The concept of the “Flippening” has been increasingly gaining traction in the crypto space. It refers to the hypothetical moment when Ethereum (ETH) surpasses Bitcoin (BTC) as the most valuable cryptocurrency by market capitalization. The Flippening is important because it would signify a major shift in the overall direction of the crypto landscape, signalling a change in investor sentiment and adoption patterns.
https://www.youtube.com/watch?v=0lQ8bz9QRBo
While the Flippening is not set in stone, there are compelling data that indicate it is coming, and sooner than you think… Here’s why:
The Case for Bitcoin
Being the world’s first cryptocurrency, Bitcoin has maintained its throne on the crypto market since its genesis block in 2009. It is often considered as the safest digital store of value by investors, with its limited supply structure similar to the scarcity of gold, hence its nickname “digital gold.” As such, Bitcoin is usually the primary choice of cryptocurrency for financial institutions looking to get involved. As far as mainstream adoption goes, Bitcoin has led the way so far.
However, Bitcoin’s Proof-of-Work (PoW) consensus model is highly energy-intensive, sparking criticisms of the network’s impact on the environment. Additionally, the usage of Bitcoin is only limited to exchanging and storing value. This is where Ethereum has much more to offer.
The Case for Ethereum
As the second most valuable cryptocurrency, Ethereum is designed to be used as the foundation of a decentralized, blockchain-based internet — an idea that is become known as Web3. Apart from exchanging and storing value, Ethereum introduced smart contract functionalities that allows developers to do all kinds of innovative and creative things on the network. This brought about a proliferation of financial products that have enabled a much broader range of investors.
Ethereum earned its nickname “digital oil” because it is a utility-based asset like oil, fuel or gas, and its value is largely dictated by supply and demand mechanisms. Similar to how the world’s global supply chain is fueled by crude oil, Ethereum lays at the heart of the Decentralized Finance (DeFi) space as well as GameFi and Non-Fungible Token (NFT) market. And as the Web3 landscape progresses, demand will increase as more and more people are recognizing the potential of a decentralized internet. It is only a matter of time when Web2 evolves to Web3, and Ethereum is at the centre of that.
Do “Ethereum Killers” Hinder the Flippening?
It is worth noting that Ethereum faces competition from other prominent layer-1 blockchains such as Aptos, Cardano, Solana, BNB Chain, Polkadot, and Avalanche. There is a trending “Ethereum Killer” narrative in which user adoption will be distributed amongst these blockchains instead of focusing on Ethereum only. However, most of these blockchains in fact depend on Ethereum, as one way or another they are associated with the network’s smart contract. As shown in the image below by Cryptowatch, all of the top layer-1 blockchains are closely correlated with Ethereum’s price action.
Comparing Market Share between Bitcoin and Ethereum
As of 11th January 2023, Ethereum’s market share increased by 3% among global crypto assets, signalling its dominance on the rise. According to Coinmarketcap, Ethereum’s market dominance is at 19%, valued at around $856 billion. On another note, Coingecko’s metrics were slightly different, indicating Ethereum’s dominance at 18.3%. But both aggregation websites show that Bitcoin’s market dominance is decreasing, from 40% to 38%.
It is unclear whether this trend will continue, but according to data sourced from Blockchain Center, the Flippening has been on an uptrend since July 2021. And we are nearly halfway for it to happen. It is also worth noting that Ethereum came closest to the Flippening in 2017, when Bitcoin’s market dominance’s dropped by 40.6% and Ethereum took over 32% of the market amidst the situation.
In reference to the data provided by Blockchain Center, there are also other metrics apart from market cap that determines the Flippening. As of now, Bitcoin is still by far superior in trading volume, which is a crucial metric for adoption usage. However, Ethereum has Bitcoin beat in active addresses, transaction count and volume, and total USD transaction fees.
Outperformance of Ethereum will be primarily driven by the strength of its post-Merge fundamentals. The upcoming Shanghai Upgrade will significantly reduce the risk and opportunity cost of staking ETH, which is likely to attract participation from more crypto users.
Key Takeaway
Despite Ethereum’s increasing adoption and market dominance, Bitcoin still reigns supreme in the crypto space. In fact, Bitcoin saw significant adoption in 2021-2022 from retail and institutional investors, public companies, and even countries. As of now, El Savador and the Central African Republic (CAR) have adopted Bitcoin as a legal currency. This is a monumental step towards mainstream adoption.
But that is not to say the Flippening will never happen — it is certainly a possibility. After all, both Bitcoin and Ethereum have different visions. Bitcoin aims to become the global reserve currency, whereas Ethereum aims to become the infrastructure of a global digital economy. The Technology Acceptance Model (TAM) applies to both assets, but it all comes down to supply and demand mechanisms. If demand in digital money is higher, then Bitcoin dominates. But if demand in utility-based asset in building out a decentralized ecosystem is higher, then Ethereum is generally favored.
The Federal Reserve’s December meeting minutes revealed the central bank’s plans to continue raising the federal funds rate to control rising inflation. This could potentially impact the crypto market as economic activity is further tightened, signalling consumers and investors to save money and mitigate risk. Shortly after the news, the price of Bitcoin and Ethereum had dropped momentarily before bouncing back to the $16800 and $1250 range respectively.
Key Takeaways:
Feds opted to raise interest rates by 50 basis points, putting the target range for federal funds rate to 4.25%-4.5%.
The new restrictive policy in place will fight inflation, but it also tightens economic activity including investments in the crypto market.
The price of Bitcoin and Ethereum dropped 1% after the Federal Reserve’s December meeting minutes were released.
The Fed’s minutes noted the collapse of digital asset exchange FTX, but said it didn’t have a serious effect on the wider financial system.
Fed Signals Hawkish Interest Hikes in 2023
The Federal Open Market Committee (FOMC) and Federal Reserve officials concluded its December 13-14 meeting, publishing new projections for expected inflation in 2023 which is higher than previously anticipated. Against the macro backdrop, Fed officials agreed to raise interest rates by 50 basis points, putting the target range for the federal funds rate to 4.25%-4.5%.
Higher interest rates mean higher borrowing costs, which in turn affects consumer spending and investments in speculative markets including the stock market and crypto market. The news of the Fed’s plans to continue raising interest rates has caused investors to be cautious, as they are wary of its potential impact on the crypto market. Occasions such as this would prompt traders and investors to sell U.S. equities as well as Bitcoin and other digital assets to mitigate risk.
This caused the price of Bitcoin to dip nearly 1%. Ethereum, the second largest digital asset by market cap, also dropped by 1%. According to Cryptowatch, the correlation between Bitcoin and Ethereum sits strong at 0.82. Therefore, it is expected that Ethereum will mirror Bitcoin’s price movement.
Despite the dip, Bitcoin is still up 0.4% in the past 24 hours and 1.2% in the past week. Ethereum is down 0.1% at the time of writing but has seen 5.1% gains in the past week.
