If I asked you “what are the biggest problems with today’s cryptocurrency exchanges?”, your answer would probably include a few of the following.
- Poor Security
- Slow or nonexistent support
- Difficult to use
- Lack of trust
- No educational tools
- Too many to choose from
It’s no secret that these concerns must be addressed if cryptocurrencies are to be widely adopted. Many observers contend that decentralized exchanges will solve these issues. However they too come with their own problems, including a lack of liquidity and slow on-chain trade settlement. In order to resolve these issues, many new projects are developing hybrid-decentralized platforms. These platforms will allow users to remain in control of their private keys and store their funds in private on-chain wallets. In addition, they will utilise API layers to interact with external public exchanges, performing and settling transactions on behalf of their users.
The Blockport hybrid-decentralised exchange is one such platform currently under development. The Blockport team’s white paper clearly identifies the issues above as barriers preventing mainstream adoption. As such, they will be designing their exchange to directly tackle these obstacles.
This will require a well planned bottom-up approach, hardly a walk in the park. But the Blockport white paper outlines just such an approach. I have summarised Blockport’s strategy below. In fact, any new platform hoping to capture the mainstream market will need to adopt this model to be competitive.
Liquidity refers to how quickly you can buy or sell an asset. As exchanges increase in number worldwide, individual cryptocurrency assets are spread ever more thinly. If the assets on an exchange have low liquidity (not enough buyers and sellers), they become more expensive to buy and sell. While price differences across exchanges can be capitalised upon by seasoned traders, new traders typically don’t realise this and can be taken advantage of. In contrast, Blockport members will benefit from high liquidity and the best possible prices. Blockport will achieve this by settling transactions internally (within the exchange) and utilizing the aggregated liquidity of external traditional exchanges. Users will access those external exchanges via API layers, all using a single secure Blockport account.
Blockport will provide seamless access to multiple external exchanges
Security remains one of the most difficult challenges for traditional cryptocurrency exchanges. Despite cryptocurrencies’ decentralised and trustless nature, the majority of trading is still carried out on centralised platforms. Unfortunately, these platforms are vulnerable to hacking and fraud and are thus the worst possible place to store funds. A more secure alternative can be found in the increasing number of decentralised exchanges, which provide users with private on-chain wallets (where you hold the private keys). However, they are notoriously user-unfriendly and slow. Blockport aims to take the best from both worlds, giving users full control of their private keys while also integrating with external public exchanges to provide liquidity when needed.
As discussed above, low liquidity causes large price disparities. As a result, new cryptocurrency users unwittingly pay a premium while exchanges and veteran traders reap the profits. In addition, exchanges often conceal commissions and transaction fees by bundling them into their “market prices”. In contrast, Blockport has adopted a policy of clarity and transparency for their market prices. By continuously monitoring cryptocurrency exchanges across the globe, they’ll be able to indicate and offer the best possible market prices. Blockport will also clearly indicate all fees at the time of trading, vital for earning users’ trust.
Most exchanges currently feature user interfaces that are anything but user-friendly. Technical aspects that should be hidden from view are laid bare. Red and green lights flashing here and there, along with constantly changing numbers. While this may be fine for the technically-inclined, such distractions are enough to make the average user’s head spin. And it just adds to the uncertainty surrounding cryptocurrencies. While Blockport is building a state-of-the-art hybrid-decentralised platform, their primary focus will be on promoting user-friendliness. Their intuitive user interface will cater to both new and advanced users. One neat feature planned by Blockport will be the ability to create orders by directly interacting with price charts (thus, no need to input cumbersome decimals). A preview of the Blockport trading interface can be seen here. Although its functionality is quite limited at the moment, it does provide a taste of what’s to come.
Buying directly from charts will be a nice addition to the Blockport user experience
Education and social design
Blockport recognises it has a responsibility to not only provide a state-of-the-art product, but also integrate knowledge sharing and social trading functionality. In order to stimulate the widespread adoption of any new technology, education and knowledge sharing is essential. Blockport will host an extensive knowledge base and a forum for beginners and experts alike to share their experiences, tips and more. Round-the-clock customer support through live chat and email will also be incorporated into the exchange environment, allowing for instant help during trading.
