The Rise and Rise of Hybrid Cryptocurrency Exchanges
Tuesday February 25, 2020,
4 min Read
The launch of Bitcoin in 2009 kickstarted the cryptocurrency revolution. This new digital asset was not affiliated to any central authority and allowed users to conduct transactions in an anonymous as well as secure fashion. It was not long before other cryptocurrencies emerged, each targeting a niche industry or boasting of an elaborate consensus algorithm. However, cryptocurrencies being virtual resources could not be swapped on traditional physical platforms. Thus, the requirement for specialized trading platforms was highlighted and cryptocurrency exchanges were born.
Cryptocurrency exchanges conduct business the same way forex trading functions, i.e. one currency is exchanged for another currency. For example, just like how the US Dollar is traded for the Indian Rupee, a Bitcoin can be exchanged for Ripple and vice-versa. These platforms sustained themselves by levying a small fee on every transaction.
Soon, these cryptocurrency exchange development were divided on the basis of the underlying architecture they followed. The two groups were defined as, Centralized Exchanges (CEX) and Decentralized Exchanges (DEX). As the name implies, Centralized Exchanges are run by third-party operators who coordinate exchanges between the buyers and sellers. On the contrary, Decentralized Exchanges stay true to the principles laid down by Satoshi Nakamoto and therefore do not feature any third party operators. While CEX platforms allow quick exchanges and high liquidity options, DEX platforms are known for preserving anonymity and being hack proof.
Meanwhile, the two different exchanges struggled with their own unique set of problems. Centralized Exchanges not only charged high transaction fees but also exercise complete control over their customers’ funds. Moreover, CEXs store their customer’s assets on hot wallets which are relatively easy to hack and it comes as no surprise when many of the biggest hack attacks in cryptocurrency history involved CEXs with Mt.Gox, BitFloor and Poloniex being the most prominent ones. Likewise, Decentralized Exchanges are notorious for processing transactions at a snail’s pace which proves unfavourable for users planning to leverage on cryptocurrency’s price volatility. Additionally, DEXs do not follow regulations such as AML and KYC which make it a hotspot for malicious activities.
However, the drawbacks of the two exchanges led to the creation of an improved and advanced platform known as Hybrid Cryptocurrency Exchanges. This type of exchange combines the positives of Centralized and Decentralized exchanges by focusing on important aspects such as fund liquidation and user anonymity.
Some other advantages of Hybrid Exchanges are listed below:
- Even though Hybrid Exchanges are managed by third-party operators, the users have more control over their funds.
- Hybrid Exchanges not only protect user anonymity but are also compliant with different cryptocurrency regulations.
- Funds are not stored on hot wallets which make it difficult to launch hack attacks on Hybrid Exchanges.
- Transaction speeds are fast and transparency is maintained which make Hybrid Exchanges an attractive option to carry out trading.
- The architecture used by Hybrid Exchanges is highly scalable that helps position them as the future platforms of cryptocurrency trading.
With the awareness and applications of cryptocurrency increasing by the day, many are viewing this digital asset as a lucrative investment option. This comes as no surprise since the global cryptocurrency trading volume runs in the billions. Hence, with the introduction of Hybrid Exchanges, the world is moving towards a more responsible and formalized platform to carry out transactions.
There are many leading blockchain and cryptocurrency development companies. They excel at building Hybrid Exchange that is user-friendly and features multiple payment gateways for easy liquidation of funds. Their solutions are easy to customize and are white label thereby empowering you with complete control over the platform. Moreover, the team comprises industry experts who can create an innovative and valuable Hybrid Exchange for your business.