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Understanding The Crypto Ecosystem

Understanding The Crypto Ecosystem

Explainers Essentials

14 Mar 2020

The crypto industry has grown exponentially since Bitcoin was created in 2009. While at first, Bitcoin was more of a niche interest, today there’s a massive industry comprised of crypto exchanges, blockchain protocols, financial services, data aggregators, technology providers, media, conferences, mobile apps, hardware tools, and a developing regulatory environment.

Let’s take a quick look into each of these components of the crypto ecosystem, and how they shape the industry moving forward.

Crypto exchanges

Crypto exchanges are arguably the most important component of the crypto ecosystem. These marketplaces provide the on and off ramps for investors and traders to move in and out of crypto, and the trading activity that occurs on these exchanges determines the prices for the many crypto assets available today.

Vast sums of capital flows through crypto exchanges, with the top 5 reporting over $3bn in average daily volume as shown on CoinMarketCap.

There are hundreds of crypto exchanges worldwide, some operating globally targeting the mainstream and some focusing on niche markets.

AAX, for example, targets crypto traders and institutional investors, connecting the crypto ecosystem to the global economy, using LSEG Technology’s matching engine to provide best-in-class technological capacity unmatched by any other crypto exchange.

What they all have in common, is that together they formed the breeding ground for many of the altcoins that have successfully secured market share long after their introduction to the market. Crypto is no longer only about Bitcoin. Other coins such as ETH, XRP, BCH, USDT, LTC, EOS, XTZ and so on are all assets that have their place in many crypto traders’ portfolio and diversification strategies.

With all these markets, trading crypto now bears a lot of similarity to forex trading as the underlying principles, tools, indicators and strategies used in forex also apply to crypto trading. We cover these topics extensively in the crypto trading section of AAX Trends with common indicators being Elliot Wave, Stochastic, CCI, Inside Bar Breakout and Cup and Handle.

Blockchain protocols

The underlying technology that makes cryptocurrency possible, is blockchain. There are many different blockchain protocols, each with slightly different technological features, strengths and weaknesses.

The Bitcoin blockchain, for example, relies on mining and Delegated Proof of Work to process transactions, whereas another blockchain might not have mining at all and instead uses Delegated Proof of Stake. Besides the Bitcoin blockchain, other notable protocols are ETH, Hyperledger, EOS, XLM, IOST, KIN, TRX and STEEM. From among all of these blockchain protocols, Ethereum deserves special praise for driving rapid innovation throughout the crypto ecosystem.

Created by Vitalik Buterin, the Ethereum platform marked the introduction of a more accessible market for developers using its own programming language Solidity. It took blockchain technology by storm and created a new world of innovative decentralised applications supported by smart contracts and custom tokens - most of today’s altcoins are based on Ethereum’s ERC20 standard.

The decentralized finance movement, or DeFi, is by and large based on the Ethereum blockchain protocol.

Financial services

For every service that exists in traditional finance, DeFi apps based on Ethereum have an alternative version that is accessible to everyone. DeFi apps allow users to create stablecoins, lend money and earn interest, send and receive payments, take out a loan, trade, take positions on prediction markets, get into real estate and much more. Smart contracts are key to making decentralized services possible, as they execute pre-agreed activities automatically once certain conditions are met.

But traditional finance has since adapted to offering new services tailored to the crypto ecosystem. Some fund managers now offer investors a way to include cryptocurrencies in their portfolios, custodians provide security services for those that have a lot of capital invested in crypto, and many analysts on mainstream media such as Bloomberg now take a serious interest in crypto.

Crypto hardware

For those that prefer to take security measures into their own hands, there is a huge crypto hardware market that offers professional traders and long-time HODLers the tools they need. The biggest names in the hard wallet category are Trezor and Ledger. Both essentially offer the same value to crypto traders: a place to store crypto in a much safer way.

Of course, crypto stored in hard wallets is not available for trading on the markets, so crypto traders typically split their reserves between hard wallets and exchanges using a ratio that fits their trading style.