Fed officials also noted the collapse of FTX, acknowledging its impact on the crypto ecosystem. However, they claimed that the situation did not have a serious effect on the wider financial system. The meeting summary stated, “while the spillovers from this situation had been significant among other crypto lenders and exchanges, the collapse was not seen as posing broader market risks to the financial system. (Valium) ”
The crypto industry had a tumultuous year in 2022, with coins tanking at the start of Q2 and never rallying, signalling the beginning of a crypto winter. To make matters worse, the collapse of Terra Luna and FTX led to a devastating contagion across the industry. Despite the challenges, we shouldn’t forget about the progress and achievements the industry has made. Here’s a brief recap of some of the biggest news in 2022.
Crypto’s Role in the Russia-Ukraine War (February)
During the Russia-Ukraine war, cryptocurrencies have been immensely valuable to Ukrainian refugees. Russian attacks have destroyed critical infrastructure, rendering many Ukrainians inaccessible to withdrawing money from ATM machines. Therefore, many Ukrainian refugees relied on digital currencies sent from relatives or donors abroad to purchase goods and services.
All that is needed for them to access their cryptocurrency wallets is a mobile phone and internet access, which was being provided by the thousands of Starlink satellite internet dishes provided by Elon Musk’s SpaceX at the time.
Feds Interest Rate Hike (March)
Despite Bitcoin reaching an all-time high of $69000+ in November 2021, what follows is a series of market decline. This is in part due to the U.S. Federal Reserve announcing its first interest rate hike in March to fight increasing inflation. As a result, the macro backdrop began to worsen, not only affecting crypto assets but also every other investment asset class. This also called into question Bitcoin’s reputation as an inflation hedge as Bitcoin itself started to trade in tandem with Nasdaq tech stocks, according to the New York Times.
Collapse of Terra Luna (May-July)
The collapse of the Terra Luna ecosystem in May 2022 was one of the most devastating black swan events in crypto history, wiping at least $60 billion off the market which triggered a dangerous domino effect across the industry such as the fall of several high-profile crypto firms, namely Three Arrows Capital, Voyager Digital, and Celsius Network.
Amid the crash, the UST algorithmic stablecoin, which was supposed to maintain a $1 peg via on-chain mechanisms with Terra’s native token LUNA, depegged, bottoming out at $0.006. This was caused by a massive continuous selloff on both UST and LUNA, resulting in a death spiral. Terraform Labs (TFL) developers and founder Do Kwon are facing multiple investigations as well as lawsuits into its collapse. (Canadian Pharmacy) As of now, South Korean authorities and Interpol have issued a warrant for the search and arrest of Do Kwon and his accomplices.
Recovery Plan of Terra Luna Classic (August)
As of now, the Luna Classic blockchain is managed and governed by the community after Terraform Labs (TFL) developers abandoned the chain in support of Luna 2.0. On August 26th 2022, governance was restored as citizens of Luna Classic could delegate, stake, and vote for the future of the ecosystem. Proposals and the associated implementations are being passed by the Terra Classic Decentralized Autonomous Organization (DAO).
Feds Sanction Tornado Cash (August)
On 8th August 2022, the U.S. Treasury Department imposed sanctions against Tornado Cash, a privacy-focused Ethereum mixing service that obscures the trail back to the fund’s original source. They claimed that Lazarus Group, a cybercrime group run by the North Korean government, has been using Tornado Cash to launder illicit funds.
Moreover, one of the developers for Tornado Cash was arrested in the Netherlands. The crypto community and privacy advocates bashed Netherlands authorities as the developer was simply writing code and had nothing to do with illicit activities. Ethereum co-founder Vitalik Buterin also criticized the move as he himself used Tornado Cash to make donations to Ukraine’s cause.
Ethereum Merge (September)
On 15th September 2022 at 06:42:42 UTC at block 15537393, the Ethereum Merge was completed. This meant a merger of the Ethereum mainnet execution layer and the Beacon Chain’s consensus layer, transitioning from the proof-of-work consensus mechanism to proof-of-stake. This landmark update brings major changes to the network, including a 99.95% reduction in energy consumption and a 90% cut in ETH issuance.
This is a significant achievement in the history of blockchain, allowing the Ethereum network to scale effectively as demand for Web3 and DeFi increase. Since Ethereum is the mother of all smart contract platforms, this could put Ethereum in a position to rival Bitcoin in adoption and even value.
Downfall of FTX and Sam Bankman-Fried (November)
On 11th November 2022, former FTX CEO Sam Bankman-Fried (SBF) filed FTX, FTX US, and Alameda Research for bankruptcy in the U.S. Once hailed as one of the top crypto exchanges, the sudden collapse of FTX came as a shocking blow to the entire crypto industry, setting off yet another contagion across the space. This affected 130 affiliated companies including several high-profile firms such as BlockFi, Genesis Trading, Grayscale, KuCoin, Gemini, Coinbase, Crypto.com, Sequoia Capital, and Galaxy Digital.
Apparently, SBF was misappropriating customer funds for his own benefits without customers’ consent and knowledge, conducting unethical flywheel schemes with Alameda Research. As a result, SBF had been arrested in the Bahamas, facing many criminal charges including securities fraud, money laundering, and campaign finance law violations. However, on 22nd Decemeber 2022, the disgraced FTX founder was released on a $250 million bail.
The Graph ($GRT) is a decentralized and open-sourced indexing protocol for blockchain data. Developers can build and publish different APIs, which are referred to as subgraphs, and perform queries through the GraphQL.
The platform can easily be used to look for any Ethereum data conveniently through simple queries. This addresses the common problem faced by a lot of other blockchain indexing platforms.
Blockchain applications face difficulties in keeping properties like finality, chain reorganization, and security in their process of fulfilling query tasks. These are also potential complications that applications usually address, but unfortunately make the process of querying time-consuming. The Graph has a workaround for this, and it is built exactly for that purpose.
Through “subgraphs,” The Graph indexes blockchain data, which users can access via the GraphQL API. According to the team, they will make it fully decentralized in the future, where more nodes will be involved and made responsible for maintaining the index.
The interest for the platform is steadily growing. In fact, they hit over a billion queries last June 2020. This was right at the time when decentralized finance was also gaining much institutional attention.
Background
Yaniv Tal, co-founder and CEO of The Graph, together with his team, has created an indexing protocol meant to ease the process of accessing blockchain data. Tal and his co-founders had personally witnessed themselves how difficult it was to actually create new applications on the Ethereum blockchain.
Thanks to their experience on applications, they have found out that there is actually no decentralized indexing and querying softwares yet for blockchain. The problem back then was that developers had to come up with their own method to gather data and transform them from different sources.
The mission of the platform, which Tal and his team developed, is to help create applications that require no servers and make Web3 accessible to everyone.
How Does The Graph Index Data?
