If you have been in the crypto market for a few months, you probably know large exchanges can influence huge impact on the whole crypto market and especially in the price of coins. For example, if the exchange got hacked and lost customer's cryptocurrency the value will fall drastically. On the other hand, if large exchanges, such as Binance and Bithumb, list a new coin on their exchange the price skyrockets. However, exchanges, especially large exchanges, can do more than that.
Fiat Trading Pairs
Compared to crypto market in a few months ago, there are lots of small and big exchanges trying to add fiat-trading pairs. For example, Upbit and Bithumb have listed a few new coins on their KRW market. For South Korea investor, they can access pretty many cryptocurrencies in their fiat market. However, Bifinex, Bittrex, Binance, etc have not listed USD or EUR trading pair yet. For this reason, we are still on the way to shift reliance away from Bitcoin. In fact, 80-90% of altcoins are traded on BTC pair market, not fiat trading pair, so their values still follow the Bitcoin prices. If Bitcoin price drops the altcoins price also drops, and vice versa. Most cryptocurrency investors do not have a positive perspective on this market movement.
Then, Why do fiat trading pairs really matter?
1. More Accessibility on Altcoins
When you got interested in cryptocurrency and tried to buy some, your first purchase is probably Bitcoin, Ethereum, or Litecoin. Even though there are more than thousands of different coins out there, you have no choice but to buy these three big coins because Gdax and Coinbase do not have more options in fiat trading pairs. Binance does not even have fiat trading pairs. If you want to get into trading in the altcoin market then you are going to have to head to another exchange. As a matter of fact, most newbies do not dive into the altcoin market!! What if they can buy them with their native fiat so they have more accessibility on altcoins? It is very likely to happen that the dominance of Bitcoin decrease gradually and many altcoins start to coexist in cryptocurrency market.
2. Mature cryptocurrency market
There are over thousands of different cryptocurrencies with their own ambitious projects to change the world. But just because the price of Bitcoin goes down, the whole cryptocurrency market goes down too. This is obviously not a mature market. The altcoins should have their own value and should not rely on the Bitcoin price. If exchanges start to add fiat trading pairs, it is very certain that we can see totally different cryptocurrency market movement.
Decentralized Exchanges
Many developers are putting efforts into building decentralized exchanges. One of the large exchanges in the world Binance officially announced Binance Chain project, which is a decentralized exchange. Then, let me be clear what is the problems of centralized exchanges.
1. Actually, you do not deposit your balance into your wallet.
Centralized exchanges are not built on blockchain technology. They just have their own database server so customers have to have trust in the centralized exchange. This means you think you are depositing your coins in your account or your wallet, but actually, you are depositing your balance into the centralized exchange's wallet, not in your wallet. They just update your balance on their database server and display how much you have.
2. Hackable
Of course, most exchanges are putting a lot of efforts to prevent possible hacking (I hope so). But, whatever exchange security developers do, it is more difficult to hack the decentralized database server based on blockchain technology. Since they centralized exchanges have fewer servers or nodes than decentralized exchanges, they are vulnerable to DDOS attack from hackers. You can see many hacked exchanges by just googling.
3. Centralized exchanges become a whale.
You know that if one cryptocurrency is listed on the major exchanges, such as Binance and Bithumb, skyrocketing its price is inevitable. Do you really think exchange's workers do nothing? I am guessing that they cumulate it at the bottom and then slowly sell it after listing on their exchange. We call it Pump and Dump. I think this is one of the reasons that people are saying that cryptomarket is manipulated by someone.
So what can be a solution? Decentralized exchange
Then, why not just decentralize them right now?
1. The decentralized exchange is a startup company
There have been many decentralized exchange ICOs for the last few months. Actually, it has been one of the hottest ICOs. Do not forget that the projects are just started. Obviously, the teams need more time to develop it successfully.
2. Slow transactions
I have watched a Binance CEO's interview on YouTube. CEO CZ notices the problems of centralized exchanges and their team are developing a decentralized exchange. Even though he knows centralized exchanges got a lot of problems, he said that decentralized exchanges cannot handle the current volume of trading on the centralized exchanges. Since decentralized exchanges are built on the blockchain technology, it is still not that fast to deal with the massive volume. This is the biggest problem decentralized exchanges have.
3. Low liquidity
To exchanges success, there should be a lot of liquidity, or volume. If no one is trading on the exchange, your sell or buy order would not filled. Eventually, current investors should move out from the centralized exchanges. We should keep our eyes on is it going to happen or how long does it take. However, I think if current large centralized exchanges change or develop their decentralized exchanges, the adoption would be much faster. The good examples are Ethfinex and Eosfinex from Bitfines and Binance Chain from Binance.
To Sum up
It is very interesting and fun to watch the new development and rapid adoption in cryptocurrency market. I know that
it is very hard to predict a future what would be like after supplying decentralized exchange, but I can tell that it is very optimistic right now. It would be great to keep your eyes on these and hope you like my post. Thank you 😁