currency.
- Tier 4– Allows for the highest levels of funding limits. Tier 4 users can be both individuals and corporations and are best advised to contact the support department in order to clarify their requirements.
If, after reading the information, you wish to start trading on Kraken, here's a brief tutorial on how to set up an account:
Getting Started on Kraken:
- Head over to the Kraken website, and click on “Create account” in the top right.
- Fill in the required information (email, username, and password), agree to the terms and conditions, and click on “Create account”. An activation code will be sent to the email address you entered.
- Open the email you received, and click on the link provided. Click the “I'm not a robot” box in the captcha and then on “Activate account”. Kraken will send you another email explaining the services offered in your country or region, and you will also be directed to the Kraken website to set up your 2-factor account verification.
- If you choose the software 2FA option, via apps like Google Authenticator or Authy, click the appropriate button, which will show you the QR code that must be scanned with the authenticator app.
- After enabling 2FA, you will be taken to the initial dashboard. At this moment, your account is tier 0 verified. You can poke around the site, but will not be able to do any trading. To verify your account to tier 2 and start trading, click the “Get Verified” button:
- You will be taken to a screen where you can select the type of account you wish to verify, among three options: Starter, Intermediate or Pro. Information about each account type is displayed, including if fiat trading is available, daily and monthly limits for fiat and crypto, and the information required. To verify a starter account, click the appropriate button, and you will be taken to the next screen.
- Fill in the required information in the proper fields (full name, address, phone number and date of birth) and then click on “Submit”.
- After submitting your information, the system will inform you that the verification process will take up to 24 hours. Once verification is completed, you will be notified via email and will be ready to begin trading on Kraken.
That's it. Creating and verifying an account on Kraken is pretty fast and straightforward. In the 24-hour wait for verification, you can explore the site and understand the interface. The platform can be a bit overwhelming for newbies; more so than other exchanges. However, once the new user gets used to it all, they can access some trading tools and options that are not available on many other exchanges. Once the account is verified, all that remains to be done is to deposit some funds (in one of the supported crypto tokens only, for starter accounts) and start trading for other tokens or for fiat currency. But remember that starter accounts won't be able to withdraw fiat from Kraken.
So is Kraken safe to use for crypto trading? We say yes, but use caution whenever dealing with exchanges. Things can change fast in the world of crypto, so staying up to date on the industry and companies is important for your protection.
Leave a comment below if you have any questions!
See Also: Transfer Bitcoin From Coinbase to Kraken