The recent report by Blockchain transparency institute suggests that 87% of the trade volume on top 25 crypto exchanges might be inflated and fake. This method has become a trend of a kind, and most of the Exchanges have made this into a money-making strategy.
Inflating trade volumes is known as ‘wash trading,’ and exchanges use it as a method to charge impressive amount anywhere ranging from $50,000 and above for listing a new coin on the platform. The Exchanges charge even more from the coin networks for ICO listings, as ICOs has been proven to attract more investors since it provides instant liquidity options.
Are Exchanges a Hindrance to the Growth of Blockchain?
Well, looking at the report the problem seems to be quite significant. Out of the 25 cryptocurrencies listed on the coinmarketcap.com, only two does not actively participate in inflating the trade volume through wash trading. Others are actively involved, and 70% of their trade volumes are through wash trading, while 12 of them are involved in 99% of the wash trading to inflate amount and show a wrong picture to the world.
If we go by the inflated trade volume number, the exchanges claim on an average $2.5 Billion worth of trading occurs on these exchanges. However, the correct evaluation brings the number down to a mere $32 Million, a gap of 87% from the face value.
To put things in perspective, Coinbase is considered as one of the most notable names among the exchanges, and it did not even make a list in the report. If we go by the trade volume claims by the Exchanges, coinbase is at 33 positions.
Another report published on BTC Wires suggest similar methodologies were incorporated by Bithumb to become the largest crypto exchange by volume.
Decentralization of Exchanges is the Need of the hour
The problem of washing trade and inflated numbers have contributed to the crypto winter which has resulted in the decline of prices for all the cryptocurrencies. Many Reddit users have pointed out that the exchanges listed in the report are relatively new with a very limited user aggregate, so these inflated numbers can never add up.
Many have called for decentralization of exchanges as well since the centralized form of working has been the cause of many issues. A decentralized network of Exchange would result in more transparency and problems like each threading can be eliminated. The decentralized exchange would also offer more security, liquidity, and protection against regular hacks which often result in robbing of cryptocurrencies from the Exchanges.
Blockchain and cryptocurrency were introduced and advertised as the ultimate solution against mischievous like wah trading. However looking at the current state of crypto exchanges, they seem to be as centralized and a hindrance in the path of blockchain propagation. These fraudulent activities not only bring a bad light to the whole community but also plant a stigma to the outsiders that, the so-called fool-proof technology is no different.
The call for decentralization of exchanges is right, and people of the blockchain community must take a hard-stand to bring in necessary changes. We have seen many new gates being opened for the incorporation of blockchain in the mainstream, so we must try to avoid such nuisances in the future.