We have all heard stories from Greek mythology as to how Prometheus brought down fire from the gods and give it to humans. If cryptocurrency can be considered the fire of the tech and the finance world, then cryptocurrency exchanges can be considered the Prometheus for that fire!
What was largely confined to high-end technology once has now been brought down to common investors and people only because of cryptocurrency exchanges. More than just being technology demonstrators, the cryptocurrency had no other use until cryptocurrency exchange software solutions came into the picture. The volatility of cryptocurrency which was considered to be its primary curse had now become a matter of bliss. Someone who understands these fluctuations and knows the market can make a big profit by trading on cryptocurrency exchanges.
The Two Sides Of The (Crypto) Coin
Cryptocurrency has been aiming to create a financial ecosystem without any dependence on elements of traditional financing such as banks. This means that any person who possesses cryptocurrency is completely in charge of holding them, and any loss of cryptocurrency cannot be handled legally.
While this gives a feeling of independence and breaking away from censorship, it also has its own set of dubious attributes. The most vulnerable recipients of this flaw in the cryptocurrency ecosystem are cryptocurrency exchanges.
It is true that security holds a high level of importance when it comes to the process of cryptocurrency exchange development. However, irrespective of the security provided, it cannot be denied that there is not much protection that can be offered when it comes to hacking techniques like social engineering. In addition, most exchanges are completely centralized, making them lucrative targets for hackers.
What adds more to the default thoughts of crypto hackers targeting exchanges is that there are a lot of people who use crypto exchanges like banks. They just keep their coins locked in the exchanges forgetting that they are the weakest points in the entire cryptocurrency ecosystem.
The Crypto Space Challenge
This presents quite a difficult problem to solve. On one side, except for stable coins, cryptocurrency does not have a practical application as a medium of transaction. On the other side, cryptocurrency exchanges that are considered to be the most practical manifestation of the new technology are vulnerable to hacks and security breaches. It will take quite some time before cryptocurrency becomes mainstream. The only option left for now is for cryptocurrency exchanges to up their game.
The Possible & Practical Solutions
One of the solutions that most mainstream cryptocurrency exchanges like Binance, Coinbase, and KuCoin have considered is adding features like staking and lending for their customers. Lending does not require an explanation as it is quite a simple and straightforward process, and it will be discussed in good detail a bit later.
Now, let us look at the concept of staking. The early days of earning in the blockchain world were about mining. A system with high computational power would help in solving a complex mathematical problem for which they will be rewarded crypto coins. This method of learning cryptocurrency was called proof of work.
The probability of someone finding a problem to be solved or a block to be added was completely contingent upon chance. The proof of stake, however, uses a different mechanism where the possibility of someone earning crypto coins, and the reward depends on the amount that they have staked or invested in this cause.
Alternatively, there are a lot of crypto exchanges like Binance that have taken to lend cryptocurrency. It is strikingly akin to the loans that we available in traditional banks. Some of these crypto funds are diverted towards margin traders that trade on crypto exchanges. The interest rates for these lent cryptocurrencies can go up to a staggering 15%. This is distinctly lucrative considering the interest rates offered by the banks.
Solving Issues Completely & Practically
Although all these ideas might sound lucrative on paper, it still does not address the current issue of cryptocurrency exchanges being susceptible to exchange hacks. This only means that anything done via exchanges even if it means lending out funds is a significant threat to the crypto funds stored on these exchanges.
Anything said, except for a completely decentralized exchange, there is no way in which the dangers of these hacks can be completely done away with. It is one of the key disadvantages that tags along with the many benefits of centralization. Some cryptocurrency exchanges, however, have figured out some ways to address this issue.
Binance, for example, has established a dedicated fund that intense to reimburse users in case of a hack. This fund is called the SAFU, the acronym for Secure Asset Funds for Users. Coinbase has gone the traditional way and has issued an insurance policy against the amount that users hold in the wallets. Bittrex has followed the Coinbase way and has ensured its held funds as well.
Insurance policies are surely a welcome step in securing the funds of users, even if not against hacking, at least against people losing trust in your cryptocurrency exchange brand. If there is a certain degree of centralization, we might as well use that loophole to a considerable extent, and insurance is one of the manifestations of this thought process.
The question remains if the insured amount will be sufficient to address the needs of all the users. It has to take into consideration the fact that the value of cryptocurrency is bound to extremely fluctuate and reimbursing users with a currency that might be worth thousands of dollars on a day and a few hundred the very next date might not be a great idea. It cannot also be forgotten that the money stolen from cryptocurrency exchange hacks has been a lot higher than any other bank theft in the history of money and robbery!
With so many vulnerabilities, a cryptocurrency exchange cannot be expected to completely replace banks although they bring quite some advantages. Come to think of it, this was the status of banks against users keeping their money in their homes or vaults about a trio of centuries ago.
Making Crypto Exchanges Practical
This does not, however, seem to be the state of crypto exchanges for eternity. All that exchange businesses need to look at is the answers to the question of why users have been pressuring traditional financial institutions against crypto exchanges.
The Exchange needs to solve these issues and add a few features that the non-crypto financial realm has been boasting of.
Needless to say, the first and foremost issue that needs to be sold is the susceptibility to security breaches, deaths, and hacks. No you circle want to commit the funds to an entity that does not offer protection. In fact, it is one of the biggest reasons why banks have been thriving. It is surely more secure than keeping stashes of money at home.
The user interface of cryptocurrency exchanges needs a major overhaul. It is true that cryptocurrency exchanges like Binance have mastered the art of making the user interface intuitive and interactive. However, there are still some challenges for people who have been always used to Internet banking interfaces. The only way to break it is to make buying and selling easy and simple that it can be done in a few clicks.
We have already seen the benefits of lending in crypto exchanges and how they bring a better interest-rate. Not every cryptocurrency exchange offers lending and staking. Adding these features will translate into an increased magnitude of acceptance.
Cryptocurrency exchanges do not do anything more than what they intend to. While this idea of functional minimalism can be great on paper, users expect a bit more, including tools that help them with budgeting, planning, and saving. These benefits can also add to the acceptance of cryptocurrency exchanges as a mainstream financial entity.
The toughest time in the future will perhaps be the time when banks are shaken and cryptocurrency exchanges slowly gained prominence. This transition is going to be tough for both tourists and early adopters. However, just like how every change has happened, this too will become a small blip in the lost history of money, and it Will not be long before cryptocurrency and crypto exchanges become increasingly prominent. Banks are already losing out with non-crypto financial startups, and cryptocurrency will only add an additional Momento to the task of doubling the traditional banking system.
Cryptocurrency exchanges have already established their supremacy and credibility as a lucrative business idea in the crypto space. The future only looks more promising as descriptive exchange can have multiple manifestations. If you would like to be one of those crypto entrepreneurs who would like to plan long-term, all you need to do is invest in cryptocurrency exchange software development. With the availability of white label cryptocurrency software solutions, all that you need to do is get in touch with the company that specializes in creating and customizing them. A white label solution makes the entire process of cryptocurrency exchange development faster and cheaper, so you are all set to launch your business in the shortest possible time!