A Brief History on Cryptocurrency Exchanges

  • Laszlo Hanyecz, in the early years of bitcoin, purchased two pizzas for 10,000 bitcoins which was roughly worth about $30 at that time.
  • An essential offshoot of variety is trading among these varieties.
  • Bitcoin Market was the harbinger of many exchanges that would follow suit within a short span of time.

Over the past 15 years, we have seen the term ‘ crypto ‘ transit from sorcery to biology, and finally coming to the world of decentralized finance. Little rude people have imagined that a piece of technology that was once considered obscure might go on to change the landscape of global finance.

In January 2009, Satoshi Nakamoto sent ten units of digital currency to another person named Hal Finney across a digital ledger. This sparked off a revolution in the field of finance.  In essence, it was a counterculture that challenged the notion of finance and currency that had been in practice for centuries together.

As more and more cryptocurrency coins begin to make their entry into the market, there arose a need for bartering these coins with other crypto coins.

However, the digital currency can only be considered valid when it can be bought in the real world. Therefore, there was a need for cryptocurrency to be exchanged either with other valid cryptocurrencies or fiat currency. Laszlo Hanyecz, in the early years of bitcoin, purchased two pizzas for 10,000 bitcoins which was roughly worth about $30 at that time. This can be considered the starting point of bitcoin in specific, and cryptocurrency, in general, increasing its value.

What started as a simple representation or demonstration for a new technology became a major influence in world trade. Several hundreds of other cryptocurrencies were born in the following years, and these coins came to be known collectively as altcoins. The commonality between all these different forms of digital currency was that the electronic payment system was based around mathematics,  and the result is a decentralized currency that is independent of any centralized authority. This currency is easily transferable without any geographical restrictions and that too, at a very low transaction cost.

An essential offshoot of variety is trading among these varieties. Therefore, as more and more cryptocurrency coins begin to make their entry into the market, there arose a need for bartering these coins with other crypto coins. The demand for bartering resulted in the creation of cryptocurrency exchanges.

The Early Days Of The Crypto Exchange

The prototype or the beta version of the cryptocurrency exchange was, deservedly, the bitcoin exchange. The first bitcoin exchange was the Bitcoin Market announced on 5th January 2010. As pointed out by the company itself, the motive behind the creation of this company wants to create a real market where people would be able to trade bitcoins with each other.

The website went live a couple of months later, and it was a massive success. The company was so successful that even PayPal was serving as a channel to exchange bitcoin for fiat currency. However, the success of the Bitcoin Market was short-lived because of the rise of scammers in this space who wanted to acquire bitcoins in almost every possible way because of its growing popularity, value, and demand.

Bitcoin Market was the harbinger of many exchanges that would follow suit within a short span of time. This new wave resulted in a big recognition for which coins, evident in its increase in price. Among all the exchanges that were founded in the vicinity, Mt. Gox was probably the most famous, and also the most infamous one!

The Introduction Of Decentralized Exchanges

One of the founding principles of cryptocurrency and the blockchain technology that goes behind it is the concept of decentralization. The founders of crypto coins believed that financial institutions like banks exerting humongous power and command over the funds of people were something that made the entire financial system flawed and loopholed.

As long as these cryptocurrency coins were used as instruments of a transaction, that was no problem. However, when it comes to the concept of cryptocurrency exchanges, they seemed to stop or rather slit into the realm of centralization again.

This created the need for a cryptocurrency trading software platform without compromising on the factor of decentralization. This resulted in the birth of decentralized cryptocurrency exchanges, commonly abbreviated DEX. The first decentralized exchange was launched in the year 2014, just five years after the creation of bitcoin. One of the earliest decentralized exchanges was the NXT exchange, announced in January 2014. Decentralized crypto exchanges, in the most nascent stages, had a heavily closed ecosystem. This meant that these exchanges can only execute trades on a single blockchain. Even in the NXT exchange, they could only be traded for their native NEXT coin.

This presented a major challenge for any trader who wanted to trade on a decentralized cryptocurrency exchange.

Some Common Features Of Proto Exchanges

Cryptocurrency exchanges had not found their relevance beyond its basic utilities until 2014. The main aim of any cryptocurrency exchange was just to facilitate buying and selling of coins at regulated prices. These prices were heavily dependent on market dynamics, and it also meant that the price of crypto coins would heavily fluctuate.

The cryptocurrency was dismissed by a majority of people as yet another crazy idea. There have been instances when some people had put 10,000 bitcoins on sale for $50, and ended up selling the same for $0.50.

However, with every passing day since 2014, cryptocurrency started to slowly gain prominence, importance, and recognition. This growing recognition also had its flipside. The centralization of cryptocurrency exchanges proved lucrative and attractive for people with malicious intent. This resulted in a lot of cryptocurrency exchanges getting hacked.

