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Cryptocurrencies exchange platforms

Cryptocurrencies exchange platforms

Cryptocurrencies exchange platforms

This article is intended for readers who have already acquired a certain level of knowledge in the field of Blockchain and cryptocurrencies. If the article seems indigestible, do not hesitate to choose another difficulty in the box below wink

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What are they for ?

A cryptocurrency exchange platform  allows trading crypto currencies , buying or selling them,  exchanging them to traditional fiat currencies. Concretely, an exchange platform is an internet web site on which you can buy or sell  Bitcoin, altcoins (crypto currencies) or digital tokens . Very often, only Bitcoin and Ethereum are available through fiat currencies transactions. However, each platform decides its own  use policy . Thereby, one should make the choice among a great number of existing platforms (we are counting 175 platforms of which Coinbase and Binance for the first well known).

Positive points :

-Simplicity : Face to  decentralization that allows ‘peer to peer’ transfers in a total secured  operation, access to crypto currencies through exchanges platforms simplifies transactions and allows users to benefit from many functionalities to change or transfer digital assets

-Use and mobility :  It is possible to use opened services offered by the platforms whenever you want and wherever you are.  At the smartphone ‘era’, most of the trading platforms can offer an Android or iOS app that allows using  all services for users that make trips or move and allows to manage anywhere and anytime.

-A wide range of services : Even if users of those platforms need technical skills, most of them  are trying to enhance functionalities and friendly using. However, improvements should be realized  to facilitate platforms using and trading digital assets to a larger audience.    

Negative points:

– Recentralization : The paradox is that the platforms are re-introducing  centralization within the decentralized ‘blockchain world’.

-Security : In addition, one of the major blockchain strength  is about the transactions security that is existing thanks to the cryptography. By recentralizing transactions on the platforms, the risk is therefore increased. Because, like the with credit cards systems, the crypto platforms are sometimes the targets of cybercriminals, and the least secured are victims of hackers, and therefore cryptocurrencies owned by clients users stolen Following a big hacking,  History will especially remember hundreds  of thousands bitcoins that disappeared on the Japanese platform  MtGox.

– Regulation,  official agreements : Regulations are different, depending on the countries  Between  30% to 50% of the  platforms hold a business license, according to a Cambridge University study and quoted by the Landau report.78% of the  platforms for which the headquarters are located in North America hold an official business license. 85% of those based in Asia- and Pacific Rim do not hold any business license. In Europe, 47% hold a license and  43% in Latam. Since the launch of Bitcoin in 2009, 45% of the web sites have ceased running businesses, and it is probably the consequence of hacking for 50% of them. For the smallest platforms, it is more probably due to too low volumes.  

How to choose them ?

Even if most of the trading market places share the same characteristics, each of them get specificities. You can find here below few key points to make your own choice. 

Fees

For a large majority of platforms, transactions costs are degressive in proportion to volumes (0,30 % for a small order , 0,10% or down to  0.01% for a very large order). Inquire and look for information about custody costs and fees on withdrawals in euros. Purchases with credit cards are clearly going faster but are  the most expensive too.

 

Privacy and regulation

By nature, Bitcoin is an anonymous digital currency and users are frequently willing not to share their private  datas on Internet (privacy). But due to reinforced regulations for the fight against the financing of illegal activities,  platforms shall ask users for personal informations , in order to be authorized to trade (processes  KYC or ‘Know Your Customer’ and AML or ‘Anti Money Laundering’) An ID copy  (with a photo) is often necessary. Different layers of  control are possible and some platforms are more flexible ( some of them even allow to trade anonymously still).

 Security

Cold storage : It is a use that consists to store cryptos  ‘off line’ , that is to say an off-line physical device (ext hard drive ,USB key).It is a  favored solution by many platforms that aim to defend oneself against hackers. To minimize risks, managers of the platforms   deploy crypto currencies cold storage solutions(traditional hard drive disk). Otherwise, work is in progress to find out or enhance others and more sophisticated security solutions.

‘On line’ storage or  ‘hot storage’

– SSL certification (Secure Socket Layer) is a good quality security solution. It is about a securisation   protocol between computers on the network.

– Two factors authentification  (2FA) preserves  clients to an unauthorized  access. This method needs two sub-methods for validating and authorizing access to an ‘on line’ account.

Usually, 2FA process is the following :

1/  a user  known information  ( password)

2/ A user owned   element (often as a digital code generated on the mobile device)

Otherwise, the biggest platforms are refunding clients that are ‘on-line’ attacked and victims of hacking. Such  cases happened recently

 

Transactions volume

The volume is something that can be used to assess confidence and success  of a platform. Volume is correlated to the number of available crypto currencies for the trading A large volume is favorable for trading in good conditions.

 

Proposed  pair trades

BTC/USD  is the most traded pair  but some trading platforms  also offer other trading possibilities from Bitcoin to Fiat. As altcoins are becoming more and more popular, many platforms offer the possibility  to trade minor ‘alternative coins’. However, even in this case, most of the time, the trades of the altcoins are priced in bitcoins, so users cannot deal purchases or disposals directly priced in US dollar for example (or in any other fiat) .

