(July 15, 2020) – The digital world is expanding, and a lot of its exposure can be attributed to the massive evolution of the financial landscape owing to the continuous integration of technological advancement for the purposes of effective and efficient transfer of practically anything of value between transacting parties. We can aptly say that the flagbearer of this revolution has been the nonphysical cryptocurrency whose core mission is to decentralize the medium of exchange through the use of the Internet. But without a central controlling agency, market prices have become so volatile that potential users, investors, fund managers, traders, financiers, and regulators are having second thoughts about its future viability as promised. Not only that, but platform creators were also found padding their trade volumes, manipulating the market through wash trading, and the nondisclosure of asset liquidity to meet obligations and sustain operations, much to the damage of the crypto ecosystem’s integrity as a whole. Yet, true-to-form exchanges are tackling these core problems head-on, and their rules of engagement are gaining traction and bearing fruitful results.
Proof of solvency and proof of legit trade volumes are two categories that constitute issues of transparency.
Building a bridge of trust with investors would require that crypto projects must be open enough as to their financial capacity to fulfil obligations and their ability to manage their operations on a long-term basis. But then most would not want to expose these details to public scrutiny, thereby jeopardizing the initial trust built. Without proof of solvency, the reluctance among investors to take unmanaged risks can solidify.
The absence of transparency when it comes to volume has been a breeding ground for countless malicious tactics for crypto exchanges to gain big chunks of market share. Many traders who rely on reading volume for liquidity and market impact have been lured into platforms with padded volume reports due to the crypto industry’s lack of oversight. Regulators have since been on the hunt with a cracking whip to weed out the budding industry of lawless elements.
But the days of faking volume are numbered as the underlying distributed ledgering of the blockchain technology is taking transparency to new heights. Policing the ranks by independent firms include analyzing data on-chain and comparing it to trading volumes in order to detect unscrupulous activities. Achieving consistent volumes across providers to present an accurate picture of the market is a constant among researchers using the right methodologies in order to attract institutional investment.
Cybercriminals are not ignorant to the fact that crypto trading volumes among the largest exchanges on a monthly basis exceed billions of US dollars. That is why they are attacking crypto exchanges with regularity and are often successful. The currently centralized crypto exchange systems can be embedded with malicious scripts on the source code which can be nightmarish to both owners and users. The two-factor authentication and cold storage are well-used security measures, and others have introduced a single-transaction withdrawal, requiring multiple signatures from the exchange founders before any transaction transpires. Any progression can be halted at any time when hackers have accessed the platform’s system. P2Ps and decentralized exchanges are in the works to increase scalability and interoperability although it’s low liquidity makes them still an outside consideration among traders, as of yet.
Looking back to how the world is opening its arms to something new, electricity took 46 years, 35 years for the telephone, 14 years for television, and 7 years for the Web to gain at least 25% of global market penetration. Expert estimation is considering a spread of 15 years before cryptocurrencies can reach a level of adoption the Internet is enjoying today.