Typically, blockchain exchanges and traditional exchanges, such as the Nasdaq or London Stock Exchange, have been seen as polar opposites where blockchain exchanges are seen as a more open, community-focused option, whereas traditional exchanges are seen as relics of the old financial system — stuffy and opposed to blockchain technology and crypto.
This now seems to be changing, as blockchain exchanges have finally begun to form strategic partnerships with traditional stock exchanges, which allow the blockchain exchanges to utilize their technology in their operations. Is this the future of blockchain exchanges?
Problems with traditional asset exchanges
There are many disadvantages with traditional exchange platforms that blockchain technology and exchanges can help to fix. Firstly, traditional exchanges open and close at set times, which can limit the trading activity of retail investors who may be busy during market hours.
Additionally, traditional exchanges can have very expensive and complex fee schemes for trading. This can also put off investors with less money from trading altogether.
Many traditional exchanges are still slightly out of reach for the more small-time retail investors who may still want to get involved in trading. This is because many traditional exchanges do not offer fractional purchasing, which is the act of purchasing a fraction of an asset. Rather, the user will be required to buy a certain amount of the asset or a single value of the asset.
Despite the inherent benefits of blockchain-operated exchange platforms, there are still a lot of benefits that can be gained through blockchain exchanges utilizing technology created by traditional exchanges.
Some traditional exchanges have developed trading systems that can be easily scaled as trading volume increases; with the exponential rise in the popularity of cryptocurrencies, ensuring scalability is vital to a cryptocurrency exchange’s operations. Additionally, these trading systems experience low down-time and have high resilience, which ensure a seamless trading experience.
Moreover, there has been a widespread belief by many detractors that crypto exchanges are like the Wild West and are unregulated. By forming partnerships with traditional exchanges, crypto exchanges display legitimacy, and traditional exchanges, such as the Nasdaq, therefore, would not agree to work with the specific blockchain exchanges otherwise.
Finally, many cryptocurrency exchanges have previously faced issues of unethical trading. Meanwhile, traditional stock exchanges have systems in place that automatically survey any and all trading activity on their platforms. To compare, cryptocurrency exchanges have only recently begun to make use of these technologies to ensure that no abusive trading is taking place and to decrease the cost of surveillance operations, making crypto exchanges safer for traders.
The partnerships between traditional stock and asset exchanges and crypto trading platforms can hopefully help to continue a growing trend whereby cryptocurrencies are seen as a valuable, safe and valid asset to be traded.