Blockchain and cryptocurrency have now entered their second decade, and in many respects, there are signs that the markets are starting to mature. Token offerings are increasingly operating under regulatory requirements. Established companies such as Facebook, Walmart, and Amazon are now incorporating blockchain into their business models.
However, exchanges are one part of the overall cryptocurrency and blockchain space that continue to be plagued by the same issues, time after time. It’s a sad situation that hacks and loss of customer funds seem to have become par for the course for crypto users.
An Unfortunate Series of Events
The 2014 Mt.Gox incident remains one of the biggest and most well-cited examples of crypto exchange hacks. At the time, it was one of the only exchanges around, handling over 70% of all bitcoin transactions.
As the crypto user community has grown, the exchange market has become more crowded, and exchange hacks have become more common. TheBlockCrypto estimates that in total, $1.3 billion has now been stolen from exchanges worldwide.
New Zealand-based Cryptopia has only just re-opened after it was hacked in January of this year. Mostly Ethereum ERC-20 tokens were stolen, amounting to the tune of $20 million. Although Cryptopia has sent an email to customers committing to reimbursing their lost holdings, it’s currently unclear how they plan to handle the fact that the crypto markets have seen a significant rally since the time of the incident.
South Korean exchange Bithumb has been hit twice in the space of twelve months. In June 2018, when Bithumb was the sixth-largest exchange in the world, hackers made off with $31 million worth of XRP. More recently, a further $15 million in EOS tokens was lifted from the exchange. Often when an exchange is hacked, rumors emerge of an inside job but this time, even Bithumb’s statement regarding the incident appeared to suggest it was the work of an insider.
Quadriga – When Truth is Stranger Than Fiction
One incident which is very firmly filed under “dubious” in the collective crypto consciousness is the death of Gerald Cotten, founder of Canadian exchange QuadrigaCX. Reports emerged in January that Cotten had died in India more than a month previously. According to an affidavit from Cotten’s widow, he was the only person in the world who had access to the private keys needed to access nearly all of Quadriga customers’ cryptocurrency holdings.
Since January, the entire Quadriga incident has been mired in rumors and speculation about an exit scam. Tech writer Amy Castor put together an extremely detailed and well-referenced timeline of events which includes some pretty compelling evidence that indicates Quadriga’s co-founder Michael Patryn is actually a convicted money launderer called Omar Dhanani. As things stand currently, Quadriga customers’ chances of ever getting their funds back appear pretty slim.
With these kinds of incidents seemingly so commonplace, the crypto exchange market has developed a reputation problem. KPMG issued a report last year stating that the outlook for digital assets remains bullish overall – provided that institutional investors come on board. Crypto exchanges are the gateway to the crypto markets, but without a safe way to get on board, the industry is in danger of scaring off the big money.
So, what’s the exchange market doing to up its game?
Attracting the Big Guns
There are a few exchanges that are now starting to take the potential for institutional investment more seriously. Coinbase has long been eager to demonstrate its trustworthiness to the regulators and rolled out its Prime service in 2018 with a view to attracting institutional investors.
In the derivatives space, NYSE’s parent company Intercontinental Exchange has been talking up its crypto futures trading offering, called Bakkt, for months. However, after several delays, it’s now on indefinite hold since the end of 2018 as the regulatory discussions rumble on.
Meanwhile, FT Exchange [FTX], a trading platform with some pretty impressive credentials, is taking aim at Bakkt’s potential customer base of institutional investors.
FTX is offering futures, leveraged tokens, and an OTC trading desk. The exchange is already live and with more liquidity than one of its closest competitors for crypto futures, OKEx. The exchange offers various attractive trading features. These include a backstop liquidity provider to prevent clawbacks in the event of significant losses from traders using leverage, and the ability to use margin on stable coins held in a single central wallet for trading against different products.
However, from the institutional standpoint, it’s FTX’s partners that will help to make it an attractive proposition. FTX is backed by digital asset quantitative trading firm Alameda Research, the largest liquidity provider and market maker in the space, with experience from both Wall Street and Silicon Valley. It has $70 million worth of assets under management and trades up to $300 million each day.
The Exchange Markets Are Growing Up
Overall, the emergence of platforms such as FT Exchange sends promising signals that the market for cryptocurrency exchanges is entering the next stage of maturity – a development that’s long overdue.