Trading with leverage

It is also possible to trade futures or options, but it is always by paying additional cost. Margin trading means borrowing  money to increase exposure (leverage effect). This leverage allows high profit after closing the trade, but also means a higher risk for the user. The possible leverage can be increased up to 100x and even more ! This is unreasonable.   

 

Some concrete elements  

To conclude, it worth to mention comparative elements that  follow a recent analysis combined to a ranking of the best platforms, a study produced by Cryptocompare  (a UK crypto datas provider).

The study has been realized on the basis of traditional assessment parameters (total  trading volumes, fees, …) and also includes some other criterias as ‘security level’, past  hacking events (if any), clients privacy data informations leaks, etc…

Please find below the Top5 platforms ranking as you can find within the mentioned web site :

(https://www.cryptocompare.com/external/research/exchange-ranking/)

  1.     GEMINI
  2.     ITBIT    
  3.     COINBASE
  4.     KRAKEN
  5.     BITSTAMP

Whatever the quality of that type of ranking is (for which we do not comment and just report the output), depending on their needs, users should make their own opinion by themselves .

About the editor…

A passion : Economics, behavioural finance and emerging digital assets

Yves started his career in the asset management in 1986 where he worked at different positions as manager of equity funds and diversified funds. at Crédit Commercial de France and later, at Barclays group in Paris. In 1998, he took the lead of equity funds and diversified funds, then of the whole fund management business at the French team of the Dutch Robeco group  before joining Natixis Asset Management in 2012 as Director of the Equity Investment business unit. Yves left Natixis AM in 2018 to start as an independant player for professional investors and corporates (advisor and fund raiser).

He likes to engages in sports that test his endurance like running and swimming, Yves is also fascinated by social sciences, and more specifically by history and economics. But this is the economics mechanisms behavioural aspect and the markets behavioural analysis that are a constant source of thought and discussion. Since few years, the blockchain issue and emergence of crypto assets is a new field of passion and opportunities for him.

Yves Maillot

Financial markets and asset management

Yves Maillot

Financial markets and asset management

Decentralized Finance in motion

DeFi or Decentralized Finance gives opportunities. Recently, few traders took the chance of using this new financial system by realizing winning arbitrages on substantial volumes through crypto ‘flash loans’.

WHAT IS LITECOIN?

Following Bitcoin and its two main ‘Forks’, Bitcoin Cash and Bitcoin SV (see article published December 6, 2019 ), Ethereum and XRP (see article published January 23, 2020), ranked by the size, Litecoin is currently the sixth largest crypto currency now.

Bitcoin mining ban in China

Bitcoin mining ban in China

Bitcoin mining ban in China

This article is intended for readers who have already acquired a certain level of knowledge in the field of Blockchain and cryptocurrencies. If the article seems indigestible, do not hesitate to choose another difficulty in the box below wink

Difficulty of the article:

CHOOSE ANOTHER DIFFICULTY
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Let see first how regulations on the use of crypto assets have recently evolved in China before giving you few comments about the specific issue of the Bitcoin mining activity in this country. Regularly, rumors of ban come up , but at the same time, we know that China will become to be the first major country to launch its own digital currency in 2020.

Bitcoin legal status all over the world

The legal status of Bitcoin and related crypto assets varies substantially from state to state regulations and is even still undefined in many of them. While some states have explicitly allowed its use and trade as an asset, others have restricted or banned it.

 

Légalité du Bitcoin dans le monde

Green : Legal to use Bitcoin
Red : Full or partial prohibition
Purple (Russia) : Specific legal restrictions but Bitcoin is not prohibited explicitly
Yellow (of which China and India): Legal  restrictions on Bitcoin use

The case in China : regulation changes 

In China , financial institutions are not officially allowed to facilitate bitcoin transactions. Regulation prohibits financial firms holding or trading cryptocurrencies.

 On 5 December 2013, People’s Bank of China (PBOC) made its first step in regulating bitcoin by prohibiting financial institutions from handling bitcoin transactions.

 On 1 April 2014 PBOC ordered commercial banks to close bitcoin trading accounts.

In September 2017, cryptocurrency   trading exchanges were banned by regulation with 173 platforms closed down in less than 9 months. 

In early 2018 the PBOC announced that  the State Administration of Foreign Exchange would crack down or ban  on bitcoin mining. Then , many bitcoin mines based in China had stopped operating  but this decision was not finally approved.

Mining ban in China

For many people Bitcoin mining is synonymous with China, as we find out there the largest mining pools but   also the predominant manufacturers of ASIC mining equipment. We estimate the world mining share realized in China at 74%.  But the NDRC (National Development and Reform Commission),a Chinese agency which is responsible for setting domestic macroeconomic policy and follow up, has been in charge of studying and planning the ban of this activity. But in fact, up until now, it has never been finally decided as many different players together involved were not yet consulted   and as this decision has not been validated by the executive politics power yet.  

