What will it take for cryptocurrency exchanges to go mainstream?

May 2018
It does not seem like very long ago that blog posts like this one were devoted to answering some pretty basic blockchain questions: How does one ‘buy’ Bitcoin? How can I sell my Ether? How do exchanges work?

The answers to these questions have been given a thousand times already, with the number of users on some of the biggest exchanges now reaching well into the millions. A positive trend towards the mainstreaming of blockchain technology is apparent, and even people who have a very rudimentary understanding of what a distributed ledger is use cryptocurrencies on a daily basis.

At the same time, millions of people are now becoming aware of the fact that blockchain technology is about much more than just cryptocurrencies. Ever increasingly, capital finance is the name of the game - and traditional financial institutions are interested in getting in on the action. This is for good reason, of course, as the buying and selling of tokens, emitted by smart contracts, is certainly quicker and more cost-efficient than depending on traditional documentation, business processes, and arbitration in the selling of shares.

But is the blockchain industry ready for this mainstreaming? One Nasdaq official thinks not.

An “immature” space
In a recent interview with CNBC, Nasdaq CEO Adena Friedman expressed the following: “Certainly Nasdaq would consider becoming a crypto exchange… it’s just a matter of how long it takes for the space to mature.”

What Friedman seems to be referring to as “maturity” is a readiness to participate in “…a more regulated market.” A market that actually does due diligence regarding clients, requiring KYC and putting measures in place that “…provides a fair experience for investors.”

The blockchain space needs to grow up
In the current state of things, capital finance by way of token sale (ICO) is a bit of a mess - both for investors and for the companies seeking capital financing.

Today, it is fairly easy to issue a token, but in most jurisdictions it is required that investors provide personal information for regulatory due diligence (know your client, anti money laundering checks) prior to investing, and few ICOs truly fulfill this requirement.

But these compliance requirements exist for good reason - they prevent nefarious activity and ensure that the full share of taxes are paid back to society by everyone involved. Investors can be assured that their investment is not part of some illegal scheme, and that everyone is on a level playing field.

How the blockchain industry is going to get there
Individual successes for integration into the mainstream economy have occurred, but it’s all mostly happening on a company by company basis.

One cryptocurrency exchange has had particular success in this regard. Gemini, which was founded by the Winklevoss twins, recently made a deal with Nasdaq, gaining access to their surveillance technology in order to develop a more fair “rules-based marketplace.”

Blockpass partner company Coinfirm’s Trudatum platform has now been accepted for document verification by PKO Bank Polski. This is another example of how, if a company simply shows real interest in due diligence, mainstream integration is possible.

It seems, therefore, that the best thing for all companies in the crypto and blockchain space is to work with regulations, not around them. Companies like Blockpass enable this.