Cryptocurrency Exchanges are Facing Challenges
Today we welcome you to the first a new series on our PURA Blog, the BlogChain – PURA Crypto News. Here we are keeping you up-to-date on what is happening in the world of cryptocurrencies. Make sure you tune in to stay in the loop! We are starting with a throw-back and current developments at cryptocurrency exchanges.
A cryptocurrency exchange is a company that serves as intermediary between traders that buy and sell coins. Exchanges earn money based on the fees they receive for each transaction. They play a fundamental role in the cryptocurrency market and their number has drastically increased. However, the extremely fast growth of cryptocurrency trading has put large exchanges under pressure for a variety of reasons.
Impending regulations are the major issue exchanges are facing. These include strict conditions regarding KYC (“know your customer”) requirements and license standards. Governments in an increasing number of nations including China, Japan, the United States and just last week, India, have been passing stringent legislations to regulate cryptocurrency exchanges.
Many exchanges have been running close to maximum capacity as a result of the vast increase of numbers of traders investing in cryptocurrencies. Nobody expected exponential growth of this market so fast. Kraken, a US-based exchange, recorded 50,000 new users a day at the end of December 2018, a person familiar with the company’s operations told Business Insider. The greatest challenge for the exchange was to keep up with all the requests. At the same time, Kraken gave their its all to provide users with the same high-quality service they had before the unexpected increase of new users. Correspondingly, exchanges are certainly facing future challenges to provide adequate infrastructure and handle increasing requests by finding suitable talents.
On a Quest for Juniors
Exchanges are seeking trainees. Miha Grcar, head of business development at Bitstamp, a Luxembourg-based exchange founded in 2011, told media during a phone interview: “Globally the pool of talent, people with experience in blockchain and distributed ledger technology, is somewhat limited,” Grcar said. “This is a big challenge.” However, obviously this challenge also harbors great potential for future generations.
The competition outside to recruit talent is even higher, many exchanges are in the same situation. To add to this, large financial firms are heavily recruiting blockchain experts. Some of them currently don’t even have plans in place for the role of blockchain technology in their strategies for experts. At the same time, these firms are taking great potential and resources off the market. In effect, it is a challenge for the exchanges to compete with contracts by big financial corporations.
Adequate reserve pools of coins are also a challenge. Sufficient funds are essential for investors to exit the market at a profitable price. Insufficient liquidity makes trading more difficult. Users wanting to sell at a profitable price are waiting for other traders in an exchange to accept their offers. The situation is compounded by long waiting periods. Consequently, traders exit the market having accepted lower offers and prices. Decreasing liquidity leads to price swings and an oscillating market environment, further fueling the notion that cryptocurrency markets are dangerously volatile.
Exchanges are also facing security issues. Large-scale investors impose stringent standards before parting with their funds. Previous incidents such as MyCoin evoke painful memories. In 2015, this Hong Kong-based exchange, was shut down and about $386 million worth of cryptocurrency disappeared along with the exchange. Another exchange, GBL, went offline in 2013 after day traders began investigations only to find that the company had a bogus office address and that $4.1 million worth of Bitcoin were gone.
As markets are in a phase of consolidation, so are exchanges. Their role is vital in the cryptocurrency world. The challenge will be to be in compliance with regulations, educate the public and to provide access to education measures and professional training. These are vital milestones in paving the road towards mass adoption of valuable coins such as PURA.
PURA is a cryptocurrency to provide you and society as a whole with a foundation to practice decentralized social responsibility and contribution. To emphasize, PURA is for putting decision-making power on how to allot funds for common good back into the hands of people. The PURA community wants to make a difference. In detail, PURA wants to establish an environment that pioneers a new method of societal organization. This way, a cryptocurrency enables you to make a difference to work towards the common good for all. In line with this, thank you for being part of the PURA Community and for all your support! Please read our Whitepaper for more information.