Among the Blockport platform’s many strengths will be its social trading features. In addition to connecting with other traders, users will be able to assign portions of their portfolio to automatically copy the portfolio and subsequent trades of other members (should they make this information available). Those traders will be ranked within the community, according to their performance etc. As well as enabling diversification, this feature will also allow traders to learn directly from the best. Stop-loss orders will also be possible, so assets can automatically be sold if a followed trader’s portfolio takes a dive. Finally, Blockport will impose a limit on the amount of followers a trader can accrue in order to prevent market manipulation. I’m looking forward to seeing who comes out on top: holders or day-traders!
Blockport’s social design will allow you to follow expert traders and copy their trades
The BPT token
The Blockport token (BPT) is an ERC20 token with two uses currently confirmed within the platform. The first will be as payment to other users in order to copy their portfolio (with 10% of this fee going to Blockport and the remainder going to the copied trader). The second use will be as payment for discounted trading fees. Further functionality (such as providing access to “premium services”) is planned, but yet to be detailed.
Blockport has secured a partnership with one of the most experienced and advanced blockchain technology providers in the world: ARK. With the slogan “Point. Click. Blockchain.”, ARK’s philosophy of delivering services that facilitate mass adoption of blockchain technology aligns very well with Blockport’s. Thanks to this partnership, ARK will also be one of the first coins listed on the Blockport platform.
Seamless integration with financial and regulatory systems must be a top priority for any exchange. Expert lawyers from Deloitte and Osborne Clarke will be working together with Blockport to ensure full compliance in these areas. Blockport is maintaining close relationships with the Dutch financial regulators Authority Financial Markets and the Dutch Central Bank. Communication with such entities is vital to ensure the unhindered flow of capital (fiat) into and out of the Blockport platform.
While I am a strong supporter of the Blockport project, it would be unfair not to include a comparison with some of its main competitors. I looked at Ethos and Covesting, two of the most promising platforms with similar aims. I also included Binance and Coinbase for reference. Obviously, including every platform is not feasible and I apologise to the members of those which were not included.
Given the young age of these projects, providing an accurate comparison is challenging, but I did my best. In doing my research I was very impressed by the professionalism of the Ethos and Covesting representatives I liaised with, despite them knowing the main focus of my article was Blockport. Thus special thanks goes to Samuel Feintech (Ethos Telegram admin), Paul Hinrichsen (Director of Business Development at Covesting) and Maciej Witak (Covesting Europe Support Team). Your input was invaluable.
Chart explanation and analysis
While comparison charts can be helpful tools, it’s essential to look at them in context. Most blockchain projects are in the very early stages of development. As such, much of the information available represents planned features, not proven capability. The chart above is no exception, and therefore should not be used as a rating tool. It is simply included to describe and compare the capabilities envisioned by the teams of each platform. The information was obtained through researching white papers and other official documentation, and discussions with the project members mentioned above. You should evaluate this information for yourself, based on several factors such as the strength of the respective teams and communities, currently available technology, etc.
The first point of note is that Blockport and Ethos plan to offer hybrid-decentralised platforms, whereas Covesting’s exchange will be centralised. Blockport and Ethos users will have full control of their private keys. In contrast, Covesting will require users to entrust the management of their private keys to the platform. Also worth mentioning is that Blockport and Covesting will be providing their own exchanges, in addition to leveraging the aggregated liquidity of multiple external exchanges through API bridging. Ethos on the other hand will operate without an internal exchange, producing liquidity purely via the Ethos Relay within its Bedrock API. Depending on the method used, this may have implications for initial performance; settling trades without the use of a centralised system is currently inefficient.
Mainstream investors currently face a steep learning curve when entering the cryptocurrency market. Thus all three of the newer platforms are focussing very heavily on user support and education, including copy trade functions. I was particularly impressed by Covesting’s knowledge base, which is already packed full of lessons, tutorials, articles and more. Seamless social interaction tools are also key to the growth and sustainability of any new online service. As such, these trading platforms are also beginning to integrate them.
Taxation support is another big drawcard for the platforms (except Binance). Coinbase recently introduced cost basis calculation support (beta). And all three of the newer platforms plan to provide some form of reporting to assist users. Taxation support will be essential for the success of platforms offering copy trading, which will trigger numerous tax events, particularly if you are following several active traders. Without such functionality, a massive tax reporting burden would be placed upon users. I reached out to Blockport’s founder Sebastiaan Lichter for comment. His reply: “We are going to help our users to be able to correctly and seamlessly file their tax reports. You can think of tools that calculate the total tax that users have to file at their respective government agencies for year/month X”. Ethos is also planning to offer access to Taxfyle tax professionals via their platform, though such services likely come with a fee attached.
