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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 Mail reporting 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.”

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.

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Cardano, Ethereum Founder: Cryptocurrency to Command Multi-Trillion Dollar Industry

Cryptocurrency–Charles Hoskinson has been one of the more fortunate, and potentially industry leading figures in cryptocurrency over the last fives years. The former consultant purchased his first BTC at under 8 USD, and started an online school for Bitcoin education in 2013, when the currency was trading for less than 100 USD. Through his connection to the digital education portal, he first met Vitalik Buterin, a relationship that led to Hosksinson becoming one of eight original founders of Ethereum (currently commanding a market capitalization of 47 billion USD).

While Hoskinson left the project in 2014 following disagreements over the structure of Ethereum, his high-profile presence in the industry became a springboard for other projects, notably 2017’s release of Caradano (ADA). With his background in Bitcoin and Ethereum already well established, Hoskinson embarked on a new project to account for deficiencies found in both currencies, most notably the inability to scale to levels necessary for widespread adoption. Using his experience from the founding of Ethereum, he started the Input Output Hong Kong (IOHK) blockchain firm in 2015, which led to the development of the Cardano platform and ADA cryptocurrency.

Given his extensive history and knowledge of both the industry and market of cryptocurrency, Hoskinson has become a beacon for predictions and future proofing in relation to the technology. Most notably, he has become an outspoken contrarian to the general media’s take on crypto as a conglomeration of ponzi schemes and vaporware projects.

There are a few takeaways from Hoskinson’s bold prediction for market capitalization, in addition to his critique of media coverage towards crypto and the constant schadenfreude colored narrative. While traditional media has long operated under a “if it bleeds it leads” model of headline-grabbing, the amount fear, uncertainty and doubt being produced by supposedly reputable outlets like CNBC is becoming unbearable. The public, or at least a handful of gateway journalists, have become inundated in seeing the failure of cryptocurrency.

‘Most of the personal attacks against crypto are unjustifiable and emotionally driven: when people hear stories of average joe investors and tech geeks becoming overnight millionaires, they feel a sense of loss. The real problem is in how the media creates the narrative of cryptocurrency as only price-driven. That’s akin to judging the health and functionality of the internet by how Apple and Facebook stocks are doing. Crypto currencies may be the immediate figures to respond to market changes, but they have little to do with the adoption, advancement and innovation of the underlying technology.

Hoskinson also brings up the point that “big money,” in the form of Wall Street and fintech developers, has barely scratched the surface on crypto investing. It’s not that Goldman Sachs will step in tomorrow and take BTC to the moon; it’s the underlying idea that crypto is still in the early days of adoption. Most main street investors take their cues from the financial figureheads and gurus entrenched in traditional Wall Street. As more outlets of high capital trust enter the realm of blockchain and cryptocurrency, the barrier to entry becomes that much lower for the average investor and developer.

Adoption, particularly when accompanying widespread disruption, is a process that takes time. But it  also follows an exponential curve. As someone who has been involved in Bitcoin since the early days, Hoskinson has an inherent understanding of the time frame for cryptocurrency to reach its full potential. That doesn’t help the wallets of new investors who entered the market during this bear cycle (or worse, at the top of last year’s bull run), but it does provide hope for the technology and the feasibility of cryptocurrency going forward. 

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