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Written by: Toby Nwazor
With an average daily trading volume that runs into billions of dollars it’s not a surprise that cryptocurrencies are still garnering a lot of attention from traders. This is a huge win for a market that is less than a decade old.
In 2017, the cryptocurrency market witnessed major stirs filled with the good, bad and the ugly – from blockchain hacking to the record hike in the value of Bitcoin, mind-blowing introduction of ICOs and disruptive technological innovations , which welcomed decentralize exchanges.
Be that as it may, more people are being sold into the immense potential that cryptocurrencies have in transforming how we trade and do business.
Challenges Plaguing the Cryptocurrency Market
Nothing is perfect and certainly cryptocurrencies won’t be any different. One can’t be oblivious to the problems that plague the market.
Inherent in the market are functional and structural issues that don’t play in favor of the market despite its potential. The source of these issues can be attributed to several reasons ranging from the lack of understanding of the digital currency space and the infant nature of the market among others.
Encrybit, a cryptocurrency exchange platform, carried out a survey which revealed the key problems the cryptocurrency market is facing. Although the challenges in the market are too many to name, the results of the survey point fingers at these four major problems.
Challenge #1: Security
According to the survey, 40 percent of the participants said that security is a major concern. From inception the cryptocurrency market has been plagued with hackers and cybercriminals whose activities have resulted in millions of dollars being stolen.
Cryptocurrencies need the blockchain technology to solve the trust problem that occurs in transactions between the parties.
The solution to the security problems was to execute more stringent security measures.
For the sake of protecting traders, stringent security measures have been introduced to prevent hackers from stealing the money of traders. Although the security measures are causing bottlenecks like the hassle of moving crypto from offline storage wallets to online storage wallets, at least the trader’s funds are safer.
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Challenge #2: High Trading Fees
The hike in trading fees is posing a problem to traders as 37 percent of those who took the survey see it as a concern ranking it as the second biggest problem on the list. As at December 2017 cryptocurrency traders were spending an average of $28 per transaction. It may look like a meager token for those making large transactions but for those trading in smaller volumes $28 is a lot. Imagine having to forgo $28 for a $100 transaction.
As more people patronized the cryptocurrency market, the trade volume became too much for miners to handle leading to congestion in the network. The only logical thing was to raise the transaction fees to compensate the miners.
However, as the transaction fees increased, cryptocurrency traders made moves to shift base from bitcoin to other cryptocurrencies like ethereum and litecoin where the congestion was less and the fees were cheaper.
In a bid to solve the high trading fees, Ryan Radloff, co-founder and principal of CoinShares told CNBC that Lightning Network was up to the task. Lightning Network is a technological implementation which aims to help users to process multiple transactions within and outside the blockchain. It is to act as a second layer to the blockchain to help reduce congestion.
Challenge #3: Lack of Liquidity
Lack of liquidity causes the prices in the market to fluctuate drastically such that the amount of bitcoin you send to another can be more or less than the actual amount you sent. This is unlike conventional currencies where the liquidity is higher – you receive the exact value you sent and vice versa. The volatile nature of cryptocurrencies is what causes 36 percent of participants of the survey to mention lack of liquidity as a concern.
To illustrate the problem imagine you want to send Bob $1000 worth of bitcoin only for Bob to receive $800 or if it’s his lucky day $1100 leaving you at a loss of $100.
Solving the problem of this nature can be tricky as price fluctuations are largely determined by market forces. However, the best approach is to opt for decentralized exchanges as they can help reduce the cost of the switch for cryptocurrency traders. The decentralized system will prevent multiple switches from one exchange to another.
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Challenge #4: Inordinate Delays
In a bid to combat the problems caused by cybercriminals , the hike in security has been one of the reasons for transaction delays. The use of blockchain technology was meant to make the transaction process faster however the opposite is the case.
Every step of the transaction is met with delays starting from opening a trading account, verifying your identity to deposits and withdrawals. With the increasing length of blockchain came the increase in the time of delays as the transactions get held up in the queue awaiting approval.
The most attainable solution to curb the speed challenges is to have efficient decentralized exchanges that will be able to handle the influx of traders’ transactions on the blockchain.
Following the bottlenecks is the slow response of the exchange support team with the entries left unattended to. This has caused such a concern that it was ranked the fourth problem at 33 percent that you see currently available in exchanges.
Increasing the number of support staff who will attend to ever-increasing number of traders is a step in the right direction to solve this problem.