The lessons cryptocurrency should learn from Wall Street
Cryptocurrency could grow even more if it looked to the industry it disrupted
By Alexander Kravets
Cryptocurrency’s popularity has yet to dwindle, with its rise and potential growing drastically. As of July 2018, there are almost 2,000 cryptocurrencies globally (according to Investing.com). Cryptocurrency has long been considered a disruptor, with a refreshing take on the finance industry that attracts innovators and non-conformists. But no matter how radical this newcomer on the block is, there is plenty to learn from those that it intends to disrupt: Wall Street.
The advantage of creating something from an existing industry is that you can learn from their mistakes. The traditional finance industry has learned lessons the hard way, and it has whittled this knowledge into the checks and balances, processes, and safeguards that we see today. Instead of rejecting all that the financial industry has learned and done throughout history, there are a number of best practices which cryptocurrency would be wise to adopt.
Here are four ways in which cryptocurrency can take the age-old wisdom of Wall Street and apply it to the bright new world of finance.
1. Unify to bring in more money
All parties could benefit if crypto exchanges are unified. Lower fees, less market volatility, and faster trades are just some of the advantages. These sorts of positive changes can bring in bigger players with deeper pockets, who can invest and trade within the cryptocurrency space and breathe even more life into the industry. This would accelerate the mainstream adoption and give it a wider base to work from, opening more and more doors to individuals to take part in the cryptocurrency ecosystem. New businesses, startups, investments, and funding will all become more possible for more people than ever before. A fear of unification could be holding crypto back from newcomers pushing the industry even further.
2. With more money comes more security
The financial industry learned early on that centralization was a key part of keeping corruption at bay. No matter how innovative and well-meaning the heart of crypto is, there will always be those who have less than virtuous practices. Whether it’s extortion, hacking, or underhand deals, these are all things that the financial industry faced in the early days and still battles today. Its advantage, however, is that it is a highly centralized area.
In remaining decentralized, crypto runs the risk of becoming a wild west. With an uncoordinated and low number of players in the field, hacking and out of control trading fees are more likely to flourish. A recent The Verge article highlighted that no aspect of cryptocurrency was safe from malicious intentions; crypto vloggers on YouTube are hugely at risk of hackers who take advantage of their openness in sharing their trading screens and details. Some have lost millions through coordinated attacks on their money.
If cryptocurrency wants to become more mainstream and attract a wider variety of financial institutions, it needs to understand that this comes with higher scrutiny on safety. The ability to protect assets might make or break the involvement of the exact institutions which can help crypto grow.
3. Use a FIX-based API
Since the creation of FIX API back in 1992 by Bob Lamoureux and Chris Morstatt, the technology has been solving problems for trading communities. Seamless transactions allowed buyers and sellers to communicate efficiently across borders where once manual communication was the only way.
This being the case, it is a surprise that FIX API has not been applied to bridge the same sorts of gaps. Being connected in one easier place would be a considerable advantage to cryptocurrency — and one it has yet to explore.
4. Burying heads in the sand won’t help
The cryptocurrency space is becoming saturated, and while that is a huge positive for the industry, it is not without its difficulties. No organization, no structure, and no oversight mean that the people being lured by the benefits of crypto will not see a lot of potential benefits. While exciting, new and innovative, the industry is not streamlined, user-friendly, open to all, or efficient. It does it no good to ignore a number of hard-earned lessons that Wall Street offer. Volatility isn’t attractive, but simplicity is. An increase in adoption rates and a unified, streamlined approach will take the industry to new and exciting places.
The cryptocurrency industry potentially does not have to learn the hard way if it takes lessons from Wall Street. While the cryptocurrency market is new and unique, many issues such as security are just as prevalent and concerning as they are in Wall Street. Like in banking, individuals want a safe way to protect their assets, and, like banks, the cryptocurrency market will have to provide that for its users. By looking at mistakes already made, the crypto world can move forward faster by learning from the past.
Bio: Alexander Kravets is the cofounder of XTRD, a technology company looking to bring mature Wall Street technologies to the world of cryptocurrency. Before XTRADE he served as Managing Director of a self clearing broker/dealer that handled 4% of the daily trading volume on NASDAQ and successfully launched Sogotrade, a retail investing platform with over 100,000 clients.