To index Ethereum-based data, The Graph uses the “subgraph manifest.” This refers to the description of a subgraph containing data about smart contracts, blockchain events, and the procedure in mapping event data with one another, before they are all kept in the platform’s database.
The flow of the data from transactions, subgraph manifests, and the database follows a particular structure. All of it begins with decentralized applications that are adding data to the Ethereum blockchain through the help of smart contracts.
All of that data will contain a record of all events and transactions up until the point that they have achieved finality. Then comes the Graph Node, which scans the whole blockchain database, gathers new data, and filters out those that are relevant to the queries that users make. To make the indexing much easier, it identifies every information that answers the questions from subgraphs.
GraphQL is the link between blockchain data and the application that a user wants to provide it with. But then again, it is through the Graph Node that users can deliver searches to the platform. After the whole process, users can finally look at the results of their query from their applications.
Basically, this is how the cycle of data query and indexing works in the platform. Users can refer to the Graph Explorer to scan through the subgraphs that are already in the platform. Each of these subgraphs have a playground where users can perform queries through GraphQL.
As of latest, The Graph can support the indexing of data coming from Ethereum, IPFS, and PoA networks. There are more networks that the platform will support in the future. But right now, they already have more than 2,300 subgraphs deployed, which developers for applications utilize. Some of these applications are AAVE, Aragon, Balancer, DAOstack, Uniswap, Synthetix, and many others.
There is a lot of institutional support for The Graph network. Michael Anderson of Framework Ventures, said in a press release that they “couldn’t be happier to back Yaniv and the team, and we look forward to helping grow the decentralized network when it launches.”
Hayden Adams of Uniswap also shared how useful the platform was for their analytics needs: “As a company we don’t manage or run our own databases. … Right now it’s pretty difficult to get historic data from the Ethereum blockchain in an efficient way.”
Their plan, apart from expanding to other blockchains soon, is to make it community-owned and governed in the future. This is also in response to the shift of many blockchain applications to a decentralized model of governance.
Key Roles
The platform’s whole ecosystem is composed of the following:
Consumers – These are the users who pay indexers for their searches. It could also be web services or any other software linked with The Graph.
Indexers – These are the nodes that maintain the indexing function of the platform.
Curators – Using GRTs, curators identify to the subgraphs the information that is valuable for the platform’s index.
Delegators – These are other stakers who delegate their GRT to existing indexers and earn a portion of the rewards run by nodes.
Fishermen – They check whether the network’s response to queries is accurate.
Arbitrators – They decide whether an Indexer is malicious or not.
The Graph Council
The Graph plans to decentralize its governance in the future. This will most likely be similar with MakerDAO and Compound. At the point of the protocol’s maturity, the team plans to launch a Decentralized Autonomous Organizations (DAO) that would allow core interest groups to participate in important protocol decisions.
Similar to other DAOs, the Graph Council, which will be the governing body for the technical parameters of the protocol, is also in charge of how The Graph Foundation allocates its native, utility tokens.
Among their basic functions include decisions on allocating grants and ecosystem funding, protocol upgrades, protocol parameters, and other emergency decisions.
GRT Token ($GRT)
The Graph Token, or $GRT, is its native ERC-20 based token, which can serve as a medium of exchange and the reward distributed to community participants who function as Indexers, Curators, and Delegators.
GRT also has a vesting and distribution schedule ranging between 6 months to 10 years depending on the bucket. Around 12.5% of the total token supply (i.e. 1,224,999,438 GRT) is expected to be in circulation at launch. However this figure is exclusive of stakeable but locked tokens.
GRT token distribution at mainnet launch
The Graph launched its mainnet at 9:00a.m. (PT) on 17th December 2020. Upon launch, GRT has been distributed to all of the participants of the public sale. Members of The Graph’s Curator Program also received an initial USD $1,000 worth in rewards, with the remainder to be distributed to them on a quarterly basis based on their contributions to the Program.
The Graph Foundation also received around 20% of the supply for the future development of The Graph. In particular, contributors who want to help building on The Graph can apply to their Grants Program, around 1% of the total supply of GRT will be allocated to support these participants in 2021.
Here’s a graph showing the GRT circulation over the course of 5 years from the date of launch (i.e. 17th December 2020 at 9:00a.m. PT)
5-year GRT circulation schedule by Bucket (Image source: The Graph)
Indexers that assisted during the Testnet phase have also ben rewarded between USD$10,000 to USD$100,000 in GRT as a reward for their contributions.
In addition, around 2% of the total GRT has been granted to several Education Programs and loans totalling around 2.5% had been made to independent ecosystem partners.
Indexer Staking
In order for users to stake in the nodes that operate the whole platform and sell their services in the query market, they have to lock their GRT. In return, they are given financial rewards. If the indexers work maliciously, like altering data intentionally, the GRT that they staked will be slashed.
Mainnet now live!
The Graph Network launched its main net on 17th December 2020 after 3 years of development! According to the team the mainnet launch includes the following components: Deployment of The Graph Network contracts on Ethereum mainnet, deployment of the GRT contract, distribution of GRT to takeovers, launch of the Bug County Program and new docs for network roles.
With the mainnet launch, Indexers will first stress test and improve performance before supporting real query volume, which will be upwards of 5,000 queries per second. Of course, there will be rewards for Indexers who will now begin earning on-chain indexing rewards and query fees.
Graph Roadmap: What’s next?
Now that mainnet has launched, The Graph will continue building. The Team has stated that the Graph Foundation will work on building a production-ready Graph Explorer dApp and Gateway that will support all network contributors.
The Graph is also open to any individuals or third-parties that want to build for the network and as mentioned previously, they an apply to the Grants Program or collaborate with other community contributors.
Conclusion
Looking at the current boom of the DeFi space, we can see how important it is for developers to be able to freely access blockchain data. Making the process faster and less difficult for everyone could potentially influence the growth of the space as well as its reliability, security, and capacity.
Everyone saw the need to create a bridge of information between applications and blockchain data. The Graph sought out to answer that.
And with the deployment of smart contracts that depend on user data, The Graph has proven itself to be easy to use, cost-efficient, and fast. The platform is seen as a promising tool to empower everyone in the community, especially those who are developing more use cases for the blockchain.
Decentralised Finance (DeFi) series: tutorials, guides and more
With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. As well as a deep dive into popular DeFi topics such as decentralized exchanges, borrowing-lending platforms and NFT marketplaces
More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel so you can be notified as soon as they come out!
Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.
There is a lot to consider when it comes to cryptocurrency investment and trading, and crypto exchanges are a great way to start. It is a good platform for beginners to familiarize themselves with the market as well as for experienced traders to make use of the various products the exchanges offer.
There are hundreds of crypto exchanges, and everyone is asking. “which crypto exchange is the best?” Everyone wants to get the best bang for their buck, whether it be low trading fees or lucrative products. We will be comparing two of the top and most talked about crypto exchanges in the world: Binance and FTX Exchange.
