Cryptocurrency Exchanges: A Serious talk about their Future

03.02.2016

The year 2015 was quite eventful for Bitcoin and the community, while the cryptocurrency exchanges were right in the centre. Along with rising popularity of the â€śblockchainâ€ť buzzword in various newspapers, many people have lost interest in Bitcoin as an investment instrument and switched to the blockchain investments. However, the volumes of trading continued to increase over the year, while the crypto exchange industry matured.

The last year started with a series of distributed denial of service (DDoS) attacks on major exchanges. The attackers seeked for security breaches, and hacked the exchanges upon finding those, which has justified a hugely bad publicity for the industry in general and Bitcoin itself. Thanks to their executives’ business-mindedness, many of the issues seem to be resolved.

One might not forget the Bitcoin price falling by more than 30% in the very beginning of the year and the volatility that followed. Later on, however, up until November, a period of relative Bitcoin price stability followed with no huge ups and downs (to the pity of traders, we might suggest).

Bitcoin exchange rate graph by bit-x.com

Marco Giovanni, the media director at the BIT-X cryptocurrency exchange provided a few comments on recent industry events and the future of cryptocurrency exchanges in 2016.

“During the past year, exchanges have seen increasing volume across all trading pairs (with all currencies available).

A large limitation of the past year in regards to exchanges have been the small range of currencies available on large and reputable exchanges,” says Marco.
“The past 3 months have seen a slight increase of around 15% in cryptocurrency trading,” he adds.

The Volatility is back again. What is in store for the industry?

November 2015 showed substantial price surge from $225-250 at the start of October to 2015’s record high of $504 for a brief moment. The new year appears to be also promising in terms of Bitcoin volatility. The stock exchange turmoil in early January, when the bitcoin exchange rate skyrocketed to $455, was followed by a deep fall in price reaching as low as $346 and then again a few rises and falls. Now price is stabilized and is winding sideways in close proximity to $370-380. However, the exchange rate will be definitely impacted by Bitcoin Halving event this year, so we’ll see.

The industry is maturing and it will inevitably lead to more competition between exchanges or even series of acquisitions like recently launched by Kraken, as well as some new competitors coming onto stage. The decentralized exchanges and Bitcoin markets are the first candidates. Same time even players at rather conservative “fiat” exchanges start incorporating Bitcoin and altcoin derivatives into their portfolios. So it seems to be a matter of time when traditional stock (or even forex) exchanges will start trading bitcoins.

“The recent price fluctuations positively affect the industry as traders are attracted to potential gains from rapid changing prices. This along with margin trading adds very large volume numbers across the industry.

In the coming year, exchanges will begin adopting new currencies and certainly we will see new trading features along with improved trading reliability.

Future services could include increased margin trading leverage positions as well as an overall improvement in exchange reliability (under heavy trading activity, exchanges can suffer),” further comments the BIT-X representative on the future industry development in 2016.

Risks and security backstage

Three Bitcoin exchanges have already fallen DDoS victims one by one (namely, BTCC, BTC-e and Bitstamp) since the turn of the year. Fortunately, they have learned from previous year’s lessons and improved the security, so attacks had little success.

To avoid risks and effectively manage the security of user assets, BIT-X representative suggested that an exchange might consider the conservative framework they use:

“We keep all balances in cold wallets. A minimum operational balance for the next 2 to 3 hours is kept in hot wallets. Also, all our wallets use multisignature addresses, and when large amounts are transferred a manual approval is required. We also use our own wallet system for the greater security that comes with such a system. Additionally, all of our clients are required to enable two-factor authentication. All sensitive operations can only be confirmed through additional authentication through text message or an application.”

Recently, the altcoin exchange Cryptsy officially suspended operations after a series of hacking attacks and server failures reported. This lead to freezing of their customer funds and numerous lawsuits.

Reddit users, commenting on the situation, expressed no surprise from yet another failure of the exchange. Moreover, they compared Cryptsy to notorious MtGox, sarcastically dubbing it â€śMtGoxtsyâ€ť.

“This is just like gox all over again. And just like gox there will be idiots here talking about how there was never any reason to believe there was a problem and that this is a huge surprise,” one of the redditors wrote.

Marco Giovanni commented on Cryptsy’s troubles back then:

“We think situations like these cast a shadow on the entire industry. Cryptsy is likely operating on a fractional reserve and may not be able to fulfill all user balances if need be.”

His suspicions were later affirmed with the announcement that Cryptsy had lost over 13,000 Bitcoins.

“As for their Cloud Mining, they may not have any hashpower as they claimed. At this point in time, there are no mining solutions available on the market which gives 500% profitability yearly. The maximum attainable profitability at the moment is closer to 120-150% yearly. This is for private solutions that are out of the public market.

In order to avoid losing reputation an exchange must be reliable, transparent and clear on all fees. All changes to fees or the way a services is run, both of which can affect clients, must be announced in advance to all potentially affected clients. A press release listing recent issues with an exchange is a decent way to maintain a positive and crucial client-service relationship,” added Marco.

About Bit-x

BIT-X is a licensed cryptocurrency trading platform registered in London. Ranked #3 in BTC/USD trading pair among the top exchanges this platform supports Bitcoin and Litecoin trading as well as USD, EUR, GBP and RUB. The exchange also uses two-factor user authentication, multisignature addresses & transactions and PCI DSS certification for the sake of advanced security.

The BIT-X Bitcoin Debit Card allows clients to store Bitcoin (or any other offered currency) in their account which they can spend at any time, instantly and without hassle through a debit card. It can be used to shop online, pay for goods and services, and withdraw cash at ATMs worldwide while using client’s balances in any currency below: BTC, LTC, USD, EUR, GBP or RUB. Funds are converted from a user’s balance into the transaction currency at the time of the transaction thus a user does not need to pre-load funds by selling BTC in advance as other services require. Right now there are 4 types of debit cards available including Anonymous and Named cards depending on client’s needs.

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Tags: bit-x, exchanges