All three claim to provide a high level of token functionality, above and beyond traditional exchanges’ discounting and voting uses. In addition to functions related to copy trades and trading fees, Blockport and Ethos are both planning to provide additional uses for their tokens. The Covesting platform is taking a slightly different approach: all funds to be used for copy trading must be deposited as COV tokens and any profits are also paid as COV tokens. This is an interesting strategy which will increase demand for the tokens, as users will effectively be staking them in order to earn potential profits.
A distinguishing characteristic among these platforms is how they will structure the sharing of copy trade profits. Blockport currently has no plans to give a cut of members’ trading profits to the trader they are following. In the Covesting platform however, this figure will be 18%. Ethos is yet to detail how it will structure profit payments. The sharing of these profits may have implications for the different types of users on each platform (hence orange in the chart). For instance, Blockport may be more appealing to users who don’t intend on becoming sought-after traders, whereas Covesting may be favoured by traders looking to capitalize on their knowledge. In the end, this choice will likely come down to the size of the Blockport copy trade fee (yet to be announced).
To remain competitive, Blockport’s copy trade fee and the Covesting profit split (essentially a fee) may end up having to be about the same (currently 28% of profits for Covesting). However, Blockport also plans to provide other “premium” functionality accessible via the BPT token, potentially allowing for a copy trade fee lower than Covesting’s. There’s also other fees that users will need to consider collectively, such as Covesting’s 2% deposit fee. As a side-note, investors should always be wary of exchanges claiming zero fees. This is not economically feasible – they will likely be targeting you in other areas or concealing the fees. If you want to use a cutting-edge exchange, you should be willing to pay for it.
Most of the platforms in the chart feature (or will likely feature) alternative ways to earn passive income. Covesting and Binance both plan to execute token buybacks/burns. Ethos are envisioning lending and other methods. And according to Sebastiaan, “more utilities will be developed in the future, thus not excluding other ways to earn BPT.”
A further strength worth highlighting in all three platforms is their inherent automated investment diversification, provided via copy trade functionality. Moreover, Ethos claims they will implement a one-click solution for diversification involving cryptocurrency and traditional assets.
As alluded to above, the Ethos platform stands out in the trading of regulated investment products and banking products and services. In addition to being able to trade traditional assets such as derivatives, stocks and bonds etc., they plan on providing access to checking accounts and debit/credit cards as well.
I began writing this article as a preview of the Blockport platform. Along the way, I realised that in order to really add value, I needed to include a comparison with some of Blockport’s top competitors. So I’ve done my best to provide an accurate and fair comparison with Ethos and Covesting, also two very promising projects. As you can see from the chart, it wasn’t really worth mentioning Coinbase or Binance. There really will be no competition should the newcomers pull off their ambitious plans.
And at this early stage, that’s what these projects remain: ambitious plans. Ethos in particular boasts an overwhelming array of planned features. Their lack of a roadmap is either a sign they are struggling to put it all together, or that something groundbreaking is coming and it hasn’t been released “because of copycats” (as suggested by their Telegram bot). In their white paper, Covesting points out clearly that any forward looking statements are only “estimations and predictions”. For this they should be given credit. Not many projects take the time to highlight the speculative nature of blockchain projects. Though despite making this effort, unfortunately it’s highly unlikely the majority of cryptocurrency investors will take the time to read it.
The significance of the Blockport-ARK partnership cannot be overstated. Having a strong source of blockchain knowledge and experience in their corner will be a large advantage. Blockport also don’t seem to be overreaching with their intentions. They have a clear aim of facilitating mainstream blockchain adoption, without trying to implement a plethora of features. Their team is young and driven, and their growing community is showing strong signs of maturing and organisation.
In the end, it will come down to each projects’ capacity to deliver their stated goals. All three have impressive teams and partners. It would be untrue to say that one team is more motivated than the others. Given their strengths, I see no reason why the projects won’t be able to coexist.
Lastly, a special thanks to Blockport founder Sebastiaan Lichter, who patiently answered every question I sent him. For more information on Blockport, including their roadmap and team etc., please check out their website.