FTX EXCHANGE (INCLUDING FTX INTERNATIONAL AND FTX.US) ARE NO LONGER IN OPERATION
Both exchanges have filed for bankruptcy. Subsequently, the exchange was “hacked” and more than US$600 million worth of cryptocurrencies drained. The hacker is strongly rumoured to be a former FTX employee. For more about how this story unfolded and the latest news, check out these articles:
Founded in 2019, FTX Exchange is a cryptocurrency trading platform that was built by Alameda Research, a quantitative trading firm that develops specialized algorithms for trading crypto. It has topped many trading charts by volume and is responsible for 30% of the market trading volume on major exchanges.
The strong trading background of FTX shows that they live up to their claim of being an exchange “built by traders, for traders.”
FTX is largely focused on the derivative and prediction market, offering a wide array of futures, options, and volatility products with competitive trading rates and discounts for specific users.
FTX Exchange has been growing significantly over the past year, exploding past the likes of KuCoin and Kraken. They even managed to take market share away from Coinbase as well, which is the number one crypto exchange in the U.S. This is in part thanks to huge venture capital funding that is backing FTX.
Check out FTX Exchange Guide for a full review and tutorial on how to use FTX Exchange.
What is Binance Exchange?
Binance was founded in 2017 by Chengpeng Zhao (CZ), former Chief Technology Officer of OKCoin who has years of experience developing high-frequency trading software.
Binance is, by a large margin, the world’s most popular cryptocurrency exchange. It has more than than $25 billion in organic trading volume per day and millions of users worldwide.
Binance is largely focused on the spot market and has one of the most cryptocurrencies available to trade. It also has powerful trading tools such as leveraged trading, options trading and lending platform.
For the longest time, the trading platform scene is dominated by Binance, and is held in high regard for being smart and proactive in their planning and actions, not only for themselves but also for developing the crypto industry as a whole.
This is a significant step since it enables both exchanges to function in accordance with international standards, and meet the criteria of major regulators like the Financial Action Task Force.
Binance vs FTX Exchange Overview
In this section, we will take a closer look at what Binance and FTX have to offer and compare them based on these features:
Products
Supported cryptocurrencies
Fees
Security
Products
Binance and FTX have quite a lot of similarities based on their general offering. But the major difference is that Binance is more focused on the spot market and has more cryptocurrencies to offer, whereas FTX is more focused on the derivative and prediction market and has more volatility products. Therefore, FTX is usually seen as the preferred choice for experienced traders who want a wider (and potentially higher risk/reward) range of products.
Both exchanges offer products that are exclusive to them. Binance offers Crypto Loans, a P2P market, and Binance Earn, while FTX offers volatility and prediction markets. The addition of FTX stocks makes it the first domestic crypto exchange to provide stocks on its platform, enabling trading of stocks and ETFs by U.S. users.
FTX’s crypto card is exclusively accessible to US residents via the FTX US platform, whereas Binance’s crypto debit card has gained enormous popularity. While FTX places a greater emphasis on specialized trading products, Binance has more to offer in terms of their Binance Earn, allowing users to earn passive income.
Both Binance and FTX offers a mobile app for iPhone and Android so users can trade cryptocurrencies on the go.
Supported cryptocurrencies
Binance has the highest number of cryptocurrencies that any exchange offers to its users. It currently has 1,300 cryptocurrencies including its own native crypto, Binance Coin (BNB).
Nevertheless, FTX offers a lot of cryptocurrencies for users to trade, though not as large as Binance’s. FTX supports over 460 cryptocurrencies including its own native crypto, FTX Token (FTT).
Both exchanges however, are consistently adding to their lists of supported cryptocurrencies, including newly launched tokens.
Fees
The rates on both exchanges’ spot trade markets are extremely low, and they continue to decline as volume rises. However, FTX wins out since it assesses 0.02% as a maker fee and 0.07% as a taker fee for tier one accounts.
This is significantly lower than Binance fees, i.e. 0.1% maker and taker fee. Even after using BNB for trading fees, the user will have to pay a 0.075% fee, which is higher than FTX.
We can see that FTX is better for trading, and is clearly a winner in this category.
Security
One of the most important considerations when choosing an exchange is security. It’s safe to say that Binance and FTX are two of the most secure exchanges in the world.
Both exchanges use two factor authentication, and they store account funds and data away from online platforms so that they cannot be hacked. They also insure their funds by putting a certain amount of fee away as an insurance fraud.
Both platforms also employ round-the-clock monitoring and analysis, and in the case of a theft, user funds are protected by the reserves that both firms have in their treasuries.
FTX is one of the few exchanges that have never been hacked, and while Binance has seen some hacking incidents in the past, both exchanges adhere to the strictest industry security guidelines, with the majority of funds being kept in cold storage. FTX also does third party transaction audits via Chainalysis, giving them a slight edge over Binance.
However, we must also consider the fact that Binance has been around longer and has a much larger trading volume than FTX, making them a more attractive target to hackers. But Binance has managed to hold their ground and plan for the worst, and is still one of the top performing exchanges despite the bear market.
Conclusion
Binance and FTX have quite a lot of similarities based on their general offering. But the major difference is that Binance is more focused on the spot market and has more cryptocurrencies to offer, whereas FTX is more focused on the derivative and prediction market and has more volatility products.
Binance offers the most cryptocurrencies to trade including new projects such as DeFi, NFT or metaverse gaming. If you are a beginner or looking for new tokens to trade, or even an experienced investor who prefers passive earnings, Binance would be a better option for you.
If you are an experienced trader who strictly does day trading or skilled at volatility products, FTX would be the go-to for you as it offers all the products traders need, with significantly low fees.
Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.
Recently, the news has been flooded with talks about crypto regulation and exchange investigations by the SEC. This has raised a lot of problems among investors as particular crypto exchanges they use might one day become restricted by international regulators. Therefore, one of the safest long-term solutions is to find yourself a fully regulated crypto exchange.
In this article, we will be comparing two of the top regulated crypto exchanges in the world: SwissBorg and eToro.
After having raised USD $53 million, SwissBorg was launched in 2017 by Anthony Lesoismier (CSO) and Cyrus Fazel (CEO). SwissBorg is based in Switzerland and is fully compliant with Swiss Law, making it a popular European crypto exchange. It is the first blockchain-based secure wealth management platform, aimed at simplifying the process of crypto investments. It integrates with major crypto exchanges, DeFi protocols, and features a community-based ownership model.
SwissBorg is available in over 115 countries, and they have plans to include many more in the future. However, as of now, SwissBorg is not supported in the U.S. If you want to see if your country is included, you can visit their Supported Countries page.
SwissBorg Team
Prior to founding the exchange, Lesoismier was Head of Financial Market Digital-Advisory at JFD Brokers, and Fazel was a multicultural FinTech professional with decades of experience in asset management and algorithmic trading.
