While cryptocurrencies have radically increased in popularity recently, the existing exchange infrastructure for these new assets is shaky at best. The market is currently dominated by a small group and has faced scrutiny from high profile financial institutions.
Cryptocurrencies, like anything else, have their pros and cons–they are free from the heavy regulation that burdens the fiat currencies, but they are also relatively susceptible to hacks, and big ones at that.
The need for exchanges is to provide a safe and transparent platform by which financial institutions and other entities can enter the crypto-market. Platform must incorporate a decentralized ledger within centralized platforms to get the best of both worlds–security without the loss of transparency.
Where Cryptocurrency Exchanges Fall Short
The future is bright for cryptocurrencies, and even though the price seems inflated at the moment–or wildly inflated, depending on the analyst opinion–the technology is beginning to change the currency layout. Blockchain currencies are not without their disadvantages however.
Hacks are quite prevalent and often take their toll on investors–an astounding $47.5 million was hacked in July and August 2017 alone, and this count only includes large breaches.
The lack of regulation has encouraged growth, speculation, and investment, all of which is healthy in the free market. But the lack of regulation has also encouraged hackers to take advantage of the system. The cryptocurrency exchanges absolve themselves of any responsibility for these hacks, much like their fiat currency counterparts.
Where Fiat Currency Exchanges Fall Short
Lest anyone think fiat currency exchanges have it all together, reports surface frequently of insider trading charges and market manipulation. The regulatory bodies of mainstream exchanges regularly deal with lawsuits ranging from petty manipulations to full on ponzi scheme fraud (Bernie Madoff anyone)?
Time and again, government regulators have failed at the very jobs the taxpayers pay them to do. The irony of the current system is twofold. The first is that the SEC openly states that the exchanges are not responsible for the security of any items domiciled therein. Thus when hacks, fraud, and manipulation occur, the exchanges are not held liable.
The second, more glaring irony is that the major regulatory bodies who supervise fiat currency transactions are susceptible to breaches. Just recently a report was published that the SEC had its electronic storage system hacked last year. Trades may have been executed using insider information based upon the undisclosed material. If the SEC can’t provide security and transparency within its own systems, how in the world can it provide security to the vast U.S. financial markets?
Hybrid Models to the Rescue
A hybrid exchange model, like Legolas, provides surefire solutions to the aforementioned problems. By combining centralized and decentralized platforms, a hybrid exchange is able to reveal and hold accountable fraudulent transactions.
Traditional decentralized cryptocurrency exchanges operate without periodic reports or independent audits. They are also an unrealistic long term solution, as their potential future expansion is limited to just 25%.
Hybrid exchanges provide auditable trade history and order books, allowing users to access real time proof of transactions, and because they combine aspects of both centralization and decentralization, total market share is plausible.
Hybrid models also guarantee the temporality of orders. Thus market manipulations like front-running are neutralized, resulting in an open and equitable market environment.
Additionally, mainstream bank backing is preferred. The Legolas platform, for example, is backed by PayQix, the owner of Luxembourg based BankQix, and thus Legolas users’ Bitcoin accounts will be theft-proof.
The effect of corporate bank support is that Bitcoins are as secure as fiat currency, something that at this moment, traditional cryptocurrency exchanges cannot offer. Legolas is a free market solution to the regulatory question that burdens existing crypto and fiat currency exchanges alike.
Legolas Exchange’s Roadmap
The exchange runs on LGO tokens, which can be purchased via Legolas’ website. Bitcoin is the only accepted currency as of now, with tokens being issued during the pre-sale. Once the pre-sale closes, no further tokens will be generated. The funds will be used to continue to develop the platform, whose beta version release is planned for October 2017.
With new hybrid platforms coming on line, the short life of traditional crypto exchanges may be at an end. Hybrid models provide better solutions to the problems that plague the industry, and make functionality in the real financial space plausible.