The Future of Digital Trading

On the one hand, this could be viewed as a sign of reliability and effectiveness, but on the other, there are inevitable hurdles caused by the legacy design of major crypto exchanges when faced with the realities of crypto and digital assets.

The need to resolve these obstacles motivated the emergence of platforms better geared toward addressing the specific needs of cryptocurrency users and traders. One such solution is cryptocurrency exchangers, which represent a noteworthy example of a financial product created in response to these novel and unique demands.

Traditional Exchanges Work—To An Extent

Centralized cryptocurrency exchanges (abbreviated as CEX) that still dominate the cryptocurrency trading space are modeled after stock exchanges, with very minor modifications to allow for 24/7 trading and other necessary changes connected with the specifics of crypto. Personal accounts, order books, and order placement are all present there as well.

However, for this arrangement to work, cryptocurrency exchanges have to forego a few features that quite literally define cryptocurrencies. For one, user accounts with deposits controlled by the exchange go directly against the self-custody and sovereignty principles that the minds behind cryptocurrencies strived to realize. Ceding custody over one’s funds, even if temporarily, seems like a convenient arrangement, but also one that requires trust in the third party, which, when it fails, ends time and again in customer deposits lost to hacks (MtGOX) or fraud (FTX).

Customer identification is another elephant in the room: a CEX that refuses to comply with regulations is one that closes down sooner than later. Arguably, AML measures and KYC procedures are seen as a necessary evil at worst, but they are hardly compatible with the principles of permissionlessness and censorship-resistance that were pivotal in the creation of cryptocurrencies.

The Crypto Exchanger Vision

In the nascent stage of the cryptocurrency market’s evolution, it quite soon became clear that making a platform modeled after a stock exchange compatible with the trustless, self-sovereign, borderless nature of cryptocurrencies is not easily achievable. The solutions that aimed for this goal and reached it chose to build on a new foundation rather than adopt a preexisting design.

The titular crypto-native product, as can be seen with the ChangeHero cryptocurrency exchange, works by handling interactions between users and cryptocurrency exchanges and other trading entities. To carry out a swap between cryptocurrencies, they only require a sum no more than what the user wants exchanged. This removes the need for personal accounts and custody of funds, letting customers retain full control over their cryptocurrency wallets and some privacy concerning their personal data.

Crypto exchangers are trusted entities, unlike decentralized exchanges (DEX) that came after, but from the point of view of user experience, they represent the best of both worlds. Their advantage over DEXs lies in the choice of liquidity pools that enable better exchange rates rather than limit users to only one source.

Implications and Future Trajectory

If a centralized cryptocurrency exchange is akin to a stock exchange, an exchanger can be likened to a currency exchange kiosk that works around the clock and can be accessed with no ID. The offers are probably better in the former, but the latter is accessible to just about anyone, almost no strings attached.

“Almost” here is reserved for exchangers that operate with centralized exchanges as liquidity providers. As the middle ground between a platform barred behind multiple KYC requirements and a permissionless crypto network, they still need to adhere to industry standards in terms of legal requirements. They still comply with customer identification requirements but apply them to transactions rather than individuals.

The existence of a stock exchange does not negate the purpose of a kiosk. So why argue that the latter is the future? The key is in the adaptability and the starting point: as a crypto-native solution tailored to its defining features, an exchanger is future-proofed in the sector, increasingly shifting into the digital space.

Bottom Line

Digital trading infrastructure evolves in accordance with its medium right before our eyes, and the democratization of financial innovation deemphasizes solutions designed for the few in favor of ones that cater to the many. A cryptocurrency exchanger is a perfect example of both factors shaping finance in the coming era.