A cryptocurrency exchange is a digital platform which allows customers to exchange cryptocurrencies between them. Most of the cryptocurrencies exchanges are centralized exchanges now a days.
Central exchange acts as third party which match buying and selling orders from dealers while furnishing guardianship of dealer’s means. Consolidated exchanges could be classified in two orders in one hand those which give edict currency to cryptocurrency trading like Bitstamp and in other hand those which give cryptocurrency to cryptocurrency trading pairs.
Examples of centralized exchanges:
What is Centralized exchanges
Centralized exchanges hold a large amount of user funds. By design they are vulnerable to hackers as there is a single point of failure. In response to the problems of centralized trading, more and more decentralized exchanges have begun to appear, which is also considered to be the future form of cryptocurrency exchange.
What is Decentralized exchanges
Decentralized exchanges doesn’t acts as third party and enable peer-peer trading on the blockchain. They allow users to keep their private keys and assets. Due to the limitations of technology and difficulty of use, the development of decentralized exchanges has encountered bottlenecks.
Decentralized exchanges problems
Decentralized exchanges have the following problems:
- The scalability of blockchain has not been resolved, the transaction speed is relatively slow, and the network is often congested.
- Every transaction requires a high fee and is inefficient for important trading frequency.
- Trading transactions could be manipulated by miners or validators on low blockchain network like (Bitcoin Gold)
Examples of decentralized exchanges:
Profit model of cryptocurrency exchanges
Cryptocurrency exchanges mainly earns profits by charging various transaction fees (ie: trading fee, deposit fee, withdraw fee, etc…) and token listing fees. Many cryptocurrency exchanges also issue token as a means of incentivize traders, including BNB(Binance), HT(Huobi), and OKB(OKEx).
Bloomberg measured the fee income of the main exchange on March 2018 in accordance with the exchange’s 24h trading amount. The fee rate is based on the announcement in the official website of each exchange. The calculation of the fee rate is generally between 0.1% and 0.3% of the transaction amount.
Case study of centralized cryptocurrency exchanges
BitMEX exchange, large daily trading volume
BitMEX is the first exchange to launch a perpetual, leveraged swap contract, it has a 40 percent market share over the BTC-USD trading pair, the most liquid Bitcoin trading pair in the global market.
Globally, there are currently 200 digital currency exchanges that can generate transactions. Among them, only the BitMEX has the single-day transaction volume of more than $3.76 billion.
FCoin exchange, the new black horse
In May 2018, a new China-based crypto exchange, FCoin debuted. FCoin is not a traditional company. It took a key step in the evolution of the digital asset trading platform to the community. However, FCoin has generated a lot of debate with regard to its FT issuance mechanism. Part of the Chinese media has criticized the model, referred to as “trans-fee mining” by the platform. “Trans-Fee Mining” is the mechanism through which trading fees paid in BTC or ETH are fully reimbursed in value with cryptocurrency’s native token (FT Token).