With recent research indicating the global cryptocurrency market size will grow from $4.67bn in 2022 to $12.10 billion by 2030, the landscape of cryptocurrency trading exchanges is constantly evolving. Lan Yue, co-founder & COO of BIT, outlines three key emerging themes that are likely to shape the future of these platforms…
Co-founder & COO, BIT
Crypto trading exchanges have experienced exponential growth in recent years, with millions of people worldwide using these platforms to buy, sell and trade digital assets. Recent research indicates the global cryptocurrency market size was worth $4.67 billion in 2022 and is estimated to grow to $12.10 billion by 2030, with a CAGR of 11.9 % between 2022 to 2030. However, there is an oversupply of exchanges, which is not matching these increasing trading volumes. The landscape of cryptocurrency trading exchanges is constantly evolving, with three key themes emerging that are likely to shape the future of these platforms.
Security will continue to be one of the major challenges and concerns for cryptocurrency trading exchanges. It is important to understand the importance of developing operational security and the emphasis on continuously managing controls and services to prevent, impede and detect attacks. With the increasing value of digital assets, hackers have become increasingly sophisticated in their attempts to breach security measures and steal users’ funds. According to a report from blockchain research firm Chainalysis, crypto crime accounted for a record-setting $3.8 billion, across user wallets, DeFi protocols and centralised services in 2022. Most exchange hacks occur due to internal operational issues, rather than technical problems with wallets, such as vulnerabilities found in automatic withdrawal processes. In response, exchanges will need to invest in robust security measures to protect against hacking attempts on their platforms, such as multi-factor authentication and cold storage of funds.
Crypto exchanges are responsible for safeguarding the funds of their users, which requires implementing robust security measures. Our platform was built with security and robustness in mind, ensuring a smooth integration of important risk management features and we employ several security measures to protect our platform from external and internal threats. These measures include multisig wallets, multi-factor authentication, encryption, cold storage, and phone call confirmations of fund withdrawals. We continuously review our procedures to ensure the various security measures we’ve implemented remain effective against any emerging security risks. BIT is committed to ensuring compliance around security standards is met at all levels within the company, while also understanding the industry needs to collaborate to develop security standards and best practices to enhance the security of the crypto market as a whole.
The cryptocurrency market is dominated by centralised exchanges (CEX) which allow users to trade cryptocurrencies with ease, speed, and security. However, decentralised exchanges (DEX) are becoming increasingly popular, as they offer users greater control over their assets and eliminate the need for intermediaries. While both centralised and decentralised exchanges have their advantages and disadvantages, the future of crypto exchanges lies in the combination of the two. This hybrid model offers the best of both worlds, providing users with the speed and liquidity of centralised exchanges, as well as the security and user control of decentralised exchanges. One way that centralised exchanges can incorporate decentralised features is by integrating decentralised protocols into their platform. Users can choose between centralised and decentralised trading. This would allow users to trade on a centralised order book or a decentralised order book, depending on their preference. By offering both options, centralised exchanges can appeal to a wider range of users, while also providing them with greater control over their assets.
On the other hand, decentralised exchanges can also benefit from integrating centralised features. While DEXs offer greater security and user control, they often suffer from low liquidity and slow transaction speeds. This is because DEXs operate on a decentralised network, which can be slower and less efficient than centralised exchanges. A combination of both CEXs and DEXs will mean crypto exchanges can either directly face customers or have a service layer, such as third-party custodian wallets or asset management. By integrating centralised features, such as order matching and off-chain order books, DEXs can improve their liquidity and speed, making them more attractive as a hybrid model for users.
Regulation in the crypto space is increasingly heading towards localisation, as jurisdictions such as Dubai and Hong Kong proactively seek out the establishment of regulatory framework, as they seek to become colossal digital asset hubs. The regulators in these areas will benefit first, as Crypto exchanges are likely to seek positive collaboration with them in the future, in turn providing valuable insights into the industry, such as the latest trends in cryptocurrency trading and the types of customers that are using their platforms. The future of compliance for crypto exchanges is likely to be shaped by increased regulation, more stringent KYC and AML procedures. In addition, crypto exchanges can work with regulators to develop more effective regulations. This can help to ensure that the regulations are practical, enforceable, and do not stifle innovation in the crypto industry. BIT is actively seeking Dubai’s VARA licence and is in the process of setting up entities in the region. This is testament to our fully compliant stance with regulators, as we are aware that compliance with regulations is essential for the success of the wider industry.
The future of cryptocurrency trading exchanges will ultimately depend on their ability to adapt to changing market conditions. Global crypto owners increased by 39% in 2022, rising from 306 million in January to 425 million in December, and whilst competing against the backdrop of a highly volatile market – where prices can fluctuate rapidly – exchanges will need to be able to adapt quickly to the inevitably ever-changing operational landscape, especially since newer trends will likely emerge overtime. Working together, we can accomplish what is impossible alone: convenient, secure, smart crypto trading interactions that work better for everyone.
Lan is co-founder and COO of BIT