The advent of cryptocurrencies have also brought along with them a new segment within the financial services industry segment. The market potential and opportunity for investors is huge likewise cryptocurrency exchanges, with a combined market capitalization of over 1900 cryptocurrencies currently standing at over US$286 billion according to data obtained from CoinrateCap.
Generally, cryptocurrency exchanges enable investors to buy, sell and trade cryptocurrencies purchased either by using fiat currencies (US Dollars, Pounds, Euros, Yen, or other national currencies) or through established cryptocurrencies mainly Bitcoin or Ethereum (Ether). These exchanges basically function as e-brokerage outfits, facilitating exchange of value between buyers and sellers, and charging fees and commissions on transactions. It should be noted that apart from Bitcoin and Ether, all other cryptocurrencies (also known as altcoins) currently cannot be purchased directly using fiat currencies.
Currently, the top global cryptocurrency exchanges are as follows:
- Coinbase – established in 2012 in the US, it offers a wallet, an exchange, and a set of tools for merchants, all on their platform, currently there are 4 tradable coins and purchase through fiat currency is possible on their platform;
- BitMEX is a Hong Kong based, it is more focused on traders rather than retail investors, with trade volume consistently at over US$2 billion worth of transactions in a 24-hour period and it only allows for trading of Bitcoin and does not allow for purchase using fiat currencies.
- Binance originally was founded in China, but now operates from multiple locations across Asia, it allows for trading of over 136 cryptocurrencies and does not allow for purchase using fiat currency.
- OKEx is Hong Kong based, with a trading of about 145 cryptocurrencies and allows purchase using fiat currency.
- Huobi is based across multiple locations in Asia and the US. Itallows for the trading of about 248 cryptocurrencies on their platform and purchases to be made using fiat currency.
- Other major exchanges are Bitfinex, Bithumb, HitBTC, UPbit, ZB.COM, Bit-Z, Bibox, Kraken, and GDAX. Most of the exchanges are either based in the US or Asia (China, Hong Kong, Singapore, and South Korea especially) and they all have in common a trade volume that surpasses US$100 million daily.
Africa is not left out of the excitement and quest to partake in the opportunities on offer. There are several Africa cryptocurrency exchanges either in Africa or outside the continent, catering to investors in Africa. The table below gives a brief summary of the top Africa based/focused cryptocurrency exchanges.
Table below shows the list of Africa Cryptocurrency Exchanges.
|Cryptocurrency Exchange||General Summary||Founder(s)||Location||Exchange trading model||Acceptable mode of payment||Types of cryptocurrencies traded on the exchange|
|Luno||Known as Bitx, they rebranded in 2017 to Luno. Launching their mobile app and instant deposit also in 2017.||Marcus Swanepoel, Carel van Wyk, Francois Paul, Timothy Stranex||London, England||Direct sales (clients are also able to trade on the platform)||Bitcoin or fiat currency (local debit cards)||Bitcoin and Ethereum|
|LocalBitcoin||They are the first exchange in Nigeria. LocalBitcoins is available in all the countries of the world.||Jeremias Kangas, Nicholas Kangas||Helsinki, Finland||Not direct – Escrow supported P2P marketplace||Paypal, moneygram, local bank deposits, cash, etc||Bitcoin|
|Remitano||Similar to localBitcoins. However, in Nigeria, it is cheaper to buy bitcoin on Remitano than LocalBitcoins.||Dung Huynh||Started in Ho Chi Minh, Vietnam, but now incorporated in Seychelles||Not direct – Escrow supported P2P marketplace||Paypal, moneygram, local bank deposits, cash, etc||Bitcoin, Ethereum and Tether (USDT)|
|NGexchanger||Provides exchange services for more cryptocurrencies than any other Bitcoin exchange in Nigeria.||Unknown||Port Harcourt, Nigeria||Direct sales (clients are also able to trade on the platform)||Cash deposit, internet /mobile/ATM transfer||Bitcoin, Litecoin, Ethereum, Bitcoin cash, Neo, Ripple, Dashcoin, Ethereum Classic and 4 other digital Currencies|
|Naira2USD||A transaction initiated on Naira2usd will be completed over WhatsApp. Hence, WhatsApp must be installed on your mobile device to buy bitcoin from Naira2usd.||Unknown||Onitsha, Nigeria||Direct sales||Bank deposit, mobile/online transfer, cryptocurrency||Bitcoin and 4 other digital currencies including Paypal, Payoneer, skrill, Perfect money and Neteller.|
