The cryptocurrency world is unashamedly anti-bank. The centralized, profiteering and often fraudulent banking world is the very antithesis of what the cryptosphere is all about.
While this wholesale rejection of centralized structures may have merit, the reality is that legacy banking models have created spaces where users feel safe and transactions are generally smooth and rapid, with consistency in expected outcome. Your grandma probably won’t ever buy Bitcoin because it’s entirely unfamiliar territory.
Crypto exchanges, on the other hand, are gaining notoriety for wildly varying fee structures, financial limitations, and confusing and unhelpful reporting. The technical aspects of cryptocurrencies make transfers safe, but also slow and tedious.
Legacy banking lessons
The crypto-sphere needs to take some lessons from legacy banking models, in at least three areas - simplicity, scalability, and reporting methodologies.
Simplicity
First, having to create accounts and wallets on two to three exchanges in order to purchase a single cryptocurrency massively limits mainstream usage. Plus, the inability to make cross-chain trades is greatly hampering investment.
Imagine being unable to transfer funds from your savings account into your checking account at your local bank. Instead, you’re forced to withdraw the funds and pay a fee, and then redeposit the funds with an additional fee. This system irks investors, and drives down mainstream application.
Crypto exchanges need to simplify these processes. Perhaps the simplest exchange, Coinbase, allows users to purchase cryptocurrencies with fiat, and has a very user-friendly interface. However, the fees for purchasing are high and cross-chain transfers are impossible.
Other exchanges, like Bittrex, have sought to simplify the process of buying Bitcoin in order to help new users join. Kraken has taken similar steps, saying on their site:
“It's simple, quick and free to set up with Kraken. After verifying, you can fund your account with bitcoins or cash and start trading!”
Providing debit cards and other services is a start, but the buying itself remains relatively complex, and mainstream adoption will require a lower barrier of entry for consumers who are not technically savvy.
Scalability
Legacy banking methods provide substantial flexibility for institutional customers. Large scale transactions are generally well managed and clients are able to move substantial amounts rapidly between accounts and to other institutions.
Current exchanges lack this scalability, and instead limit transactions to the tens of thousands, at most. Those limitations are based on the need to comply with anti-money laundering laws. They are also due to many exchanges lacking the liquidity to make large-scale fiat to crypto transactions possible.
However, this type of transaction must become commonplace, and exchanges that make this possible will reap the benefits. Legolas Exchange CEO Frédéric Montagon recently stated:
“The option to convert fiat currencies into crypto currencies, and reciprocally, in large quantities will be a game changer for the community and a gateway to unleashing vast new inflows.”
Reporting
Wallets and exchanges offer some level of reporting. However, legacy banking models create a number of reports that are extremely valuable for users, to which crypto exchanges should pay close attention.
Profit and loss statements from individual trades, specific profit statements and numerical tax information should all be provided to users in order to increase consumer confidence.
Poor reporting creates challenges in other areas of customers’ lives, as well. Mortgage companies often balk when they spot large Bitcoin-related deposits in customers’ bank accounts. Without proper financial statements from the exchange that the coins were sold on, getting a mortgage in such a situation can be nearly impossible.
Further, warnings about insolvency and sudden freezes of assets has created a general lack of trust and increased risk factor for mainstream investors. Increased warnings about service outages and additional help for inexperienced users would increase stability and user comfort.
Discomfort
The massive valuation difference between GBTC and BTC should give some indication that the general populace is not comfortable yet with the complexities of buying Bitcoin.
Simplifying processes, increasing financial limitations, and providing more helpful reporting are all improvements that the crypto exchange community can take from traditional banking.
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