Cryptocurrency Exchanges: Are They Beneficial to The Industry?
Recently, the crypto market has seen an increased number of Cryptocurrency Exchanges, which are Crypto-based trading platforms, on the headlines. The first was The Daily Mail report on Ben Delo who is the co-founder of the BitMex cryptocurrency exchange. The report defined Dolo as Britain’s youngest self-made billionaire and the first “bitcoin billionaire” in the United Kingdom.
The second exchange to find its way into the mainstream media was Binance. Binance is ranked as the world’s top cryptocurrency trading portal based on its daily trading volumes. Through an interview with Bloomberg, Changpeng Zhao, the founder of the trading portal stated that Binance’s revenue for 2018 was already past the 300 million USD and they anticipated that the exchange would generate profits of between 500 million to 1 billion USD.
Considering all the money flowing out of the cryptocurrency markets, such gains in cryptocurrency exchanges were bound to attract the attention of a few investors or market leaders who have taken notice of the potential gains in crypto exchanges.
The Negative Impacts Of The Crypto Exchanges
However, Vitalik Buterin, the founder of Ethereum, highlighted in an interview with TechCrunch a few days ago that under no circumstances has the state of the cryptocurrency exchanges caught his eyes. In his exact word he stated,
“I definitely personally hope centralized exchanges burn in hell as much as possible.”
One of the reasons that Buterin is against the crypto-based exchanges is the outrageous fee of 10 – 15 million USD charged on cryptocurrency projects that might want to be listed on major cryptocurrency exchanges. These exchanges implement a pay-to-play model that has seen the exchanges becoming centralized gatekeepers, comparable to what is found in traditional financial markets.
For instance, if a new coin requires listing on the Binance platform, they will pay a huge part of their funds in order to access the platform. This means that most of the funds will be used in making the coin available in exchanges rather than being used in the improvement of the coins technology.
The Only Alternatives
The only alternatives for these centralized exchanges would be the decentralized exchanges whereby buyers and sellers trade directly without requiring any intermediaries to oversee the transactions. However, this concept is yet to be implemented as its still in the development stages.
The question that therefore lingers on everyone’s mind is: are the cryptocurrency exchanges negatively affecting the market compared to the good they are causing? The answer to this question however, depends on your perspective of the purpose of cryptocurrencies.
For example, for crypto investors who aim at capitalizing and gaining huge returns from emerging markets, crypto exchanges would be great way for such traders to achieve their goals since capitalization and moneymaking is the sole purpose of the crypto exchanges. Additionally, the investors can acquire more advantages in such exchanges compared to traditional markets, which is attributed to its low fees and the wide range of assets available for investment.
Crypto investors who have no interest in the learning about the assets comprise the largest percentage of the percentage of the traders in the crypto market. These investors are mainly driven by the profits they can accumulate and continuously support crypto exchanges as intermediaries in their trading activities.
Statement Caused Market Ripples
Buterin’s remarks have stirred up the market with many members of the crypto community supporting his remarks and expressing how angry they are about the state of the cryptocurrency market where the crypto-based exchanges are prioritized. The community members are also not pleased about how the crypto exchanges mainly focus on price instead of the advancement of technology.
Furthermore, the centralized exchanges derail the adoption process of cryptocurrencies since the smaller projects and new coins spend a lot of effort and resources trying to be listed on the exchanges in order to gain the much-needed exposure instead of diverting the resources into improving adoption by offering users with real-world applications and solutions to real-world problems.
The result of this is an industry whereby coins are valued to be worth billions all by speculations from investors. Despite the fact, the exchanges provide additional capital for the currencies, which increases funding for the development of their projects and increases their exposure from the media. Centralized exchanges have created an unclear perspective about the crypto investors.
Decentralized exchanges might not provide a way to eliminate the speculative nature of the market or more comprehensive approach in exchanges but they do ensure that there is legitimacy in the use of cryptocurrencies. Besides providing legitimacy, decentralized exchanges will ensure that cryptocurrencies achieve their full potential and fully distinguish themselves from fiat.
The importance of cryptocurrency exchanges in the industry is undeniable, as they offer access and solutions to both expert and beginner traders. However, the more these exchanges continue to focus on centralization, the more they indicate to the community that they are only driven by profits without considering individuals they might be negatively affecting.
Similarly, cryptocurrency communities have to acknowledge the fact that cryptocurrency exchanges also have the right to acquire profits. Therefore as long as they demand an exchange driven growth, the will be placing emphasis on the market cap in the current market instead of real adoption.