After the Wild West, the Next Generation of Crypto Companies are Advancing the Industry
Back in the ICO boom of late 2017 and 2018, it was too easy for anyone to enter the crypto space with little more than a white paper and a sales pitch. However, once their ICO was over and the spending sprees started, even the most well-intentioned projects struggled to sustain themselves. A quick browse through Deadcoins shows that many simply burned through their funds and ultimately never brought a product to market.
Now, the crypto market is starting to grow up. The community has been burned by too much hype around useless niche products too many times. Therefore, the pressure is on tech startups to demonstrate they have solid business acumen together with a sustainable plan for the future.
As more and more Mainnets launch, there is also increasing recognition of the importance of interoperability. A standalone product is like a lone tree in a lightning storm, prone to being hit.
Interoperability means becoming an integral part of a thriving blockchain-based ecosystem. Those who understand the importance of developing this ecosystem are the ones who stand the best chance of surviving in the long term.
Here’s an overview of three companies with a strong focus on playing the long game and driving towards an interoperable ecosystem.
A significant factor that led to the explosion of ICOs in 2017 and 2018 was the existence of the ERC-20 token standard. Now, regulatory clampdowns mean ICO’s will be treated as securities. Therefore, many startups are turning to the security token offering (STO) as a means of crowdfunding.
Polymath is aiming to replicate the success of ERC-20 through its own offering, the ST-20 token standard. This provides a compliant means for founders to fund their visions, and as it stands, over 100 tokens have already launched using Polymath. It’s a complete turnkey solution for running an STO without falling foul of the regulators.
At the recent Consensus 2019 event in New York City, Polymath confirmed that it will develop a separate blockchain for regulation-compliant tokens with Ethereum co-founder and Cardano developer Charles Hoskinson.
Polymath also operates a treasury. The company has locked up 75 million of its own tokens for five years. This treasury approach provides a long-term, sustainable option for funding future endeavors.
ChangeNOW offers non-custodial crypto exchange services without limits or registration required. Using ChangeNOW, a user can trade in their chosen cryptos in just five easy steps with no hassle. They simply select their tokens for selling and buying, and the interface determines the best available rate at the time. The user receives the address for sending funds and provides their own address for receipt. It’s that simple.
ChangeNOW is working hard on establishing many partnerships across the crypto landscape. It has relationships with exchanges including Binance, Bittrex, and Bitfinex, and wallet providers such as Ledger, Trezor, and Atomic Wallet. The company recently received the endorsement of Binance CEO Changpeng Zhao (CZ) for it’s NOW token to become one of the first listed on the newly launched Binance DEX.
The company has also been rolling out a series of innovative features for its users. It now offers a zero-fee public Lightning node, which enables instant payments and cross-chain atomic swaps. It also has a service called NOWpayments, which allows vendors to start accepting cryptocurrency payments through a native integration to their platform, or through a widget.
For startups which want to swap out their ICO tokens to ones issued on their own main net, ChangeNOW also offers a dedicated token migration service. Finally, in keeping with the growing trend of exchanges operating a loyalty program, ChangeNOW will also be opening up its VIP Lounge, which provides premium benefits to members.
LiquidApps exists to remove barriers to dApp adoption, both for users and developers. It’s achieving this through the operation of its DAPP Network, the backbone of which is the Dapp Service Provider (DSP) and the DAPP token.
A DSP can be any individual or entity which meets the requirement for becoming an EOS block producer. A DSP can then sell services over the DAPP Network in exchange for DAPP tokens.
LiquidApps is rolling out services thick and fast. The first was vRAM, which is compatible with EOS RAM but without the limitations and consequent supply-and-demand challenges of the latter. Next up was vAccounts, which allows developers to offer a dApp-specific account for new users, removing the requirement for users to have to buy RAM to open an EOS account.
Now the company is offering a host of new services, which includes the potential for inter-blockchain communication with its new ChainOracle XIBC service. It allows developers to bring in sources of external information (for example, from other blockchains or even the internet) to their dApp, which has previously been challenging due to the deterministic requirements of a blockchain. Using the LiquidApps solution, external data can be verified by a DSP in such a way as to retain the integrity of the network and root out bad actors.
By enabling communication between blockchains in this way, LiquidApps is aiding the development of an interoperable ecosystem. In turn, the company is carving out a role for itself in that ecosystem long into the future.
These three companies are leading the way in taking a long-term view alongside working to build a flourishing blockchain ecosystem. These developments are reliable indicators that the days of the crypto wild west are coming to an end, and the sector is now entering the next stage of maturity. This growth can only work for the benefit of all participants.
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