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Top 5 authentication methods for crypto exchanges and custodial wallets

As cryptocurrencies continue to see mainstream adoption, wallets and exchanges are becoming increasingly accessible to retail users. An unfortunate side effect is that the number of cyber security threats is also on the rise. Malware like keyloggers and clippers are becoming more sophisticated, as are phishing attacks, fake login pages, and counterfeit websites. Passwords present a particular weak point and are often where a security breach occurs. Not to mention, forgetting a password or losing a key could mean you’re locked out of your digital assets forever. Going passwordless addresses current and future threats and vulnerabilities facing cryptocurrency wallets and exchanges.

Why two-factor authentication (2FA) isn’t enough to protect cryptocurrency wallets and exchanges

When two-factor authentication (2FA) rolled out to the public about a decade ago, it was praised as a new frontier in cyber security. Cryptocurrency wallets and exchanges are popular applications for 2FA authentication, whereby users must enter their login credentials (username and password) on a website and then approve a push notification from their smartphone in order to access their account. Other 2FA methods include SMS (text message), U2F tokens, WebAuthn, and time-based one time passwords, which are generated by a QR code. Two-factor authentication protects against many security threats that target user passwords and accounts such as phishing and credential exploitation. However, the second factor can be prone to brute-force attacks and vulnerabilities like flaws in logic. 

Alternatives to passwords for cryptocurrency wallets and exchanges   

Passwordless 2FA based on FIDO2 and WebAuthn is the best way to protect against security threats and minimize human error. It also improves the user experience of trading, using, and storing cryptocurrency. Below are 5 of the most reliable authentication methods for crypto products:

1. Biometric Web Authentication

If you use a smartphone, you’re probably already familiar with biometric authentication methods like Touch ID and Face ID. But the capabilities extend beyond just apps on phones and tablets. Using only a few easy-to-use API endpoints, it’s now possible for websites to integrate biometric Web Authentication for secure and simple identity verification without passwords. Identity verification should be about who you are and not what you remember.

2. FIDO Security Keys

FIDO Security Keys, developed and supported by digital leaders like Google, Amazon, and Microsoft, allow users to securely access various digital services like cryptocurrency wallets and exchanges. Security Keys are built on the FIDO2 open authentication standard and work with public key cryptography to ensure login credentials are unique for every website, don’t leave the user’s devices, and are never stored on a server. Going passwordless with FIDO Security Keys means you’ll no longer have to deal with smart cards, password apps, or security tokens, nor legacy two-factor authentication methods like SMS codes or one-time passwords (OTP). Plus, users can move their identity across devices by using FIDO Security Keys on top of native biometrics like Touch ID.

3. Push Authentication

Push notifications aren’t just for cryptocurrency price updates and new token listings. They can also be used as a passwordless way for users to authenticate their identity. Push authentication works by sending a notification to a secure application on a user’s device and asking the user to confirm their identity. For example, a user logging in to their cryptocurrency trading website will receive a Touch ID pop-up in the service’s app. Service providers can integrate push authentication into any native app on iOS and Android or use a pre-built  white-label authenticator app. Also built on FIDO cryptographic protocols, push authentication is easier and more secure than methods like SMS and OTP.

4. Native App Biometrics & Device Binding

Device binding refers to linking a trusted device to an account and then using that device to authenticate the user through proof-of-possession. A primary example is signing in to a bank’s app only with Touch ID or Face ID, while a strong cryptographic authentication protocol is happening in the background. This results in a combination of two separate authentication factors (the biometric and the possession of the device) that complies with even the strongest regulations like PSD2 SCA.. An Authentication API and mobile SDKs make it dead-simple to build such a cryptographic signature-based, passwordless authentication flow using native app biometrics for cryptocurrency wallets and exchanges.  

5. Magic Link

Magic links offer a fuss-free entry into the world of passwordless authentication. This method works by emailing a user a link that, when clicked, allows them to directly login to the online service provider who issued the link. There is no need to remember a password, enter login credentials, or submit a one-time-use code. Magic links are ideal for frictionless authentication where the security requirements are not as high.

How to go passwordless with Hanko

Now that you’re aware of the many passwordless authentication methods available for securing cryptocurrency wallets and exchanges, the next step is choosing the right one and implementing it. That’s where Hanko comes in. Hanko provides crypto brokers with the tools and know-how to secure their logins with user-friendly phishing and fraud-proof authentication methods. 

Hanko’s Authentication API comes with demo code, example implementations, best practices, and detailed instructions required to build a robust FIDO-certified passwordless infrastructure. It’s all plug and play. The result? Your crypto products are set up with simple and secure regulatory-compliant passwordless authentication for a streamlined back office and pretty face on the front. And since your customers already employ the technologies – from biometric authentication like Face ID and fingerprint to security keys – for everyday tasks like unlocking their smartphone or logging in to online banking, they won’t need to change their habits. It’s all part of the same mission to make cryptocurrency more accessible to everyone. 

Passwordless authentication is ready for you to roll out. Hanko ensures you get in ahead of the adoption curve without the time, money, and stress of starting from scratch. For almost all digital service providers, and particularly cryptocurrency wallets and exchanges, middleware solutions like Hanko are a far safer, more cost-effective, and smoother way to make the transition away from passwords, legacy 2FA, and authentication apps toward passwordless cyber security. 

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