Exchanges: From Casinos to the Drivers of Blockchain Innovation — Part 2
Are exchanges really just casinos disguised investment platforms as the Korean government argues? Bill Shihara, the CEO of global exchange Bittrex, certainly disagrees. During his visit to the Korean National Assembly in February 2018, Shihara emphasized the importance of systematic regulation for cryptocurrency exchanges. “The (Korean) government blocking cryptocurrency exchanges from operating fully will end up stifling potential opportunities and weaken the country’s competitiveness. In 10 years, a country’s blockchain ecosystem will be a key measure in determining their global status.”
Exchanges that actually function like casinos obviously require regulation but restricting the entire industry and severely limiting its potential is problematic. During his opening address at the Upbit Developer Conference 2018, Shihara emphasized that “blockchain projects spending money on exchange listing fees need to refocus their resources into technology”.
“When we started in 2014 and began learning about blockchain, I thought that it could become a foundational technology for other technologies. Bittrex was started with a long-term, 20-year outlook. Bittrex works hard to feature blockchain projects with outstanding technology. We invite those with innovative business models to partner with Bittrex,” he continued.
It’s a not-so-secret fact that certain exchanges use their position of power to demand listing fees from blockchain projects. Shihara made it clear that “Bittrex does not demand listing fees. Our founding principle is that our success must not be in conflict with the success of the blockchain platform.” It’s a symbiotic model where exchanges function not as casinos, but as financial partners that provides liquidity and procures funding for blockchain projects.
Upbit shares the same principle. Lee Sirgoo, CEO of Dunamu, which operates Upbit, communicated this in his welcome address for UDC 2018 while explaining the company’s vision behind the developer-centric conference. Lee stated that UDC “started with the idea that Upbit wants to go beyond just a cryptocurrency exchange and contribute to the blockchain and cryptocurrency ecosystems.” He stressed that “Developers will remove the stigma (speculation, pyramid scheme, fraud, etc.) currently associated with blockchain and cryptocurrency and create much more encouraging associations such as ‘value creation’ and the ‘technology of the future. Ultimately, I believe that your codes will be the crucial ingredient that helps the blockchain and cryptocurrency ecosystems grow.”
As part of this thinking, Dunamu established Lambda 256, a blockchain research arm, and announced plans to invest KRW 100 billion over the next 3 years on promising blockchain-related projects through its investment subsidiary Dunamu and Partners.
The rise of the decentralization spirit and DEXs
The commercialization of decentralized exchanges (DEXs) really took off starting in 2018.
Most cryptocurrency exchanges are centralized, meaning they employ a system where the users’ assets are managed through a centralized server. One definite benefit is faster transaction speed, but the accompanying security risk is a fatal flaw. As we saw from the various exchanges attacked by hackers post-Mt. Gox, once the central server is compromised, the users’ assets become highly vulnerable.
Decentralized exchanges don’t store the users’ assets. They merely connect users who want to sell cryptocurrencies with those looking to buy, and if a transaction takes place, the details are stored on the Ethereum blockchain. The fees are cheaper, and the users can use their own private keys to protect their assets. 0x protocol and Kyber Network are among the supplementary protocols providing decentralized exchange platforms, with more and more Dapps entering the market. Allbit is a “native” DEX which launched in July 2018 by Ozys. Through the application of an Ethereum-based side chain to the exchange system, the transaction speed — a critical problem for existing DEXs — was greatly improved. Plus, Gas fees were removed, providing a user experience similar to centralized exchanges.
Allbit also uses smart contracts to protect assets from hackers, using them to record all information, including asset deposits, management, order book, matchings, transactions, and withdrawals. Allbit is planning to extend support to non-ERC20 tokens, utilizing side chain technology to additionally offer various mainnet coins. During UDC 2018, Allbit CEO Lee Ik-soon stated that “Instead of being just another exchange centered around transactions, Allbit will lead the way in setting the standard for next-gen exchanges by evaluating and criticizing the coin’s core value through the APOT (Allbit Proof of Token) platform, with the goal of promoting the healthy growth of the cryptocurrency market.”
※ Referenced speeches (The speeches can be viewed in their entirety on the UDC 2018 YouTube page)
- Day 2 Welcome Speech I by Dunamu CEO Lee Sirgoo (Available in Korean only)
- Day 2 Welcome Speech II by Bittrex CEO Bill Shihara
To read the next story — Successful Platforms are Invisible: Solve the Expandability Problem
*This post is a translated excerpt from Proof of Report UDC 2018 written by Ran Ko, CCO of Join:D, a blockchain media affiliated with JoongAng Daily.