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Why Do Cryptocurrency Exchanges Fail?

Wisebitcoin 2021-09-27

Crypto exchange closures, failures, and hacks are nothing new. According to Cointelegraph, about 75 crypto exchanges closed in the first three quarters of 2020, many due to hacks and scams. Some also completely disappeared for unknown reasons. Here we talk about some of the leading reasons crypto exchanges close down.

Operating in the crypto exchange space is difficult. Whether we talk about first-generation centralized exchanges or more modern decentralized exchanges, it is very important to manage everything from security and trading fees to customer support and user interfaces.

Some of the top reasons crypto exchanges fail are as below.

 

Poor Security

To run a safe and performant exchange, IT security is of utmost importance. Security encompasses everything from securing wallet access and user private keys to administrative controls over IT infrastructure. Without the right security teams and protocols in place, too many crypto exchanges in the past have fallen prey to hacks in which user funds were stolen and the exchange was forced to shut down.

 

High Trading and/or Withdrawal Fees

The rapid growth and massive profits of first-gen crypto exchanges are well documented. As the only options available during the early days of cryptocurrencies, these exchanges were able to charge trading fees of their choice. In today’s competitive exchange space, however, with many options available, users look for lower trading fees and better overall experiences. Customer reviews are also an important metric that exchanges must watch for. Lower fees with intuitive interfaces and outstanding customer support are no longer the innovative offerings they once were and are now requirements to operate in the exchange space. Similarly, high withdrawal fees can push users away and slowly whittle away at an exchange’s user base.

 

Lack of Liquidity

Exchanges make money by executing trades for customers and taking a commission on each trade. Trades occur in pairs, such as USD with BTC or LTC with ETH. For trades to occur, there must be traders willing to sell the token or asset you want to buy and vice versa (unless you trade with a liquidity pool, which is a different form of investment from a traditional exchange but also requires adequate liquidity to support trade).

If there is limited liquidity, that means there aren’t enough traders in the market (rather, there isn’t sufficient volume in the market) to create the trading pairs required for trade to occur. Without trades occurring, the exchange cannot earn trading fees and will eventually have to shut down operations. Similarly, low liquidity affects traders, because without liquidity for executing trades, traders will not be able to trade their assets and exit their positions (or enter into new ones) by buying and selling with other traders.

 

Customer Support

Although Bitcoin has been around for about a decade and other cryptocurrencies have been around for several years, many users are still unfamiliar with how they work and how to manage their holdings, fund their wallets, execute trades, and navigate the interfaces of different exchanges.

As a result, customer support – helping such users use the services of the exchange – is vitally important. Without quick, responsive, and effective customer support, if users are unable to get things done or resolve issues they face, they will eventually leave the exchange. A mass exodus of users can lead to an exchange closing down.

 

Lack of Crypto Pairs

This is tied to trade and liquidity. The right crypto pairs are required to facilitate trade. If an exchange does not provide the pairs that users want to trade, they will look elsewhere for those options. The same applies to listing new, high-demand tokens and new listings. The first-mover advantage in listing new tokens and trading pairs can help an exchange retain its competitive edge against other exchanges that are slower to list new assets.

 

User Interface Issues

What’s better than having an effective customer support function? Creating a seamless experience that minimizes the number of customer issues that can arise in the first place. A clunky interface that is difficult to use, understand, or navigate will push users away.

We can compare this issue with the load times of web pages. Studies have found that load times that are even a few milliseconds longer than average will cause users to drop off and go to alternate sites. Similarly, with exchanges, a poor user experience will not have users coming back for future trades. Instead, it will push those users to look for better, easier, more intuitive interfaces elsewhere. Again, this is no longer a nice-to-have but a must-have in the crypto exchange space.

Having a fast, performant, and easy-to-use app is also critical nowadays since many users trade on the go, especially since the crypto market can be highly volatile. This is why Wisebitcoin is available as a sleek, intuitive app on both the App Store and Google Play.

 

The Benefits of Wisebitcoin

Wisebitcoin was founded to address the issues discussed above. Wisebitcoin is part of a cloud exchange network that connects over 280 global exchanges and 15 million users and therefore provides deep liquidity and a faster trading experience by having such a large market of users to trade with. (More users submitting buy and sell orders builds liquidity and finding matching trading pairs at your desired buy or sell price helps execute orders more quickly).

Wisebitcoin has also invested heavily in security. Our team of experienced engineers and our security infrastructure - including private key privacy, offline wallets, user access controls, KYC/AML processes, and system monitoring protocols - ensure that user tokens, assets, trades, and personal data (such as financial and biographic data) remain safe at all times.

With industry-leading trading fees (as low as 0.1% for traditional exchange services and 0.07% for perpetual contracts exchange), 24/7/365 customer support in multiple languages, deep liquidity, fast transaction times, and enterprise-grade security, the platform is redefining best practices in the crypto exchange space and makes it easier for traders all around the world to participate in the rapidly growing cryptocurrency space. Our fast, seamless, and easy-to-use iOS and Android apps also make accessing the crypto space and trading tokens and assets as easy as using a regular app - something that is highly appealing to the average user who is accustomed to using apps for everyday tasks.

To learn more or to open an account, visit us at Wisebitcoin.