The Wealth App is the smart command-and-control centre of SwissBorg. It lets users build, manage, and monitor their crypto portfolios, enabling easy and secure wealth management. Users can fund their accounts with 16 different fiat currencies, including USD, EUR, GBP, and CHZ. Additionally, similar to Coinbase, a limited number of high-cap digital assets are supported to ensure quality.
The biggest advantage that SwissBorg has is their Smart Engine. It ensures zero spreads and no inflated exchange rates or hidden fees, allowing users to trade at the best rates and lowest slippage. Moreover, the Smart Engine analyzes hundreds of live trading pairs in seconds by connecting to major crypto exchanges such as Binance or Kraken. As a result, SwissBorg finds the best route to execute customer orders in milliseconds, saving investors time to find the best exchange rates.
Smart Yield Account
SwissBorg’s Smart Yield is a feature on its app which allows users to potentially earn passive income through Decentralized Finance (DeFi) protocols and Centralized Finance (CeFi) platforms. Smart Yield’s user-friendly interface allows easy access to the benefits of DeFi and CeFi, even average crypto users without much pre-requisite knowledge can stand to gain from it.
There are a lot crypto themes, and within each theme there are hundreds of different tokens to choose from. Decision fatigue really sets in when you are opting to diversify your crypto portfolio. SwissBorg’s answer to this is their “Thematics”, expert-designed bundles of different crypto themes.
They provide exposure and diversification that is important for every crypto investor. SwissBorg’s Thematics lets you choose a category you have long-term belief in. For example, if you believe in layer-one protocols, you can choose a layer-one protocol bundle containing Ethereum, Cardano, Solana, Avalanche and so on.
If you are interested in upcoming layer one protocols, you can check out our comprehensive article on Aptos or Sui.
What is eToro?
eToro
Company Overview
Based in Tel-Aviv, eToro was established in 2007 by co-founders Ronen Assia (Executive Director), Yoni Assia (CEO), and David Ring (Former CTO). The company was originally a social trading exchange offering commodities, indices, and stocks before diving headfirst into the crypto industry in 2018 with the launch of eToroX and a crypto wallet. It has since grown to one of the largest crypto exchanges, with a user base of 25 million active users worldwide.
Before eToro was established, Yoni Assia had held managerial roles in the FinTech industry and is an expert in computer science and finance. On the other hand, his brother Ronen Assia is a specialist in product design and engineering, having created products across various platforms such as medical devices, household applications, and web applications.
The biggest innovative feature of eToro is their CopyTrader, which allows you to automatically copy top-performing traders, what they invest in and when. This is great for average crypto users and beginners as they can easily leverage other crypto traders’ expertise, instead of going through the hassle of constantly monitoring the market, unsure of whether to enter or exit. As a result, you can simply replicate their trading in your own portfolio. In a way, it is similar to KuCoin’s trading bot, where trading activities are already figured out for you.
Moreover, CopyTrader is also a social trading platform, where traders are part of a collaborative community. They can with chat with other traders, discuss strategies and benefit from each other. This is a great place to start for beginners and learn from the best on how the market moves, but keep in mind that their quality is not assured. Crypto investments are always volatile.
Smart Portfolios
Similar to SwissBorg’s Thematics, eToro’s Smart Portfolios are essential a grouping of several assets bundled together based on the theme. In addition to crypto, eToro also has portfolios of stocks, ETFs, commodities and even people, as per their business model in the early 2010s before crypto became mainstream.
Smart Portfolios leverages machine learning algorithms and data science to group the best performing bundles, taking into account factors such as balance, exposure, potential yield, risk, and more. Moreover, there are no management fees or commission, other than those applied with assets comprising each portfolio.
eToroX
eToroX is the company’s product specifically designed for professional crypto traders and institutional investors. It is not available to retail investors. It offers a suite of advanced trading tools, 30+ crypto assets including 17 unique stablecoins and 80+ tokenized asset pairs. eToroX has a highly competitive fee structure and is renowned for having deep liquidity for stabilizing large-volume trades.
SwissBorg vs eToro Overview
Cryptocurrencies and Products
Both SwissBorg and eToro only offer a limited number of cryptocurrencies, around 30-40. Most of these assets have large market cap like Bitcoin, Ethereum, XRP (Ripple), BNB, and Polkadot. This is done to ensure quality, reducing exposure to high risk/high reward assets or degen projects that could incur a lot of loss. Both exchanges strictly adhere to standards set by financial regulatory agencies to protect the securities of investors.
In terms of trading, both exchanges offer a wide array of trading tools for all crypto users as well as deep liquidity to support large volume trades with zero spreads. However, trading on eToro only benefits whales and institutional investors as eToroX unlocks them the full benefit and is inaccessible to retail investors. In contrast, SwissBorg’s Wealth App, optimized with Smart Engine, performs just as well as eToroX and is accessible to everyone.
Furthermore, SwissBorg offers much more than crypto trading. Their Smart Yield feature works with numerous DeFi protocols and CeFi platforms, simplifying the process of earning and allowing users to stake and receive passive income. On the other hand, eToro also has their own staking reward programs, but is only limited to Cardano, Tron, and Ethereum. Although their monthly staking yield is high, only UK and US users have access to it.
Fees
Thanks to their Smart Engine, SwissBorg users do not have to worry about inflated exchange rates, floating spreads, and hidden fees. In other words, you will never end up with less crypto than what you paid for. There are no deposit fees, but crypto withdrawals are subject to an execution fee of at least 0.10%, which is relatively low compared to other exchanges. In terms of exchange fees, SwissBorg fees are among the lowest in the crypto industry, but vary greatly depending on loyalty tier and which fiat or crypto asset is being used. Moreover, 20% of their profits generated from the fees are reinvested back into the SwissBorg ecosystem.
On the other hand, eToro charges a 1% fee on crypto transactions plus a spread. Although this is still considered lower compared to other exchanges, it is not as competitive as SwissBorg. If you are planning to trade a lot of cryptocurrencies, paying more than 1% can eat into your profits. Unlike SwissBorg, eToro charges foreign transaction (FX) fees for non-USD deposits, and USD $5 for withdrawals. Furthermore, if you are planning to HODL assets long-term, it is important to note that eToro charges an inactivity fee for accounts that have not been online for a year. You can simply log in each day to negate that.
Overall, SwissBorg is the clear winner in terms of lower and transparent fees.
Security
As leading trading platforms, both SwissBorg and eToro have successfully ensured compliance with top regulatory authorities, placing the security of their platform and the safety of their clients’ funds as a top priority.
Both exchanges adhere to Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations, protecting traders from fraudulent and criminal activities. Much like all other major crypto exchanges, SwissBorg and eToro uses two-factor authentication (2FA), data encryption, network monitoring and other standard security protocols.
