Advantages and disadvantages of existing business models of the cryptocurrency exchanges and the reasons for the appearance of the ATUMchain project

Jun 14, 2018 · 6 min read

The rapid growth in the popularity of Bitcoin and other virtual currencies reflects the growing interest of society in decentralized assets. Disadvantages of the banking system and the monetary policy of states encourage people to seek new ways of storing, moving values that could eliminate intermediaries, the influence of government and huge stock market players (whales).

Today, the market capitalization of the cryptocurrencies is $ 275 billion, of which about 44% is accounted for by Bitcoin. In general, the top 5 currencies in terms of capitalization and trading volumes are: Bitcoin — $ 116 billion, Ethereum — $ 37 billion, Ripple — $ 19 billion, Bitcoin Cash — $ 11 billion, and Litecoin — $ 6.7 billion. To date, trading platforms through which passes more than 95% of the trading turnover have a centralized business model without the introduction of elements of blockchain.

The quantity of blockchains in the near future will only grow and it will be state, private and personal blockchains. In turn, interaction will be ensured by single cross-chain systems whose significance for the ecosystem as a whole will be very high.

At the same time, today the approaches of cross-chain systems are actual and necessary in the exchange trade of cryptocurrencies. As they will allow to solve a risk of “counterparty”.

ATUMchain — decentralized cross-chain platform, based on NEM.

Before considering the prospects of ATUMchain project, let’s compare the fundamental difference between the centralized and decentralized platforms.

When choosing an exchange for trading, a cryptocurrency trader has to trust funds to a third party. There is a huge number of cryptotrading exchanges, and each has its advantages and disadvantages. So, some exchanges have a large selection of currency pairs, others — a convenient interface, the third — an expanded functionality and a lot of tools for technical and graphical analysis, the fourth — the fastest add new tokens immediately after the ICO, the fifth offer enhanced security settings. Exchanges on trade in cryptocurrencies are centralized (with unified leadership) and decentralized (without a management center, not actually owned by anyone). Decentralized exchanges give full control over the private key and, accordingly, the user’s funds, but while they are at an early stage of development and a massive transition to them has not yet been observed.

Centralized cryptocurrency exchanges

In the case when we are dealing with a centralized service for trading cryptocurrencies, such exchanges as Poloniex, Bittrex, Bitfinex, Binance, we get a platform where we have access to many trading pairs, technical support, means of protecting our funds, but at the same time control, management and the restriction on the use of funds is transferred to us by a third party that has the full right to dispose of them and very often there is a risk of control over exchange rates of centralized crypto trading exchanges.

To provide this kind of service, employees and servers are required.

Companies are reimbursing their expenses and making a profit by charging users a fee.

In the case of a centralized exchange, the fees are:

Poloniex, according to the maker-taker model, takes up to 0.15% from the maker and up to 0.25% from the take-off.

Bitfinex — the commission from the liquidity provider is up to 15%, as well as commission for input and output in dollars 0.1% and so on.

In addition to the commission, large companies also collect data on the habits of customers. Since most of the trade on these platforms is conducted using payment methods that require identification.

Also, since these platforms are centrally controlled, they can prohibit any trade. There are cases when the exchange limited the input and withdrawal of funds, closed accounts of users, limited their rights for political or technical reasons.

Very often the non-transparent activity of the site, due to the absence of the regulator, and as a result the involvement of the site in questionable operations, as a result of which it becomes the object of investigation, and the fate of client funds becomes vague (for example, BTC-e).

In addition, the non-transparent business model limits the inflow of funds from institutional participants. In addition to the legal aspect of trade in crypto-currencies, it is necessary to neutralize the counterparty’s risk. The existing business models of centralized sites can not provide the proper level of comfort for this type of risk. Thus, professional participants working with centralized sites trade at their own peril and risk.

Decentralized exchanges for cryptocurrencies

As the technology of blockchain and smart contracts developed, autonomous decentralized exchanges began to be created in order to turn the market of virtual currencies into a carefree and free from mediation space. This is a new generation of platforms that create an infrastructure for continuous peer-to-peer trading. Their organization has the next advantages:

There are no centralized points of failure, which can be easily compromised;

There is no single “owner” — it protects from manipulation of prices and account hangs;

It does not require an identity check, which guarantees anonymity; there is no need for users to store funds in online services: instead, you can trade directly from personal wallets, so there is full control over digital assets; all operations are carried out using tokens based on the blockchain of platform, which guarantees transparency and security.

However, the spread of cryptocurrencies and clear advantages did not allow decentralized sites to take the lead for a while.

ATUMchain (ATUM).

ATUMchain is a cross-chain solution. This solution will allow you to make transactions between various blockchains. At the heart of the platform is the soft based on NEM, as well as Tendermint.

The purpose of ATUM is to provide a faster and cheaper exchange of transactions (financial and other logic) at the client-client level.

All this looks optimistic and is a real and important step towards building the next decentralized platform of the new generation. What real benefits does the ATUMchain project have?

- Reliable security of funds — funds are stored in the lockbox on a multi-account account and changes to the account are possible only if a “consensus” is reached between the owner, the site — ATUMchain and the independent nodes of NEM;

- Speed of event processing per second of ATUMchain is not inferior to existing centralized platforms, and besides there is the possibility of connection via API for traders;

● Commission — ATUMchain is a competitive commission, which is 0.01% per transaction, which is almost 10 times less than that of existing sites;

● ATUMchain is a platform where real traders can attract customers, and all back-office and risk management will be undertaken by NEM.

This is a very interesting approach to the organization of a decentralized service and in general the ATUMchain project should become a successful decentralized environment for trading crypto assets.