The most significant problems facing the cryptocurrency community at the moment are liquidity, scalability, and exchange. Cryptocurrency exchanges are still limited, slow, expensive, and unsafe. The growth of Bitcoin is, undoubtedly, what popularized digital currencies and led the crypto market to where it is today. But there are many problems in the financial system associated with Bitcoin, which limit the extreme potential of altcoins. The inefficiency of cryptocurrencies, with all their positive aspects (simplification and globalization of international payments, the introduction of transparency, and additional levels of security in the money transfer system) is what deters investors and prevents digital money from gaining mass recognition.
Like most innovative technologies that challenge existing standards, digital assets and blockchain have not yet revealed their full potential. But, if we consider them from the point of view of the cycle of technological maturity, we can finally expect that the moment will come when cryptocurrencies will become as effective and revolutionary as is predicted.
Gartner Hype Cycle (cycle of technology maturity) asserts that there are five stages through which technology must pass on the way to full development.
Innovative trigger: a powerful application, a breakthrough. Universal interest is coupled with the lack of viability and suitable products.
The peak of inflated expectations: at this stage, loud, advertised successes are accompanied by many failures. Someone draws conclusions from this and takes measures, and someone leaves the idea of implementation until better times.
Infimum of disappointment: due to many failures, interest in technology is weakened and investments fall.
Education segment: Having drawn conclusions, the surviving technology vendors are correcting the progress of the project. At this stage, much is discarded and the scope of application is revised. There are products of the second and third generation. Large investors are still waiting.
Plateau of productivity: passing through the ups and downs, evolving into the second and third generation, the technology acquires vitality, stability, and universal acceptance.
Right now, cryptocurrencies and blockchain are somewhere in the middle of the cycle. The disadvantages of altcoins are obvious. At the same time, there are many new and improved versions.
Not the Best Times for Crypto Exchanges
Initially, cryptocurrencies were created as an alternative to a centralized payment system. They have come a long way, proving that they do not need to be regulated by the central bank, and making the transfer process more transparent. But, unfortunately, this is not enough. The exchange of cryptocurrency for fiat money is still extremely inefficient and inconvenient, which impedes the general implementation of the blockchain and keeps the masses from investing.
Bitcoin ATM machines have appeared all over the world to facilitate the exchange process, but the time spent on obtaining Fiat is unpredictable. Cashing out Bitcoin for fiat can take a day or more.
The high volatility of the cryptocurrency market often creates situations in which the owner of a digital asset wants to get rid of it and exchanges it for fiat money or another token. Delays in the processing of an application against the backdrop of a currency rate drop can lead to the loss of some of the funds. This applies not only to Bitcoins, as most of the crypto space suffers from the problem of transaction delays and no perfect solution has yet been implemented.
Importance of the Development of Crypto Exchanges for Solving the Problem of Global Poverty
Slow processing and transaction delays, unfortunately, are not the only drawbacks in the current crypto infrastructure. One of the main goals of the cryptocurrency revolution was the desire to get rid of the control of power and numerous expensive intermediaries in the transfer of funds. Digital coins should have made it easier for people to exchange, withdraw, and transfer money, but, ultimately, they did not achieve this goal. This is clearly seen in the functioning of international payment systems. According to the World Bank, the total amount of money transferred by labor migrants in 2017 was $450 billion. Another $32 billion cannot find their recipients because of transaction costs that are too high. Currently, global money transfers are handled by banks and international payment systems, such as Western Union and MoneyGram, which always means high commissions of intermediaries, bureaucratic delays, all sorts of restrictions and, of course, frequent time delays.
When making an international money transfer, a consumer needs to go through a whole chain of intermediaries of financial services. Money leaves the local bank in the international bank, passes through a lot of intermediate points, and only then reaches its recipient. The process can take several days, with charges being levied for each step. This is a grueling, multi-step procedure that costs the labor migrant about seven percent of their transfer in unnecessary costs. The largest number of migrant workers is made up of Filipinos. About 10 million people have a job outside their homeland and many of them carry out international transfers to their relatives monthly. Seven percent of the commission fees go to the intermediaries.
Current problems in the global money transfer market illustrate the harm of the outdated system. Cryptocurrencies and blockchain have the potential to solve instant money transfers from one country to another without exuberant fees. Bitcoinomatics have not yet received universal distribution, but they have good prospects. The reduction of the cost of transnational payments by even five percent will result in an annual saving of $16 billion. The more countries consider an acceptable system of crypto transfers, the faster this process will be.
The advantages that the updated infrastructure of crypto exchanges can provide are endless, which is clearly visible against the background of the current state of the money transfer market.
Providing an improved digital currency exchange service has many positive aspects. The most important of these is the simplification and reduction in the cost of international money transfers, which will lead to a reduction in the level of poverty in the world. In addition, the simplification of the exchange process will benefit both institutional investors and small ones, giving them the opportunity to freely dispose of their own funds, which will increase confidence in the digital currency many times, and hence the flow of investments. In general, financial, economic, and political benefits are endless.
If we follow the Gartner Hype cycle of maturity of technologies, then the stage in which the cryptocurrencies are now located is crucial for their survival. The significance of cryptocurrencies and blockchain technology is such that developers of new generations are making every effort in the hope of keeping the technology operating to the fullest. Like the dotcom revolution in the late 1990s, many pioneers of the crypto market are now forgotten. Those who entered the market at the peak of inflated expectations are not always pioneers. The faster the curve evens out the high costs and inefficiencies, the more chances to go through the whole cycle and spread the crypto infrastructure on a world scale.