Usually, traditional asset exchanges and blockchain exchanges are seen as two completely different ideologies. Blockchain exchanges are known for their reputation as being more focused on their community and freedom of exchange, alternatively, traditional asset exchanges are seen as the stricter, slower to develop option from the current financial system. This is in contrast to the general opinion of cryptos.
This current way of thinking may not be around for much longer, as blockchain exchanges are beginning to form meaningful partnerships with regular asset exchanges, with the aim of utilizing stock exchange technology in their platforms. This could be the future of blockchain exchanges.
Disadvantages Of Traditional Asset Exchanges
There are some cons to using traditional asset exchanges that can be overcome through blockchain technology. Firstly, there are set trading hours for traditional exchanges, which can serve to bar retail investors who may not have the time to trade between those hours.
Furthermore, traditional asset exchanges can incur great expenses and have fees that aren’t exactly transparent. These eat into the profits of investors on their platforms and can make a would-be investor feel like it is not worth their time.
A large number of traditional asset exchanges are not within range for smaller retail investors with an express interest in trading. The reason for this is that stock exchanges and other asset exchanges do not typically offer fractional trading. This is the act of purchasing or selling a fraction of an asset. Realistically on traditional exchange platforms, users will need to meet a minimum order for the asset, or, at a minimum one of this asset.
How Crypto Exchanges Are Using Traditional Asset Exchange Technology To Their Benefit
Notwithstanding the obvious benefits of blockchain exchanges, they can still benefit from the use of technology that has been created or utilized by traditional exchange platforms.
First of all, traditional exchange platforms have created trading systems that are scalable, even when trading volume spikes drastically. Following the dramatic rise of popularity in virtual currencies, making sure a system is scalable is critical to any crypto exchange. Furthermore, these trading systems are reliable and do not go down often which ensures a positive customer experience.
Also, it has been well-publicized that certain crypto naysayers have likened the cryptocurrency market to the Wild West, due to a lack of regulation. Through these partnerships, cryptocurrency exchanges also get a stamp of legitimacy, as exchanges such as the NASDAQ would not work with a cryptocurrency exchange without a robust regulatory framework. These traditional exchange systems also often generate such frameworks to improve compliance.
Lastly, a large number of cryptocurrency exchanges have experienced problems with immoral trading. There are currently systems in place in traditional exchange platforms that automatically reviews all trading activity on their platform. Crypto exchanges are seeing the benefits of these technologies in making sure that there is no unethical trading on the platform. This also automates and decreases the cost involved in surveillance. Cryptocurrency exchanges become safer for users as a result.
Three examples of such technological adoption have been cited below.
Blockchain Exchange Platforms: Three Cases
AAX is a Maltese digital asset exchange that was founded in 2018, and in November 2019, they formed a partnership with London Stock Exchange Group Technology to utilize their Millenium Exchange technology on the AAX platform. This is the first time that Millenium Exchange has been executed in a cloud-technology environment and the benefits to AAX are that the new tech will provide better latency, scalability, and resilience to the platform. The execution of this platform now means that Millenium Exchange’s asset class coverage has been expanded to include the pairing of cryptocurrencies and cryptocurrency futures.
Gemini, the well-known cryptocurrency exchange operated by the Winklevoss brothers struck a partnership with the NASDAQ in April 2018. The specifics of this partnership allowed the cryptocurrency exchange to utilize the SMARTS surveillance technology which is commonly referred to as the most widely used surveillance system of its kind in the world. The SMARTS surveillance technology allows for the automation of the detection, investigative, and analytical aspects of surveillance, highlighting potentially abusive or unethical trading. This increases the efficiency of the surveillance platform and reduces the costs involved in such surveillance activities.
Japanese-owned SBI Virtual Currencies operating the cryptocurrency exchange, VCTRADE started utilizing technology from the NASDAQ, specifically making use of the stock exchange giant’s Matching Technology. The benefit to VCTRADE for using this system is that it gains access to the high-performance system which can handle a large number of order types and can process trades involving all asset types. The solution also allows VCTRADE to scale up its operations as trade volume and activity increases, in addition to creating a safe trading environment through their regulatory framework.
In closing, it can be seen that an increasing number of cryptocurrency exchanges are beginning to take steps to work with traditional stock and asset exchanges. These partnerships are symbolic of a steadily changing perception of cryptocurrencies and the exchanges that offer them; this can hopefully help to continue a growing trend whereby cryptocurrencies are seen as a valuable, safe, and valid asset to be traded.