Are Cryptocurrency Exchanges Hurting the Industry?
Cryptocurrency Exchanges–Crypto-based trading platforms have found their way into headlines with increasing frequency throughout the past several weeks.
It began with The Daily Mailreporting on Ben Delo, co-founder of cryptocurrency exchange BitMex, as Britain’s youngest self-made billionaire and the United Kingdom’s first “bitcoin billionaire.”
Binance, the world’s top crypto trading portal by daily volume, grabbed headlines in an interview with Bloomberg, when founder Changpeng Zhao claimed 2018 revenue had already eclipsed 300 million USD, and the exchange was on pace to turn a profit of 500 million to 1 billion USD. With all of the money flowing out of the market capitalization of cryptocurrency during this bear market, the eyebrow raising gains of crypto exchanges has caused more than one investor and industry leader to take note of the money to be made.
Vitalik Buterin, founder of second overall cryptocurrency by market cap Ethereum, threw down the gauntlet two days ago in an interview with TechCrunch, when he stated in no uncertain terms that the state of crypto-based exchanges had caught his ire,
“I definitely personally hope centralized exchanges burn in hell as much as possible.”
The Pros and Cons of Centralized Exchanges
In particular, Buterin finds fault with the 10 – 15 million USD fee imposed on cryptocurrency projects looking to be listed on popular exchanges. For example, a new coin that wishes to be listed on Binance’s top-ranked platform must first shell out an enormous amount of money to have that accessibility–development funds that are supposed to be used in improving the coin’s technology, not increasing it’s exchange availability. Alas, the pay-to-play model imposed by most exchanges has created centralized gatekeepers akin to those found in the traditional world of fiat.
While the alternative would be sole decentralized exchanges, where buyers and sellers engage in an open market of direct trading with no intermediaries, the landscape is still in its infancy. Many in the community have taken up Buterin’s rallying call, expressing their anger with the state of cryptocurrency and its heavy emphasis on the power of exchanges.
So, have cryptocurrency exchanges started to do more harm for the industry than good?
It depends on how you view the purpose of cryptocurrency.
A significant number of investors in cryptocurrency are solely that–traders looking to capitalize and make money through an emerging market. For this class of crypto user, exchanges offer the sole purpose and portal to accomplishing their goal, and provide significant advantages over the traditional market: miniscule fees (compared to stock brokers), 24/7 trading and a wide variety of assets to speculate on.
Particularly with the media emphasis on crypto and Bitcoin-based price movement, with CNBC regularly publishing the daily volatility of crypto to its largely removed audience, enthusiasts of the technology have to accept that a large market share is comprised of traders with no interest in learning about the underlying asset. Profit, or at least the promise of profit, is the primary motivator for this group, and they will continue to champion exchanges as the arbiter of their speculation.
But therein lies the problem most community members find with the present state of crypto-based exchanges: the emphasis is entirely on price as opposed to the advancement of technology.
In addition, the process of adoption for cryptocurrency becomes bastardized through the myopic lens of centralized exchanges. Communities, particularly for smaller projects and up-and-coming coins, rally around being listed on new exchanges as a way to gain exposure, rather than focusing on the real adoption of user driven problem solving and real-world use cases. The result is empty scaffolding that leads to the uncertain landscape of the current industry. Coins are pumped to billion dollar valuations through speculation alone, all driven through the back and forth actions of investors on exchanges. Yes, this plows capital into currencies, increasing the development budget of projects in addition to drawing more media attention.
But it also creates the appearance of the “bubble” that has become vogue to bandy about by entrenched Wall Street players. It is hard not to draw comparisons between cryptocurrency, in its present form, and the dot.com bubble that started the new millenium. Decentralized exchanges may not dampen the speculative driven growth, and they certainly do not provide the user-friendly approach of current exchanges, but it does give the process of cryptocurrency use more legitimacy. Trading crypto for crypto, through direct market tunnels as opposed to intermediaries, symbolizes what decentralized money is capable of and how it can differentiate from fiat.
Cryptocurrency exchanges provide the most simplistic solution for giving people, particularly newcomers to the industry, accessibility to their cryptocurrency of choice. But so long as exchanges partake in centralized efforts, they signal to the community of cryptocurrency that their existence is to profit from the industry–whatever the cost may be. Exchanges, like all companies, have a right to pursue profits. But cryptocurrency communities should keep in mind that clamoring for exchange driven growth is prioritizing market cap today in lieu of real adoption.