Though cryptocurrency has been viewed as a disruptive tool that challenges the traditional financial markets, we have witnessed a changing trend in recent times where exchanges are attempting to work with the stock and asset market.
Generally, the business of cryptocurrency exchange development is viewed as being more open to different parties and focussed on communities that drive interest in the platform. However, blockchain technology is changing the game as it is striving to improve the operations in traditional stock exchanges.
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Demerits of Traditional asset exchanges
- They operate only for a limited number of hours. This limits the trading activity and volume for retail investors who may be busy during market hours.
- The trading fees are very high in asset exchanges. Apart from charging for deposits and withdrawals, additional expenses will have to be incurred for transaction processing, brokerage, and commission. This can affect investor sentiment as those with limited financial backing may decide not to trade.
- Since fractional purchasing of assets is not available in asset exchanges, small investors will not be attracted to the platform. They will be forced to buy a certain amount of the asset.
- It has to go through several regulatory audits for the prevention of fraud. This makes the entire process of dealing in stocks cumbersome.
- Making a considerable amount of profits requires patience as traders will have to put in their money for a long period.
Key differences between trading cryptocurrencies and trading securities
- Buying stock from a traditional asset exchange gives the owner a stake in the company. Though dealing in cryptocurrencies has become easier due to the proliferation of decentralized exchanges, they do not give a share of the company’s assets.
- Stock owners not only earn returns but also receive dividends and legal rights. However, buying a cryptocurrency does not give legal rights. When funds are misappropriated from an exchange, crypto traders do not have legal protection.
- Stock markets play a pivotal role in the free economy due to their institutional setup. The future of Crypto is a bit uncertain as some countries have resorted to the banning of digital currencies.
How blockchain technology can make a difference in the functioning of traditional exchanges?
- A seamless trading experience can be ensured with low down-time and high resilience. This is important especially when the firm aims at scalability.
- The notion of cryptocurrency trading being viewed as illegitimate and unregulated will change when they partner with traditional exchanges.
- By teaming up with traditional exchanges, the trading activity can be regulated in a better way. Chances of abusive trading can be reduced and surveillance costs would be decreased.
What are the unique features behind Cryptocurrency exchange development?
- Crypto exchanges perform several services simultaneously in their trading activities such as order matching, account verification, and processing transactions.
- Better standards of data protection are ensured as the user’s details and funds are stored on cloud services compared to traditional exchanges which store data in a centralized data center.
- Volatility in price is higher in cryptocurrency exchanges when compared to traditional stock or asset exchanges. This leads to a situation where traders can earn abnormal profits if there is a massive upswing. A trader can gain more depending on his experience, prediction of the movement of rates, and market analysis.
- Though the volume of trading in cryptocurrency exchanges is less than the stock exchanges, there is a huge room to grow that number in the years to come.
- Traditional stock exchanges impose a lot of conditions before onboarding a trader. They must be qualified and register themselves mandatorily. However, in cryptocurrency exchanges, anyone who has access to the internet can take part in trading round the clock.
- Cryptocurrency exchanges eliminate intermediaries so that buyers and sellers can directly execute the deals. However, traditional asset exchanges have a lot of intermediaries such as agents and brokers.
- By harnessing the power of smart contracts, cryptocurrency exchanges are using decentralization to enable peer-to-peer trading.
- Keeping in mind safety and security, cryptocurrency exchanges also comply with KYC (Know Your Customer) and AML (Anti-Money Laundering) guidelines.
- While traditional stock exchanges do not provide much variety, cryptocurrency exchanges offer different types such as centralized, decentralized, and hybrid.
- Ease of usage is higher in cryptocurrency exchanges as traders need not possess technical knowledge.
- Cryptocurrencies are limited by the 21 million mining cap. This is set so that the demand for crypto assets exceeds the supply. In stock exchanges, there is more predictability as the company can issue more stocks according to the demand and supply conditions.
- Stock exchanges are regulated by authorities and governments through various laws. However, cryptocurrency exchange development does not have central governance because it is powered by a Decentralized blockchain network.
- Market manipulation is higher in cryptocurrency exchanges owing to action taken by whales who influence the price. However, in-stock exchanges, the chances for market manipulation are less due to more checks introduced in the system by regulatory bodies.
Keep in mind the above factors before entering the lucrative business of Cryptocurrency exchange development. The high risks involved will be backed up by profitable returns.
