What are Cryptocurrency Exchanges?
As is the case with traditional financial assets, cryptocurrency exchanges play an important role in the cryptocurrency market. Exchanges can be a barrier in the rapidly evolving world of digital assets. At first glance, they are similar to stock exchanges – they reduce sellers to buyers and participate in the pricing process. However, they also have profound differences that expose investors to risks they are not fully aware of. It worries regulators and leads to the emergence of new types of exchanges without these shortcomings.
What is the difference and difference between stock exchanges and cryptocurrency?
They perform the same function – provide transfer of assets – but that’s where their similarity ends. Cryptobirds keep investors ’assets and charge fees. In the stock market, these functions are performed by brokers. As a result, the profitability of cryptocurrency exchanges significantly exceeds traditional profitability.
For example, in 2017, Japan’s second-largest crypto birthplace, Coincheck, was almost equal in terms of profitability to Japan Exchange Group, the operator of the country’s most significant equity and derivatives market. Another important difference is regulation: regulatory authorities strictly monitor stock markets, while digital in most jurisdictions are left on their own devices.
What are the risks that arise from these variations?
The protective nature of stock markets does not exist in cryptocurrencies. The most significant potential risk for an investor is the possibility of losing all your money due to a hacker attack or an exchange bankruptcy. So, in January, Coincheck lost nearly $ 500 million of tokens, and in June, two crypto birds hacked into South Korea. Since mid-2014, many exchanges have closed. Including after the hacking (including Mt. Gox, which was once the largest cryptocurrency exchanges in the world). Authorities have stopped the activities of others.
How can investors protect themselves?
They can retain their digital tokens in private wallets or so-called cold stores. However, they are usually not inclined to do so. Active traders behave differently: they divide their assets into many parts and distribute them on different exchanges. Some platforms are trying to improve the security of trading. For example, Gemini Trust used the corporate services of Nasdaq to track potentially risky transactions in bitcoins and others.
What are regulators doing to protect investors? Investors often hear warnings from the authorities, especially about price volatility and the possibility of losing all assets. Many regulators require exchanges not to list tokens, which are security and subject to relevant laws. In March, the head of the Bank of England, Mark Carney, said it was time to end “cryptocurrency anarchy” and bring the industry to the typical characteristics of an exemplary financial system. Learn more about drawing ideas that how they work in digital trading.
What is the reaction of the exchanges?
Major changes. There is a new generation of sites closely adhering to the libertarian ideals of the blockchain. As decentralized trading platforms, these exchanges do not store customer funds and combine buyers with sellers, allowing investors to conduct transactions. At their core, such exchanges are peer-to-peer platforms. According to Kelvin Wong, an enthusiast of decentralized exchanges and director of public relations fund OAX, this structure increases job transparency and commissions compared to the current model. The Foundation develops decentralized trading platforms.
The solution to this question depends on what you are asking it. Sam Tabar, an AirSwap strategist who opened its decentralized exchange in April, believes this year’s central theme is the migration of merchants to new sites. Chia Hawk Lai, President of the Singapore Fintech Association, notes that the new type of exchange has drawbacks, for example, less user-friendly and low technical support. David Lee, the Digital Currency Handbook (“Digital Currency Handbook”), is convinced that in 5-10 years, most cryptocurrency exchange trading will take place on decentralized sites.