The Crypto trading industry has been around for a decade now. But, relatively, that’s a short span of time. Yet despite being recent in terms of emergence, a lot has been achieved. There has been a great boom around Crypto and, as things stand, there is no sign of its popularity subsiding or drizzling out anytime soon. In fact, statistics shows an upward trajectory that picks up more and more traction. As such, the evolution of the industry that Crypto brought about is something every financial buff should know.
Birth of the first Cryptocurrency: Bitcoin
Up until January, 2009, “Cryptocurrency’’ was not part of the financial vocabulary that goes around in the context of trade and exchange. It was a pseudonymous name that goes by Nakamoto that was behind the birth of the first Cryptocurrency. On the 12th of January 2009, Nakamoto sent 10 Bitcoins to Hal Finney, a transaction that set in motion the birth of a new finance counterculture. This transaction was followed by Laszlo Hanyecz who purchased two pizzas for 10,000 bitcoin, the then equivalent of $30. From that point the first digital currency took off with skyrocketing values over the years.
Since the arrival of Bitcoin, several hundreds of other cryptocurrencies have entered the market. These new digital currencies following the inception of Bitcoin have proven to be a more accessible alternative as they are available at a cheaper rate. Some popular alternatives include Litecoin, Ethereum and Dogecoin. This electronic payment system is based around mathematical proof and the result is a decentralized currency (independent from central authorities) and instantly transferrable with a very low transaction cost.
The early years of bitcoin exchanges
The pioneer of early bitcoin exchanges was Bitcoin Market. On the 5th of January, 2010, Bitcoin Market announced that it was engaged in the process of building an exchange. It pointed out that the motive behind the venture was the concept of a real market where people would be able to buy and sell bitcoins with each other. It also announced that a website would soon be in place. Subsequently, on March 17 the same year BitcoinMarket.com went live. Those days even PayPal was serving as a means of exchanging BTC for fiat. What caused the eventual breakaway of PayPal from Bitcoin Market was the rise of scammers in the space due to the growth and success of bitcoin.
A few months after Bitcoin Market’s launch, several other exchanges emerged on the horizon and the financial world witnessed a wave of exchanges hitting the market. Amongst the many exchanges that followed, Mt. Gox that went live in June 2010 was the most notable one.
The year 2014 marked the launch of one of the first decentralized exchange systems. On the 3rd of January that year NXT announced their intention to build a decentralized exchange. NXT asset exchange used the NXT digital currency as the fuel for the NXT ecosystem using it to create assets that represented the likes of bonds or network storage. Later, the term “coloured coins” found its use to imply this system of creating assets on pre-existing blockchains. But, in the early days of DEX, the assets could only be traded for the NEXT coin and direct asset-t-asset trading was not yet feasible.
However, innovation and evolution propelled DEX to a new level. Counterparty launched their DEX and took it a notch higher. Though trading was limited Counterparty related assets, it was an improvement on the coloured coins as Counterparty tokens were not tied to the BTC balance of any given address. As the year 2014 drew to a close, Blocknet announced their intention to create the first truly decentralized exchange and took peer-to-peer trading a notch higher.
Characteristics of the early exchanges
The formative years of crypto trading were marked by minimalistic undertakings. There was no inclination towards long listings of altcoins. There was no competition in terms of features with derivative products. Exchanges were just bent only on averting hacking and losing people’s money.
The value of bitcoin was also relatively low. For instance, up until the 9th of February, 2011 the entire market cap of bitcoin didn’t reach $1 million. The following months witnessed an uptick of crypto-related ventures. Around the world, new exchanges were adapting to pave the way for and allow local fiat conversion. The month of March was marked by the launch of Bitcoin Brasil, and that of the subsequent April by the launch of Bitmarket.eu.
Around this time, exchanges were faced with challenges along the lines of payment processing and hack. There were industry-shaking developments. June 2011 saw Bitcoin Market dropping PayPal. Not long after, in the month of June that year Bitomat lost 17,000 bitcoiins. A familiar story surfaced in the year 2012. Popular exchanges were hacked, a notable example being Bitoinica and Bitfloor. In the month of February that year, Tradehill, one of the largest US exchanges then, also closed down. In the meantime, it wouldn’t be fair to mention the infamous Mt. Gox along the same line. In the subsequent three years after 2011, Mt. Gox went on to establish itself as the largest bitcoin exchange in the world by a great margin as, at its peak, Mt. Gox oversaw between 70% and 80% of all bitcoin transactions. However, this phenomenal success was a disaster in the making. Not long after Mt. Gox lost 850,000 bitcoins (worth over $473 million then and accounting for 7% of the total supply of bitcoin).
In a nutshell, this period saw a Cambrian explosion of exchanges. Some rose to make history while some passed into oblivion. Exchanges like Bitstamp that was founded in 2011 and Coinbase founded in 2012 pulled through this volatile period and came out big later on.
The birth of Ethereum
The passage of time gave birth to new exchanges and the crypto trading industry kept expanding. However, the rise of new exchanges saw a drive towards building better systems in order to avoid becoming another precedent of Gox, and towards experimenting with new strategies (for example, avoidance of fiat currency as a whole and exclusive focus on crypto-to-crypto trading). These propensities culminated with the birth of Ethereum, altering exchange practices and causing the crypto industry to undergo one more lap of evolution.
The industry changes brought about by ERC-20 tokens (enabled by Ethereum platform) are immense. The ICO boom came about with the advent of Ethereum. ERC – 20 tokens are behind the emergence of billion-dollar ICO industries. They take cryptocurrencies a notch higher and mark one big step towards making cryptocurrencies become mainstream.
Fast forward to 2017, ether trading emerged as one of the top performers. Ethereum went on to serve as the base protocol for numerous decentralized applications, on top of serving as a cryptocurrency. With a market cap of several billion dollars, and continuing to ramp up its market share, it now establishes itself as a major base for trading and future projects.
Exponential growth of digital assets, resulting in diverse overall valuations and trading
By mid-2017 the aggregate market cap of all blockchain tokens amounted to upwards of $100 million, bitcoin being the dominant followed by ether and ripple. Numerous alternative blockchains and assets made entries and went on to become popular. The number of cryptocurrencies shot up to more than 2300 by the end of 2019. Leading global digital asset exchanges included Coinbase, Poloniex, Kraken, Bittrex, Shapesshift and Bitfinex among others. The once centralized and bitcoin-dominated trading market became much diversified.
Within just a short span of time the crypto trading industry underwent so many changes. The factors inducing such changes include evolving sentiment, revised regulation, hacks and drastic business decisions taken by various exchanges. The crypto trading industry is still set to undergo many more changes. Dynamism is at the heart of the crypto market. Numerous exchanges will come and go. New trends will rise and fall. Every now and then new events and developments will reshape certain aspects of the industry, if not the industry as a whole.