Both companies also store account funds in cold storage so that they cannot be hacked online. However, their methodology of cold storage security is different but impenetrable nevertheless.
eToro deploys a cold storage Custody as a Service (CaaS) solution in partnership with leading cybersecurity firm GK8. It is essentially the application of secure institutional model of custody and cryptographic security in crypto. The funds are also insured by Aon PLC against theft, loss, damage or destruction of assets.
On the other hand, instead of custody mechanism, SwissBorg addresses and enhances cold wallet security by implementing multi-party computation (MPC) keyless technology. It does not require a private key to be created, eliminating a single point of failure. MPC works by multiple parties jointly performing mathematical computations, without one party revealing its information to the others. SwissBorg achieves this in collaboration with Fireblocks as their security partner. Fireblocks is renowned for being the most secure and adaptable platform that leverages MPC technology to secure digital assets.
Crediting to their advanced security protocols and regulation compliances, there have been no known successful hacks on both SwissBorg and eToro to date.
Key Takeaways
Both SwissBorg and eToro are great crypto exchanges for investors to manage and expand their portfolio. While eToro’s CopyTrader feature is great for beginners to learn how expert traders maneuver the market, it is important to note that their quality is not assured. Crypto investments are always volatile, and no one can predict the market.
Overall, SwissBorg is relatively better than eToro in terms of trading efficiency, fees, and product variety. SwissBorg’s Smart Engine allows users of all levels to trade without inflated exchange rates, spread and hidden fees. Their exchange fees are also much lower than eToro’s, and have no deposit fees. Moreover, the company also brings DeFi benefits to its users, letting them earn high APY rewards in a simple process.
Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.
CBDCs are government-backed assets that would offer users an official way to explore existing fiat currencies in a digital manner. Stablecoins have become very popular cryptocurrency options because they function with little to no volatility, providing access to decentralized currencies without the risk of depegging in value. These assets offer stability to crypto enthusiasts who are uninterested in other assets with sudden price swings. As the number of stablecoins increased over time, many countries began to notice and eventually began exploring government-backed stablecoin cryptocurrencies, called Central Bank Digital Currencies (CBDCs). In this article, you will learn everything you need to know about CBDCs, and their pros and cons.
This is a comprehensive review of CBDCs. If you want to know more about the history of CBDCs, we have also previously written about CBDCs here.
What are Central Bank Digital Currencies (CBDCs)?
A CBDC is a digital form of legal tender pegged to a country’s national currency. These digital currencies are under the control of central banks, which issue the assets, govern their supply, and create related policies. CBDCs have now gained a lot of traction in the financial space. Today, countries are either launching CBDCs or doing research and analysis into the economic and technical feasibility of establishing a national digital currency.
How Do CBDCs Work?
CBDCs address specific concerns around crypto volatility, government backing, and transparency through distributed ledger technology (DLT). In traditional finance, banks keep track of all user transactions in a ledger for account records and audits. With distributed ledger technology, there are several copies of CBDC transaction records stored and managed individually, although uniformly updated. It also allows for much easier tracking of spending compared to cash, which is data many governments would like to have.
Separate financial entities (usually branches of a country’s central bank) manage these records in a distributed manner via DLT. This type of distributed ledger is known as a permissioned blockchain because the central banks have total control over access and distribution, usually only authorizing a few entities to perform specific administrative roles, including altering rights and accessing records. This is in direct contrast with permissionless networks, like most leading blockchains, which allow anybody to perform transactions without needing permission from a central authority.
Governments may choose CBDCs because they retain control over certain aspects, such as the total supply of digital currency. On the other hand, popular cryptocurrencies have a hard supply cap that may be impossible to alter. For instance, the Bitcoin network will create only 21 million coins. Once all 21 million Bitcoins are mined, there can be no more new Bitcoins. But CBDCs can be continuously created. Since central banks are responsible for maintaining financial stability, they may choose to reduce or add to the total supply in circulation whenever they consider it necessary.
Types of CBDCs
There are two categories of CBDCs, largely based on the intended uses:
Retail CBDC
Retail CBDCs are nation-backed digital currencies used by everyday consumers and businesses. People use retail CBDCs like they would use petty cash, without worrying about security or government regulations, even though the assets are under the government’s purview. Additionally, retail CBDCs promote financial inclusion, and also help to lower costs and environmental factors associated with printing cash.
Wholesale CBDC
A central bank primarily creates wholesale CBDCs with financial institutions as their main target, as this type of CBDC facilitates easier and quicker payments between financial institutions. The process of settling transactions using wholesale CBDCs is also more efficient, as permissioned blockchains help institutions resolve risks associated with liquidity and third-party payment processors. Wholesale CBDCs also improve cross-border transaction efficiency.
CBDCs Around the World
Several countries have begun experimenting with blockchain CBDCs, while others have already launched their own iterations. So far, more than 100 countries have officially begun exploring CBDCs, with some in the research, development, or pilot stages. As of July 2022, 10 countries have officially launched CBDCs. Some of them include:
China: Digital Yuan/ e-CNY (DCEP)
Sweden: e-krona
Bahamas: Sand Dollar
Nigeria: eNaira
Eastern Caribbean Area: DXCD
Marshall Islands: Sovereign (SOV)
Russia: Digital Ruble
Cambodia: Bakong
To learn more about specific CBDCs, see our review of China’s Digital Yuan/ e-CNY (DCEP) here.
Which is the world’s first CBDC?
The Bahamas ‘Sand Dollar’ is the world’s first CBDC to be released and available nationwide. The Sand Dollar was released on 20th October 2020 to all 393 residents of the Bahamas. Each Sand Dollar is pegged to the Bahamian dollar, which is pegged to the US dollar.
Pros and Benefits of CBDCs
CBDCs potentially offer the following benefits to a nation’s financial framework:
Simplifying Monetary Policy Implementation
One major challenge with traditional monetary policy implementation is that it depends on intermediaries within the financial system. As wholesale CBDCs streamline the flow of funds in financial institutions, retail CBDCs establish a direct connection between central banks and the citizens that use their currency. This connection to end users effectively improves the process of implementing policies, as the central bank has first-hand knowledge of users’ needs.
Financial Inclusion
CBDCs make fund distribution much easier. They potentially provide more financial inclusion by making services available to people or regions with limited banking opportunities. With CBDCs, central banks can extend access to basic financial services without building an expensive banking infrastructure.
Efficient Cross-Border Transactions
CBDCs enable faster and more secure fund remittance between countries. This significantly reduces the transaction fees required to send and receive funds to and from citizens in the diaspora, as well as allows the transactions to be completed in seconds or minutes instead of days or weeks.
Further Deter Illegal Financial Activity
A distributed and transparent ledger makes it easier for central banks to keep track of transactions and prevent illegal activity. Moreover, where these illicit transactions occur, they are easier to trace, and could even be reversed or frozen.
Growth of the Fintech Sector
CBDCs support the growth and development of the fintech industry. With the global adoption of CBDCs, the fintech space is gradually witnessing a new technological landscape that creates new jobs and opportunities.
