The Exchange Dilemma
The top 10 cryptocurrency exchanges are all centralised, and account for about 77% of daily exchange volumes. The top exchange(bitFlyer) lists only 3 coins, with Binance listing the maximum at 137 coins.
This has led to several problems, and inconveniences for consumers:
- A specific token may only be listed on a particular exchange, which the user may not have signed up for. This is particularly troublesome in light of recent KYC regulations which require most major exchanges to verify the identity of their users before they are allowed to transact. Signing up for 15 or 20 exchanges to manage different tokens is neither convenient nor secure. It also exposes users to the possibility of privacy infringement and identity theft as documents have to be submitted for each sign up. Additionally, the realisation of needing to signup and submit KYC documents often arises when users actually want to sell their tokens, which is typically when the price of a token is high. Since KYC can take anywhere from a few hours to over a week, it restricts users from exchanging tokens during that time period.
- While the issue of signing up for multiple exchanges can be regarded as a mere inconvenience, the issue of security is a grave one. Managing multiple accounts, each with its own set of wallets, can be confusing and risky for those not adept at crypto transactions.
- If the token is a relatively new one, or one that is highly volatile, it is likely to be listen on lesser know exchanges. Trusting your tokens with such an exchange is often difficult. Many tokens are also listed on Decentralised Exchanges (DEx), which are often much more difficult to manage than traditional centralised exchanges. Since a Dex doesn’t store user data in a centralised database, users have complete control over their private keys. While this makes them trust-less, powerful exchanges especially for low ranking coins, handling private keys incorrectly carries a risk of funds being stolen. Decentralised Exchanges are therefore difficult to use for the average user.
Lack of token support in major cryptocurrency debit cards
Currently, the most reputed and well-known cryptocurrency debit card services include Wirex, Spectrocoin and Xapo. These services only accept two or three cryptocurrencies – Bitcoin, Ethereum, and if they’re very liberal, Litecoin. This is quite a narrow choice when we consider the 84,000 odd ERC20 tokens that are currently circulating on the Ethereum blockchain alone! In September 2017, Wirex hit a cumulative total of $1 billion in transactions, with only three cryptocurrencies supported. Including remaining cryptocurrencies could increase transaction volume multi-fold.
This problem, coupled with the exchange dilemma discussed earlier, results in most users being unable to liquidate their tokens using such services.
Lack of Instant Conversions
The third problem with current solutions is that they are all, in essence, fiat based. The ‘innovation’ brought by platforms like Wirex is their agreement with card issuing services like MyChoice which has allowed anyone to gain access to virtual or plastic debit cards. This success has been partly muddled by the new requirement of KYC verification before their services can be used. While these services claim that they are crypto based, in reality, they are simply exchanges to convert cryptocurrencies to fiat, and then load the fiat equivalent onto a prepaid card.
This is often disadvantageous to users. Take a scenario where $1000 worth of Ethereum is first converted into fiat and loaded onto a cryptocurrency card. Even though one may spend only $100 on one day, the remaining $900 remain as fiat balance on the card, not as Ethereum. This means that if the price of Ethereum rises, one cannot profit from it, as money is now in fiat (USD) form, not Ethereum.