Data aggregators & blockchain analytics

With so much activity taking place across blockchains, huge amounts of data is generated and a sub-industry of data aggregators and blockchain analytics has sprung up in the crypto ecosystem as a result of it. Companies like CoinMarketCap are the go-to sources for a quick check on stats for cryptocurrencies and exchanges. They collect data for trading volume, liquidity, market cap, price action, circulating supply and industry wide stats such as number of total number of coins, markets, market cap and BTC dominance.

For those that are more interested in blockchain analytics, sites such as Blocktivity offer exactly that. Here you can see data for each separate blockchain protocol regarding the number of operations in the last 24 hours, the average operations in the last 7 days, market cap and the Capacity Utilization Index (CUI) which represents the remaining available capacity of the blockchain protocol after its current actual usage. Altogether, these sites can provide valuable insights into the blockchain space.

For example, the CUI of Ethereum is just over 50% at an average 667,000 operations in the last 7 days, whereas EOS is performing at just under 50% CUI with an average 63 million operations during the same timeframe. In a technical sense, the EOS protocol is far more capable than its Ethereum counterpart. However, that hasn’t stopped Ethereum from securing 70% of the market cap across the most active blockchains.

Crypto media & conferences

In today’s world where everyone is essentially a publisher of content, no industry this big could exist without its very own media industry. The crypto ecosystem has spawned a vast media landscape of news outlets, KOLs and conferences dedicated to the coin, the chain and the code.

The biggest names in the crypto news media include Coindesk, Cointelegraph, Bitcoin Magazine, Decrypt, CCN, Bitcoinist, NewsBTC and many more. Some KOLs have made a huge name for themselves and have an audience that at times can outmatch the news media.

YouTube celebrities such as DataDash, Dollar Vigilante, Altcoin Buzz, Ivan on Tech and Boxmining, each have between 200,000 to 300,000 subscribers. In the crypto ecosystem, some of the biggest names in Crypto Twitter are VentureCoinist, CryptoCred and CryptoDonAlt with 211K, 140K and 120K followers, respectively.

If you need to connect with companies and people face-to-face, there’s certainly no shortage of crypto and blockchain conferences. Across the world, every year there are many conferences that cater to investors, blockchain veterans, startups, institutional finance, coin or protocol related communities. Just in 2019 alone, we ourselves sponsored and attended Blockchain Live in London, CoinMarketCap’s The Capital in Singapore, and the Mobile World Congress in Shanghai, where we met with exciting other crypto companies, major financial institutions and connected with regulators from different jurisdictions.

Crypto regulation

For the most part, financial regulators are still developing the frameworks needed to protect investors and consumers as the crypto ecosystem reaches more people in more markets. The approach regulators take can be very different, which can be a challenge for companies operating across multiple jurisdictions.

During the ICO craze of 2017 and 2018, many projects took off before the regulatory framework was in place, and some projects were discontinued midway the fundraising process as they did not meet the guidelines of that jurisdiction once they were provided. This had everything to do with the evolving understanding of how to classify digital assets – the result of which today is the distinction between security tokens and utility tokens.

Over the past year, with the proposal of Libra, this push for regulation has intensified, and more and more reports are coming in from Central Banks as well, as they explore what blockchain technology could mean for their policies and economic activities.

The crypto ecosystem is evolving rapidly

All these components that make up the crypto ecosystem are growing and developing at their own pace, contributing to an industry that is becoming more sophisticated by the day. Crypto has come a long way from its niche appeal in 2009 to a lively digital assets economy.

But for the industry to expand and increase participation, we need more than a strong ecosystem. We need a better connection between crypto and global finance. The more familiarity we build between crypto and traditional finance, the easier it becomes for new people to start their journey towards understanding the crypto ecosystem.

And with every newcomer, the crypto industry evolves further as exchanges, financial services, media and regulators adjust to mainstream consumer expectations – potentially improving investment outcomes.

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