Cons and Drawbacks of CBDCs
Like any innovation, CBDCs also have drawbacks users must consider. These disadvantages include:
Traceability and Lack of Anonymity
Since central banks manage CBDC transactions through a ledger, they have full control over transaction records. This method does not allow for user anonymity and is in direct contrast with the anonymous nature of most other cryptocurrencies and cash.
Threat to Privacy
Privacy is one of the key drivers behind cryptocurrency adoption. CBDCs may require that central authorities intrude on private users to monitor transactions and combat financial crimes like money laundering. No longer will there be private transactions, as everything is recorded on a ledger controlled by the country’s central banking entity.
High Risk of Cyber Attack
A central bank’s digital currency may attract malicious parties who want to swindle large amounts of money from one source. CBDCs must use top-of-the-line cybersecurity measures to prevent breaches effectively.
Creating a social credit system?
Maajid Nawaz, a social activist and co-founder of British think tank Qiulliam, has suggested that CBDCs can essentially create a social credit system. For example, people can be barred from spending their CBDCs on buses or trains, which will effectively limit their freedom to travel as they wish.
Differences Between CBDCs and Cryptocurrencies
Apart from centralization, here are some other ways in which CBDCs differ from cryptocurrencies:
The use cases of CBDCs include payments and monetary transactions. On the other hand, crypto assets have selected applications, and not all institutions and companies accept cryptocurrencies as a payment option.
There is generally more value to safety with CBDCs. In a stable political and inflationary nation, CBDCs maintain their value over time since they are a fiat currency of the issuing country. For decentralized crypto assets, the cryptocurrency’s value depends on market speculation and user sentiments, which makes them much more volatile.
Central banks can maintain all aspects of CBDCs, including planning and deployment. On the other hand, cryptocurrencies have a decentralized decision-making process.
Conclusion
Considering the efforts and attention that central banks have dedicated to CBDCs, mainstream adoption of these assets is all but imminent. Global adoption of CBDCs will effectively boost the crypto industry’s growth as more people begin to carry out CBDC transactions and look for viable alternatives. CBDCs will also help central banks penetrate a country’s unbanked or underbanked population, which is fantastic for their underserved citizenry.
In the end, nations may enjoy better financial stability from CBDCs. With a centrally regulated, government-backed digital currency in circulation, central banks can enact monetary policies easily and with more transparency in distribution. CBDCs could eventually become the standard for local payments and also for cross-border transactions.
MetaMask Enables U.S. Users to Purchase ETH via PayPal
MetaMask developer ConsenSys has announced the integration of a PayPal payment option to its software wallet. Users will be able to buy and transfer Ethereum (ETH) by logging into the mobile MetaMask app, tapping on the “Buy” button, and selecting “PayPal.” This will redirect users to PayPal, where they can complete their transaction OR send ETH from their PayPal account to their MetaMask wallet.
Our US users will now be able to fund their wallet with ETH via @PayPal! 🦊
Rolling out in the next weeks in the US, excl. Hawaii, through our mobile app (make sure to update to v5.13.0)🧵👇https://t.co/392JwFYF3m
This feature will be rolled out to all U.S. users first in the coming weeks, as they are one of MetaMask’s largest markets in terms of users. For MetaMask’s desktop browser extension, MetaMask Product Manager Lorenzo Santos told Decrypt via email that it will be available in the next quarter.
As of now, it is unclear whether the feature will be deployed in other countries or if other cryptos will also be available for purchase. Since ConsenSys is run by Ethereum co-founder Joe Lubin and MetaMask is an EVM-only wallet, it makes sense that ETH purchases are focused first.
Unlocking the Web3 Ecosystem with MetaMask and PayPal
As one of the top crypto wallet providers, MetaMask is often a starting point for users interacting with DeFi applications, GameFi, and metaverse platforms. And because PayPal is one of the largest online payment systems with 432 million active accounts worldwide, adding PayPal to MetaMask could broaden the customer base, making it easier for newcomers to enter the Web3 ecosystem.
Santos stated in the press release, “this integration with PayPal will allow our U.S. users to not just buy crypto seamlessly through MetaMask, but also to easily explore the Web3 ecosystem.”
Traditional Payment Companies Expanding to Web3
Over the past year, more and more traditional payment companies have been integrating crypto into their services. In fact, PayPal first began offering customers the ability to buy, sell, and hold crypto on its platform in 2020, and allowed customers to checkout with Bitcoin, Litecoin, Ethereum, and Bitcoin Cash in 2021. In June 2022, PayPal also enables customers to transfer crypto from PayPal to other wallets or exchanges. And now with the new integration into MetaMask, we can expect PayPal to release more new features gradually.
Other traditional payment companies have also followed suit. Cash App, the number one finance app in the App Store, has also added support for transactions via the Bitcoin Lightning Network, the layer-2 protocol for Bitcoin’s blockchain. Stripe, an Irish-American financial services company, has also launched its own tool to help Web3 companies, allowing their customers to buy crypto with fiat.
Other global financial services have also hinted at the possibility of dabbling into crypto. In October, Western Union filed trademark applications for managing wallets, exchanging digital assets and commodities derivatives, issuing tokens of value, and brokerage and insurance service, according to trademark attorney Mike Kondoudis.
While crypto trading bots can be profitable for users, like with any form of automated trading, there are always risks involved. Therefore, it is important to consider whether or not using a trading bot is the right decision for you. In this article, we will explain how crypto trading bots work, the advantages they offer, and the risks involved.
What are Crypto Trading Bots?
Crypto trading bots are software programs that use algorithms to analyze market data and automate trading tasks. Users can enter specific parameters for the bots to buy and sell crypto, depending on the users’ trading strategies and goals. Spot trading is the most common way to use trading bots. More experienced traders can also use bots in leveraged trading, arbitrage trading, options, and futures.
It is important to remember that trading bots are NOT money-making machines. They only execute trading orders automatically based on the commands you give them. It is essentially an extension of your trading skills. Before operating one, you should have some understanding of technical analysis (identifying bullish or bearish trends) and risk management.
How do Crypto Trading Bots Work?
Crypto trading bots typically access a user’s crypto exchange account by using the exchange’s application programming interface (API). An API is a set of protocols and tools that allow one piece of software to interact with another. The user will first need to create an API key for the exchange. This key will grant the trading bot access to the user’s account and allow it to execute trades on the user’s behalf.
It is important to note that users must specify which specific permissions the API key should have before connecting the bot to the exchange account. Users should ONLY allow bots to execute trades, and disable other personal options such as withdrawing funds and viewing account information.
There are many reputable platforms that provide trading bot services such as 3Commas, Pionex, Cryptohopper, TradeSanta, and KuCoin Trading Bot. However, this does not mean they are risk-free. Users should carefully do their research and select the one they trust to hand over their API keys. We will cover more about the entailed risks below.
