TL;DR: Decentralization, they said. Get you some crypto, son, they said, and escape the filthy fiat world. Be your own bank, they said. And then Lambo mooners fell in love with the crack cocaine that is Number Go Up, kept in constant supply by crypto exchanges. Thursday, December 5th, 2019, 9pm EST, host Collin Enstad examines their growing power.
The All-Powerful Crypto Exchange
It might be fair to conclude 2019 for the cryptocurrency ecosystem was the Year of Exchanges. They certainly dominated headlines, and show little sign of letting up. They’re necessary on-and-off ramps from legacy finance, and perform badly needed liquidity functions. They’re also price discovery mechanisms, communicative devices between cryptocurrency projects, funding, and determining opportunity costs.
— CoinSpice (@CoinSpice) May 8, 2019
Crypto exchanges are also fonts of innovation. They’re bringing alternative finance to folks who might otherwise be shut out due to hyper-regulated legacy institutions that demand accreditation and other frictions. No small matters, these.
However, they’re increasingly centralized honeypots, attracting hackers. Just in 2019 alone, more than a half dozen attacks racked up tens of millions in users’ funds compromised or lost. Cryptopia ($15 million), DrangonEx ($6 million), Bithumb ($19 million), Binance ($40 million), BiTrue ($4 million), Bitpoint ($28 million), and just last month Upbit ($49 million) for a grand total of $161 million worth of vulnerability. Those are just the ones publicized, and press accounts rely largely on exchanges’ self-reporting.
Exchanges Bring Heat, Minders, Politicians, and Regulators
Crypto exchanges, putting aside their many victims, bring heat, a lot of heat. Politicians’ maxims around the world incorporate never allowing a crisis to go without exploitation. Screaming headlines in the millions mean governments can use very real problems to swoop-in and encroach upon the ecosystem as a whole. And they have.
We don't own any US customers' data as all of them are preserved by Circle. BTW, after careful review, we decided #DigiByte is not qualified for our listing standard. We will delist $DGB soon. Details to be announced.
— Poloniex Exchange (@Poloniex) December 5, 2019
As a result, once maverick cypherpunks are quickly being reduced to groveling before government agencies for licenses and approval under the pretext of “maturing.” What might really be going on is old school regulatory capture: centralized exchanges grow large and then lobby politicians to create laws in their favor, protecting their status, mimicking their legacy ancestors.
Exchanges are also keen to flex listing muscle: listing fees have come under scrutiny in recent months especially. They’re threatening news outlets with lawsuits. They’re picking winners and losers, as DigiByte is finding out after it dared question Poloniex and its association with Tron. We haven’t even touched on faking volume and wash-trading, something Bitwise Asset Management concluded is rampant: of 83 exchanges studied, only 10 were shown to be “honest” trade brokers. That’s right. 88% failed a rather basic assumption. Let’s talk about it all.
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DYOR: CoinSpice is your home for just spicy crypto things. We’re not affiliated with any cryptocurrency project or token. Each published piece is intended for information purposes only, not investment advice and not in the hope of impacting speculative markets. There are plenty of trading sites and coin-specific advocacy journals out there, we’re neither. CoinSpice strives for rigorous accuracy in our reporting. Information presented here is contingent usually on a host of factors, and the ecosystem moves fast — prices change, projects change, and at warp speed. Do your own research.
DISCLOSURE: The author holds cryptocurrency as part of his financial portfolio, including BCH.