Everyone who’s been around the cryptocurrency space for a few years now will be familiar with the mantra, (with) ‘crypto you need to be your own bank’.
What that means is that you, the investor and owner of the cryptocurrency need to take full control of your cryptocurrencies. And you should do so by using a wallet that you own, and you should never leave your cryptocurrencies on a cryptocurrency exchange for storing.
This mantra is meant to help people secure their funds and to avoid what has been too common in this space, namely hacks to cryptocurrency exchanges.
If neither of these sounds familiar, then I can tell you that they are some of the largest cryptocurrency hacks, or losses that have ever happened. With staggering amounts of funds being lost or stolen. Larger than most non-cryptocurrency thefts that have ever happened.
All these past events have forever changed the way the world looks at cryptocurrencies and the cryptocurrency market forever.
Still to this day more people than ever before leave their funds on an exchange. Even though it’s been one of the most targeted space cyber criminals.
So forget the mantra. Forget the hacks of the past. Because it’s not going to change the fact that a majority of people still leave their funds on an exchange. And I can’t see that changing anytime soon.
Because it’s easy. It’s a comfortable thing to do. And most of us still think that these hacks won’t happen to us. It’s the same with most things in life, it won’t happen to us.
But besides being easy, it’s also quite handy for other reasons.
Now we have seen that cryptocurrency exchanges like Binance, KuCoin and Coinbase amongst others have started adding useful features like staking and lending to its customers.
That means with Proof of Stake blockchains users can now stake their cryptos on the exchanges and get our rewards paid out from there.
That obviously makes it all the more appealing for the first group of people that preferred ease of use over security.
Binance have also made the jump to crypto lending. That means we can now loan out our cryptocurrencies other people. For example, to margin traders that trade on Binance. And for this we can get interest rates up to 15% with some cryptocurrencies.
That’s a very generous interest rate. Compare that to what is offered via standard savings accounts and most people would be intrigued by this.
But then you think about the first issue with safety. What about those awful cryptocurrency exchange hacks? Are they all in the past?
I don’t think they are.
So, is it then smart to stake and lend out our funds via exchanges if there are significant risks to our funds?
No, it’s not. So, then it is a case of what are they doing to minimise or reduce the risk of a cryptocurrency hack completely?
Binance has established their answer to this problem. The SAFU fund. Which will reimburse users in the case of a successful hack.
Coinbase is another example of an online broker site that has released its staking features. And their response to this is the insurance policy that they have for its online wallets.
Another example is Bittrex that has insured its held funds.
Without going into the exact details how these insurance policies work they are a positive step forward. And we will also have to see if they are enough. In the case of a large hack to either Coinbase, Binance or Bittrex.
Then we will see exactly to which extent they can protect or reimburse the users of any lost funds.
But what this is telling me is that these popular cryptocurrency exchanges are starting to realise that to survive and stay useful for future generations they need to show that they can protect its users’ funds.
Without this we can’t fully expect any of these cryptocurrency exchanges to take the next steps in its journey to go from being an alternative online broker to become a financial institute for the broader masses.
Besides insurance policies what else can we expect from the best of cryptocurrency exchanges in the future?
We need to look at it from a 360 perspective, and then there are a couple things that stand out. And we might need to look at exchanges from a bigger perspective. And not just trading platforms.
I am thinking that in the future the top cryptocurrency exchanges in five years time will be the ones that are actively working on solving these main issues + adding smart features that non-crypto financial apps and services have added.
– Solving the problems with security breaches, hacks, thefts and lack of protection of user-funds
– Improving the UX and customer experience. Buying and selling with a few clicks will become widely available and the norm for the broader masses
– Added benefits such as staking, lending, interest-rates accounts, etc. will be present at most exchanges
– Other tools such as budgeting and planning, savings, etc. will pop up
I think that in the future banks will have an even harder time. Not only are they getting competition from non-crypto financial startups like Robinhood, Acorns, etc but I think the top cryptocurrency exchanges will also move outside of crypto to the fiat space even more in the future.
What will this all mean? I think a safer and more user-friendly type of exchange. And I think we will see some type of response from the traditional banks. Perhaps adoption, or otherwise opposition.
Because the money that cryptocurrency exchanges are currently making from trading fees, cryptocurrency listings, commissions, and other types of revenue sources has been mind boggling.
Binance’s revenue growth from inception to its height in 2017/2018 was out of this world. As it grows from 0 to a billion-dollar profit company. This type of income will attract most players.
So, the question will be, can these new modern cryptocurrency exchanges compete and win against the old guard?
The banks that have years of experience, a network of friends and deep pockets. But the latter often lacking a focus on user experience and often trust.
What do you think? What does the future hold for cryptocurrency exchanges?