Advantages of Using Crypto Trading Bots
Crypto trading bots are generally considered to be more effective than manual trading for several reasons.
Execute orders faster and more accurately
Based on predefined rules and algorithms, trading bots can track market data for hundreds of trading pairs on several markets simultaneously and execute large trades in a matter of a few milliseconds. On the other hand, a human trader would have to spend a lot more time analyzing market conditions one by one and make decisions based on their own judgment.
Operate 24/7 without human emotion
Additionally, trading bots only follow logic, removing the emotional and psychological biases that are the bane of human traders. Trading bots can also operate 24/7 and trade on multiple crypto exchanges, taking advantage of market opportunities that may be difficult for a human trader to spot. Therefore, trading bots help automate and streamline the trading process, which saves a lot of time and reduces human error.
Efficient in building wealth over time
The efficiency of trading bots allows them to execute hundreds of trades within an hour if there is enough trading volume and volatility for the asset being traded by the bot. This is also achieved by setting the take-profit percentage low for the bot to consistently enter and exit trades. This is essentially dollar-cost averaging (DCA) on a much smaller time frame — profits are compounded over time, leading to continuous growth of the crypto portfolio.
Risks of Using Crypto Trading Bots
Though crypto trading bots are useful tools, the risk they pose is twofold: security and market conditions.
API Key Leak/Hack
One major risk is the potential for the API key to be hacked or otherwise compromised, potentially allowing an attacker to gain access to the user’s account and steal their funds or sensitive information. Additionally, if the API key is not properly secured, it may be possible for unauthorized users to access the user’s account and make trades without the user’s knowledge or consent.
Following the collapse of FTX, there have been numerous reports of unauthorized trades initiated via API keys, suggesting a database leak in trading bot platforms such as 3Commas. Though shortly after the attack, 3Commas provided evidence that the attacks were not a result of a leak from their database. They believed that victims’ API keys were phished or compromised from an outside source.
Extremely Volatile Market Movements
Sudden market movements can have a significant impact on the performance of crypto trading bots. Because these bots are designed to buy and sell cryptocurrencies based on pre-programmed rules, they cannot adapt quickly to sudden changes in the market. This could lead to bots triggering unfavorable buy orders, in which their take-profit order will never close as the market continually declines. Bots are only profitable if there is enough volatility for them to get in and out quickly and regularly.
For human traders, this is when they perform better than bots. They can take breaks and step away from the market when necessary. For these reasons, it is important for users to monitor the market and be prepared to adjust their trading strategies as needed in response to sudden changes.
Key Takeaway
While crypto trading bots can help traders take advantage of market opportunities, their risks are arguably greater than their benefits, especially given the shortcomings of many centralized platforms today. By sharing your API keys, you are practically giving a third party access to your crypto exchange accounts. Should they get hacked or become fraudulent, you run the risk of losing all your funds.
However, that is not to say that crypto trading bots are bad, especially in the longer scheme of things. After all, 90% of the stock market’s total turnover are done by algorithmic trading (trading bots), according to JPMorgan research. But with repeated cases of centralized failure in the crypto industry, it is best to approach these platforms with caution for now.
Binance is tackling to issue of proving where user funds are by using the third-party auditor Mazars, a leading Hong Kong-based auditing firm, to prove independently that user funds held by the exchange are safe and “untouched”. This is particularly important as users are demanding to know that funds are safe (or “SAFU”) and that they can trust the exchange to keep holding their funds. Auditing centralized exchanges help to ensure that they are compliant with applicable laws and regulations, as well as industry best practices. This helps to protect users from fraud, manipulation, and other malicious activities.
Binance BTC Reserves are Fully Backed
Mazars, an international audit, tax, and advisory firm, has confirmed that Binance has more than enough Bitcoin (BTC) to cover all customer deposits. The report verified a 101% collateralization ratio on 575,742 BTC in net customer deposits as first published on their proof-of-reserves system on November 25. All assets included customers’ spot, options, margin, futures, funding, loan and earn accounts for BTC and wrapped BTC circulating on the Bitcoin, Ethereum, BNB Chain, and BSC blockchains.
To ensure customers’ assets are not being lent out or stolen without permission, Binance implemented a Merkle Tree proof-of-reserves system that allows customers to independently verify the safety of their assets.
Binance Merkle Tree Proof-of-Reserves (Source: Binance)
Binance Securely Controls Custodial Wallets
Mazars has also asked Binance to perform transactions at specific times to prove that the wallets were actually under Binance’s control. This clarifies the situation in late November when Binance moved 127,351 BTC to an unknown wallet. According to the report, Mazars used Etherscan and BSCscan to check that the wallets indeed belong to Binance.
Moreover, Mazars reviewed the scripts that Binance uses to extract the total net deposits, making sure there was no duplicated or rigged user IDs. This confirms that Binance’s Merkle tree is built with open source script developed by Silver Sixpence.
What This Means for Investors
Binance is the world’s largest crypto exchange by trading volume, and is arguably the most used platform for all crypto users. After the collapse of FTX, Binance CEO Changpeng Zhao (CZ) was jokingly hailed as the “savior” of crypto, doing everything he can to repair the industry. However, Binance itself is no exception to scrutiny as a result of FTX’s collapse. People need to know what centralized exchanges are doing with their money.
Binance’s audit has cleared up a lot of doubt, restoring confidence in the exchange. However, there are still two issues raised by the crypto community:
A Step in the right direction
Overall, auditing centralized exchanges are essential for protecting users and ensuring that exchanges are operating in a safe and secure manner. By conducting regular audits, exchanges can help to ensure that their customers are protected and that they are getting the best possible service. Binance has also provided on-chain proof of funds using “Merkle” Proofs in November of 2022. This means that Binance has taken efforts to prove that both Fiat and Crypto deposits in their custody are safe.
FAQ
Is Mazars a reliable auditing firm?
While most of the community praises Binance’s initiative, several Crypto Twitter users expressed concerns that Mazars is not one of the “Big Four” accounting firms: Deloitte, Ernst & Young (EY), PricewaterhouseCoopers (PwC), and KPMG. For the longest time, audits made by any one of the Big Four is the gold standard, and any other firms are deemed not “credible” enough. This is reasonable enough seeing as FTX was in fact audited by smaller accounting firms. But that might not be the case for Mazars. Founded in 1945, Mazars is one of Europe’s largest audit and accounting firms with global presence. In fact, Mazars was a longtime accountacy firm for former president Donald Trump. But after finding out Trump’s business filings were not adding up, Mazars cut ties with his business. Given their track record, it is safe to say that Mazars is reliable as they conduct due diligence on any business.
Binance audit only accounts for BTC reserves
The audit only focuses on BTC assets for now. As of now, Binance does not have a proof-of-reserves system for other cryptocurrencies. But at the end of the day, this is a big step towards a more transparent ecosystem. Let’s hope there will be more developments in the coming weeks.