Reasons  to justify the idea of Bitcoin mining ban are several fold, of which :

-Environmental   unfriendly aspects because mining is energy wasteful and rejects CO2. However, it worth to add that an increasing share of energy used for mining is coming from renewable sources. 

-In addition, because of current regulations and  laws as Bitcoin does not comply with all the existing financial rules.

But it is likely that the real  reasons are related to the uncontrollable an pseudonymous Bitcoin using, in a period   during when private saving is searching for ‘safe haven’ and because private money cannot flow out of the country (household savings are blocked locally in China). Together, the political power is looking for a greater   credibility of the Yuan (it will also likely be coming from the launch of the crypto sovereign currency next year) .Meanwhile, the banking sector pressure is strong against Bitcoin, and even if Bitcoin is not widely adopted,  the potential is huge and its use would greatly reduce the power of the banks.     

 

How a removal of China mining could affect security  ?

What would be the consequences of such a removal from China and if all that mining activity moves to other countries in the world where costs are also weak (low energy consumption as in Canada, Russia or Iceland) ? It means that market share of miners out of China would rise and limit the large mining concentration in China. This would not be a bad news in term of security. But if the miners don’t find any countries where to transfer their businesses and cannot   sell the equipment , the available mining power would suddenly plunge and would slow down the global transactions validation process. Therefore, this would trigger big delays on the network and transactions commissions would increase sharply over the following days. 

 

What would be the effect on ASIC (‘Application Specific Integrated Circuit’) ?

Bitmain and Canaan Inc (the two  largest producers of ASIC mining gear.in China) and all the other players would be the most affected. While it appears that the ban only affects the usage of mining gear, not the manufacturing of it, the bottom line of these two companies will still be at risk. 

When Bitmain produces a new ASIC miner instead of selling it they use the cutting edge technology to mine Bitcoin themselves. This gives them a significant advantage over all the other miners. Through this method Bitmain can generate a significant revenue on their new ASIC miners and once the profits start to flag they can still sell these ASICS  equipment. If Bitcoin mining was banned in China, however, the large ASIC manufactures would no longer be able to do this (unless they set up mining operations in other countries) and they would lose profit because of it. With this scenario, it worth noting that tens of thousands of second hand ASIC miners would come onto the market at significantly reduced prices and benefits. 

 

What would be the impact on prices ?

1/ Some people are saying that it could increase the price of Bitcoin because  mining would become more expensive (needless to say that the cheap average price of electricity in China is the main reason for the plethora of Chinese miners) 

2/Second argument relies on the fact that lowering Chinese mining interference would strengthen confidence on Bitcoin and could help for a higher price. 


Conclusion   : Mining could be limited but not banned 

1.It seems clear that how Bitcoin and other crypto currencies are considered by Chinese officials is a double speech. : in the one hand, restrictions to use it, and on the other hand, an early advanced project to issue soon a sovereign Chinese  crypto currency (likely backed to Gold). But this digital currency will be totally controlled by the Government.. 

  1. About the mining activity, a potential ban in China would structurally modify its fundamentals. A large proportion of the mining in China is still very active, especially in some regions (they are still 30 000 machines that are not all legalized in the Sichuan region and that represent roughly 70% of the Chinese mining capacity). What NDRC did announce has worried many people, but reality is far different and it is not likely that this business will be proposed to be banned, and if yes, it is not likely that the Chinese power agrees such decision. If it is decided, miners will leave the country, and if they can’t , the network will however continue to run with security.

Not a ban but a   limited use, in addition to taxation that can be reduced (if miners use renewable energies) would be a more logical scenario 

    About the editor…

    A passion : Economics, behavioural finance and emerging digital assets

    Yves started his career in the asset management in 1986 where he worked at different positions as manager of equity funds and diversified funds. at Crédit Commercial de France and later, at Barclays group in Paris. In 1998, he took the lead of equity funds and diversified funds, then of the whole fund management business at the French team of the Dutch Robeco group  before joining Natixis Asset Management in 2012 as Director of the Equity Investment business unit. Yves left Natixis AM in 2018 to start as an independant player for professional investors and corporates (advisor and fund raiser).

    He likes to engages in sports that test his endurance like running and swimming, Yves is also fascinated by social sciences, and more specifically by history and economics. But this is the economics mechanisms behavioural aspect and the markets behavioural analysis that are a constant source of thought and discussion. Since few years, the blockchain issue and emergence of crypto assets is a new field of passion and opportunities for him.

    Yves Maillot

    Financial markets and asset management

    Yves Maillot

    Financial markets and asset management

    Decentralized Finance in motion

    DeFi or Decentralized Finance gives opportunities. Recently, few traders took the chance of using this new financial system by realizing winning arbitrages on substantial volumes through crypto ‘flash loans’.

    WHAT IS LITECOIN?

    Following Bitcoin and its two main ‘Forks’, Bitcoin Cash and Bitcoin SV (see article published December 6, 2019 ), Ethereum and XRP (see article published January 23, 2020), ranked by the size, Litecoin is currently the sixth largest crypto currency now.