how will it affect the cryptocurrency market?
This summer, the Intercontinental Exchange (ICE), the New York Stock Exchange operator, announced its intention to launch Bakkt, a global cryptocurrencies ecosystem.
Intercontinental Exchange (ICE) is the largest financial company managing online trading platforms where futures, derivatives and over-the-counter contracts are traded.
The site was to have been launched in December but the start was put off until January 2019. Kelly Loeffler, the head of the platform even gave the exact date: 24 January 2019. The time left before is set aside for the platform’s preparation. A futures contract for Bakkt Bitcoin (USD) will be listed on the stock exchange on the day of the platform’s launch.
In the article we will share with you why Bakkt may become a long-awaited impetus for the undervalued market.
We will also discuss the issues faced by cryptocurrency exchanges, which deter many investors making them opt for classical investment methods. We will also detail Bakkt’s structure and advantages over its competitors.
Bakkt is a platform for institutional investors that will become a bridge between the traditional and the cryptocurrency markets. When institutional investors have earlier shown interest in cryptocurrencies, they faced a number of challenges in investing. But now, with the advent of an integrating platform, investment in crypto economy will get much simpler for such giants as Goldman Sachs, JP Morgan and Morgan Stanley.
Bakkt is expected to be a powerful impetus for the entire crypto market, able to pull it out of its year-long decline. Market capitalization has virtually been at standstill, and will not start to grow without the arrival of institutional money. Many big investors have a positive opinion about cryptocurrencies. However, many are deterred by the safe storage issue. Mass media outlets regularly publish information about the hacking of crypto exchanges when hundreds of millions of dollars get stolen. Due to infrastructure issues, crypto exchanges are not suitable for institutional investors as a tool for handling crypto assets.
What will the Bakkt ecosystem be like?
Bakkt will consist of several units: a trading platform, a digital repository, a guarantee fund and a clearing house. The guarantee fund will cover the risks of market participants in case of default by market participants.
The clearing house will collect information about transactions on the exchange, do accounting and adjustment as appropriate, and ensure delivery of securities from the seller to the buyer. Thus, clearing will be a guarantee for market participants. A digital repository will secure the safekeeping of assets. To date, even American crypto exchanges meeting all the requirements of local regulators cannot offer such a set of tools for investors. The platform can cater to different kinds of customers: from institutional investors to private individuals.
How will Bakkt work?
The exchange will work in a way similar to the money market. BTC will be traded through one-day futures contracts. A dealer or a broker will place an order for his client and by the end of the day the clearing house will send fiat money or a cryptocurrency to the user’s account. One-day futures contracts will be sold for US dollar (USD), the British pound (GBP) and the euro (EUR). That is, a buyer of the USD/BTC futures will receive Bitcoins in his account.
The biggest innovation is Bakkt’s architecture: the exchange will work in a way similar to that of Lightning Network. An off-chain system for offline transactions is planned enabling not to place in blockchain the transactions effected on the platform. They will be added to the blockchain only when funds are deposited on and withdrawn from the platform.
Advantages of Bakkt platform
Such giants as Intercontinental Exchange, Microsoft and other world renowned companies support the project.
The key benefits of the project will come from the Intercontinental Exchange (ICE):
– Possibility to buy/sell and store a cryptocurrency for the end user;
– Businesses’ higher confidence in cryptocurrencies;
– Advent of technologies integrating the market and trade infrastructure with blockchain technology;
– ICE is the parent company of the New York Stock Exchange; it has helped many companies grow their capital;
– The ICE platform is the leader in the number of agricultural commodity futures.
Why was Bakkt needed?
This part of the article will discuss the main drawbacks of cryptocurrency exchanges to date. Earlier, hacking one exchange led to the market drop, today, nut now as there are more exchanges around, hacking one of them will not bring down the entire market.
However, many aspects of crypto exchanges’ activities still leave much to be desired. The most acute issue is, of course, security. Over the past 8 years, 31 crypto exchanges have been hacked with tokens worth $1 billion stolen.
1) 41% of exchanges allow passwords with fewer than 8 symbols;
2) 37% of the platforms allow passwords with either digits or letters only;
3) 5% of exchanges allow creation of accounts without email
4) 3% of exchanges do not offer two-factor authentication (2FA).
Fewer than half (46%) have no such issues. Only 4% domains offer a high security level. Coinbase Pro was named the highest-security exchange.
In addition to the vulnerabilities associated with user accounts, researchers have identified many other issues. For example, console errors were detected — faults in the code that can lead to data loss. Such errors were uncovered in 32% of the exchanges studied.
Obviously, big investors will be alarmed by such disappointing security indicators. It would be laughable to expect Goldman Sachs people to register at Binance or make a wallet at Blockchain.info. Investors of this standing need other tools, and Bakkt intends to become one of them.
Taking into account all these factors, the launch of Bakkt will give an impetus to the digital currency market and significantly expand the scope of their application. According to the most optimistic forecasts, 2019 may, thanks to Bakkt, may become the year to usher in a merger of two market segments — the fiat and the cryptocurrency. Perhaps it is precisely the instrument that will make the market perceive cryptocurrencies in a new light.