|Nairaex||Provides exchange services for only Bitcoin||David Ajala||Abeokuta, Nigeria||Direct sales (clients are also able to trade on the platform)||Bank deposit, mobile/online transfer||Bitcoin|
|BitkoinAfrica||Similar to Remitano, Paxful and LocalBitcoins, they operate as a marketplace connecting buyers to sellers.||Timi Ajiboye||unspecified city in Nigeria||Not direct – Escrow supported P2P marketplace||Different payments methods including local bank deposits Different||Bitcoin, Ethereum, and other cryptocurrencies|
Comparing the state of the regulatory environment in more developed economies with pertains in Africa, there is a clear difference. In the US and much of Asian markets where the major exchanges reside, the regulators are making significant efforts towards putting in place a regulatory environment that would ensure the safety of investors, whereas the same cannot be said for Africa in which most of the countries lack cryptocurrency legislation. The consequence being that cryptocurrency exchange platforms are not required to obtain money service licenses and transaction with such exchanges are unregulated.
In Nigeria, for example, there is no extant law regulating the use, procurement or ownership of cryptocurrencies. However, the Central Bank of Nigeria (CBN) issued a Directive to the effect that cryptocurrencies are not legal tender or licensed or regulated by the CBN and that dealers and investors deal/trade cryptocurrencies at their own risk. The circular also noted that where financial institutions (FIs) in Nigeria have customers that are Virtual Currencies Exchangers (VCEs), the FIs must ensure that the VCEs comply with the controls and requirements, specifically related to customer identification, verification and transaction monitoring requirements contained in the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) Regulations, 2013.
The architecture of a cryptocurrency exchange in its most basic configuration is captured by the image below
Cryptocurrency Exchange architecture (source – itxitpro.com)
- Trade engine: It is the core of any exchange. It accesses the order book, matches buy/sell orders, executes transactions and calculates balances. Without a trade engine, the exchange cannot function.
- User Interface (UI): It is the front-end of the exchange website where the traders sign up and login to use the exchange website functionalities. It allows the trader to do the following – register and access an account; deposit, maintain and withdraw a crypto or fiat currency; view current order book, past transactions, balance, statistics etc.; view charts; place buy and sell orders; access the support mechanism.
- Wallet: It is the Bitcoin daemon running on the exchange server. This is where the Bitcoins (of the exchange operator and his traders) are stored, hence it needs maximum security. Any exchange should implement a so-called hot/cold wallet system to diversify risk. The hot wallet is the Bitcoin gateway of the exchange and allows the customer to instantly withdraw Bitcoins to their external wallet without need of approval from an exchange operator; the cold wallet is where the rest of the customer’s Bitcoin is stored, it is offline which guarantees that nobody can access it except the owner.
- Admin panel: It is the equivalent of the business intelligence and management software. It enables the exchange operator control and manage their exchange. It has the following functionalities – altering liquidity; editing the spread and trading fees; approving user accounts for trading, after verifying KYC or other compliance requirements; managing currencies like BTC, USD, ETH etc. and markets like BTC/USD, BTC/ETH, etc.; crediting fiat deposits, or debiting fiat withdrawals requested by users; addressing support requests raised by users
In spite of the many challenges and uncertainties that have recently rocked cryptocurrencies, especially regulatory and security related issues that have plagued many major global and Africa cryptocurrency exchanges which has led to major fluctuations in prices and some instabilities, the market seems to have shown more resilience than would have been naturally expected. This is reflected in the growth shown by user subscription data on Coinbase which has quadrupled since January 2017.
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