Perhaps the most infamous cryptocurrency hack was Mt. Gox. The exchange was responsible for about 80% of all bitcoin transactions globally, and its hack resulted in a loss of over 850,000 bitcoins that were worth about $473 million. To make it even worse, this accounted for about 7% of the total global supply of bitcoins at that point in time.

Ethereum – the Silver bullet

The supremacy of bitcoin as a cryptocurrency and blockchain seemed unchallenged for about five years. Parallel to this, a lot of new exchanges were being created. In an endeavor to build a better system that would be immune to hacks and attacks, a new blockchain was created, and parallel to this, the new standard of crypto tokens was also accepted.

The new blockchain was ethereum, and the new standard of tokens was the ERC-20 tokens enabled by the Ethereum platform. The creation of this new blockchain-enabled the much-needed crypto revolution that would go on to transform the perception of cryptocurrency across the world.

Today, Ethereum might not be the market leader in terms of its capitalization. However, this new blockchain has been instrumental in creating a lot of revolutionary concepts like Initial Coin Offerings (ICOs) and smart contracts. This new blockchain has also been a catalyst in creating a lot of Ethereum exchanges, both centralized and decentralized. The native coin of the Ethereum Blockchain is called Ether. It would not be an exaggeration to say that Ethereum was largely responsible for cryptocurrency, making a massive forward stride in becoming mainstream, at least in terms of fundraising and smart contract technology demonstration.

Perhaps the most infamous cryptocurrency hack was Mt. Gox. The exchange was responsible for about 80% of all bitcoin transactions globally, and its hack resulted in a loss of over 850,000 bitcoins that were worth about $473 million.

The crypto explosion

Perhaps the highest point of joy and profit for almost every crypto enthusiasm game in the fourth quarter of 2017. The price of the bitcoin was steadily increasing against the United States dollar, and in December 2017, the bitcoin was valued at its peak at about $19,800. People who had bought bitcoins when it was not even worth a cent were no millionaires and billionaires.

There are more than 2000, and close to 3000 cryptocurrencies that are live today. The sheer number of cryptocurrencies in operation makes cryptocurrency exchanges an inevitable part of the blockchain ecosystem.

Trading crypto assets has, for long, ceased to be exclusive to the people who know technology. Just like how it has become with forex and stock exchange, cryptocurrency trading has become a forte for people who can’t understand the pulse of the market and predict the possible fluctuations in the prices of crypto assets.

Aspects like leverage trading/margin trading, and the possibilities like short trading, stop loss, and a plethora of other features have made cryptocurrency trading platform an apple of the eye for almost every crypto trader.

Some countries like China and North Korea have been averse to the idea of crypto trading and anything that has got to do with cryptocurrency. Some countries like the United States, Malta, and Gibraltar have been quite welcoming to the idea of decentralized currency. Some of the most populous countries like India have recently relaxed the rules with regards to cryptocurrency exchange trading.

Cryptocurrency exchange as a business

Often, when we think about cryptocurrency exchange software, we can only think of traders. However, a cryptocurrency exchange also gives a lot of avenues for the creator of the exchange to make a profit from them.

Typically, an exchange charges commissions from every transaction, and also a transaction fee for facilitating the exchange. In addition, there are a lot of other ways to earn from an exchange, including but not limited to Initial Exchange Offerings and simple context jewel advertising.

A cryptocurrency exchange functions just like how casinos do. It goes with the philosophy that the house always wins. Irrespective of the trader making a profit or a loss, a white label cryptocurrency exchange makes a profit with every transaction.

The cost of developing a crypto trading software might be humongous, but you can be assured that at some point in time, it is going to give you a profit, and it will never slip back into the realm of losses from that moment.

Conclusion

If you are one of those aspiring entrepreneurs who would like to create business and profit out of developing a cryptocurrency exchange, all you need to do is invest in a crypto exchange software. You can consider employing your own team to develop the software from scratch. You might even want to consider hiring a dedicated team of developers by partnering with a cryptocurrency exchange development company.

In either case, it is going to cost you a lot of time and money. As an alternative, you can consider purchasing white label cryptocurrency exchanges and customizing them according to your business requirements. All you need to do is get in touch with a blockchain development company that specializes in white label crypto exchange development. They will not only take care to create your exchange but also customize it according to your business requirements. This will ensure that you are all set to launch your own cryptocurrency exchange at the earliest possible time!

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Mia Perla

Mia Perla is a Market Research Analyst at Infinite Block Tech. I'm enthusiastic with learning new advancements in the crypto exchange software and blockchain market.

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