Notes

Seven Attributes Of Crypto Exchanges Over Traditional Stock Exchanges




Most of these advantages are specially relevant for retail investors which can be much better using Crypto exchanges in comparison to traditional exchanges. So traditional exchanges should begin to move or face the fate of the dinosaurs. Clothing long until we start to see we have and ideas of crypto exchanges deployed for stock, bond, currency and options trading. This doesn't mean stocks ought to become blockchain-based tokens, but that tokens enables you to represent stockholdings pretty easily and transacted blockchain style.





1. Fractional purchasing
With crypto exchanges, you can get whatever fraction you need from a asset. This means if you wish to invest $523 in bitcoins that can be done just that. You don't need to purchase a whole bitcoin, you can purchase any fraction than it (e.g. 0.003 BTC). This gives small investors more flexibility plus can make it simpler to produce balanced portfolios with anywhere.

With traditional exchanges, you have to buy no less than one stock and you can purchase only whole numbers. This may stop an issue for big-time traders but retail investors might find it too lumpy. A Google or Amazon stock is trading for north of $1.000 making it a big commitment, not to discuss about it the $325k Berkshire Hathaway stock.

There is really pointless with this except the truth that once stock certificates were paper documents that couldn't be cut into smaller pieces. Nowadays fractional stock investing is perfectly feasible and is implemented quickly through tokenization of stocks.

2. 24x7 trading
With crypto exchanges, you should buy and then sell on 24x7. Needless to say, exceptionally the websites are down or even the blockchain is completely backed-up. This is extremely convenient for retail investors who are usually working or busy when the market is open. Additionally, it levels the arena regarding to be able to reply to news like the China ICO crackdown.

With traditional exchanges, you're restricted by the "market hours". Just like your neighborhood physical store vs. Amazon. Obviously, institutional traders get all form of "pre-market" and "post-market" trading which is not available to retail investors.

Again, "market hours" designed a lot of sense when real people were trading in the pit. Nowadays there isn't any reason to not allow 24h trading since the "pre and post" markets show. Needless to say, if many are allowed from the "pre and post" they have an unfair edge over the rest of us and can need to keep their own rules.

3. Instant Settling
With crypto exchanges, you can get and then sell instantly. The exchange takes choose to instantly settle depending on their custody of crypto assets and formalize the progres as fast as the blockchain allows. This is extremely natural, as soon as you hit the button there is a asset.

With traditional exchanges, your order is processed its keep can be a long settling process (currently T+2 or a couple of days from close). While there is normally no problem with, it helps High Frequency Traders advantages over us common mortals.

There's two problems to allow for instant settling with current stock market infrastructure. First, there's a technology problem. While the blockchain allows instant settling, previous technologies require by way of a convoluted technique of checking and rechecking. Second, the multilayered value chain which made sense in the " old world " takes necessary added time than the direct type of crypto exchanges.

4. Transparent order-books
Crypto order books are totally transparent in several exchanges like Kraken or Poloniex. You can observe the depth from the buy and sell side of every market in every of the assets you're trading. And that means you can understand how the marketplace looks along with what can happen in the event you convey a large order.

In traditional exchanges, you do not see order books being a retail investor that happen to be proprietary on the exchange and could be sold as a value added. The matching of order books is usually an important advantage for market makers. This is the main objective with the so-called "dark pools" that investment banks are creating.

Transparent order books will be a consequence of competition and consumer expectations around the the whites. But they also need today's technology infrastructure that may deal with the increased information volume.

5. Modern and secure interfaces
Crypto interfaces are believed from the web and mobile perspective, with security as a key feature. They may be light clients in browsers or smartphones. They may be accessed easily from any oral appliance use high tech technology. This enables simplicity of use, speed and intuitive customer experience.

The regular interfaces I have experienced are nevertheless full applications inside a desktop setting with clunky interfaces and long load time. This probably is related to legacy applications that need to be updated but need to be secured and evolved slowly.

Evolving to a different application interface is going to be challenging as it will demand agile practices and frameworks which can be second-nature for new entrants but take courage and conviction from existing incumbents.

6. Direct-to-investor
Crypto exchanges deal directly with retail investors and possess few others players inside the value chain beyond themselves. If you are at an exchange you might be directly conversing with your custodian, your marketplace, your agent, etc... This will make sense in a world through which decentralized trust reduces the needs for intermediaries. There are many exchange mechanisms including Shapeshift which are a lot more direct and merely hook you up to the other side from the trade.

Traditional exchanges have a very long list of players. They've got brokers, that connect to the exchange for your benefit. They've got custodians, having care of your assets. This made sense in the world without blockchain through which decentralized trust was complex. Now exchanges grapple together with the question of going direct and bypassing their partners, just like consumer goods companies when eCommerce was starting.

Within a Blockchain-enabled world there is certainly decentralized trust thereby you don't need numerous actors to make trades secure. This will probably take to a progressively leaner value chain model.

7. Variable and transparent fees
Crypto exchanges have transparent and frequently low fees. They are transparent because being direct there is nowhere to cover up, so it will be very obvious is there a exchange charging. Crypto fees vary from 0,10-0,30% towards the extremely expensive but convenient Coinbase with 1,5% to 4% fees.

Fees in traditional brokers are difficult to know while they routinely have numerous components. They can be low for larger trades, but sometimes typically amount to $1 to $7 per trade that may be pricey for a few transactions.

Fee schedules are caused by cost and competition. With blockchain type infrastructure cost will appear reduced very significantly. As well, increased competition will represent a secular trend of shrinking fees for retail investors with ETF and crypto exchange fees being the defacto standard which others converge.

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Overall, it appears like an antique shift from your previous model with all of its legacy limitations to the model which a new technology enables. Because of the already digitized nature of exchanges and stocks, bonds and options expect movements to begin fast as well as the change to be swift. A lot more like classifieds from the newspaper industry than the slower shift to e-commerce. Regulation can be quite a hurdle, but financial authorities seem available to more effective, fair and quick transaction methods. The exchange that moves quicker can probably eat the lunch of competitor exchanges. Similar to the likes of Schibsted launched digital classifieds across Europe and dominated the course. So traditional exchanges should face a new reality to see that they are going to take their level on the new gold standard.


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