Over the past ten years, the cryptocurrency industry has evolved from an experimental idea into a multi-trillion-dollar market. As of May 6, the global crypto market capitalization was roughly $2.48 trillion.

But at the center of this evolution are crypto exchanges, which are digital platforms that allow users to buy, sell, and trade cryptocurrencies. 

As the demand for cryptocurrencies grows, so too do these exchanges, with some reaching multi-billion dollar valuations. In fact, the market valuation of just the top 3 crypto exchanges is currently over $21 billion. 

Apparently, what started as basic trading platforms are now complex financial systems that process billions of dollars in daily transactions.

But like any success story, the rise of these crypto exchanges is not without its challenges, uncertainties, failures, and, most importantly, lessons. 

In this article, we will tell the untold stories behind these crypto exchanges—their obstacles, innovations, and strategies that propelled them to global dominance.

How Crypto Exchange All Began 

The birth of cryptocurrency exchanges can be traced back to the early days of Bitcoin, the world’s first and most well-known cryptocurrency.

In 2010, two years after the release of the Bitcoin whitepaper, Jed McCaleb launched the first crypto exchange Mt. Gox. It was later acquired by Mark Karpelès.

Mt. Gox quickly became the most popular platform for buying and selling Bitcoin, and over 70% of all BTC was traded there worldwide. However, the early days of crypto exchanges were challenging. Regulatory uncertainty, security risks, and liquidity issues impacted these pioneering platforms. 

Despite these obstacles, a few exchanges managed to gain traction and established themselves as major players in the rising crypto market.

One such exchange is Coinbase, founded in 2012 by Brian Armstrong and Fred Ehrsam. Armstrong, a former Airbnb engineer, and Ehrsam, a former Goldman Sachs trader, recognized the potential of cryptocurrencies. They wanted to build a user-friendly platform for buying and selling digital assets.

Their initial focus was on making cryptocurrencies (particularly Bitcoin at that time) accessible to a mainstream audience. So, they invested heavily in user experience and security.

Another notable exchange that emerged in the early days is Kraken, founded in 2011 by Jesse Powell. 

Powell was a former programmer and operations manager who saw the need for a secure and compliant crypto exchange.

Kraken’s emphasis on security and regulatory compliance set it apart from its competitors and helped it gain a loyal following among traders and investors. This was because crypto security was a major challenge at that time. 

The Naysayers and the Obstacles

The early founders of exchanges had to display an almost irrational level of perseverance in the face of incessant discouragement.

In Coinbase’s case, co-founders Brian Armstrong and Fred Ehrsam encountered a number of naysayers who labeled their mission a futile “crypto plaything” doomed to fail. 

When they first began developing their vision for a regulated, user-friendly exchange in 2011-2012, crypto assets like Bitcoin were not seen as a legitimate financial innovation.

At the time, the broader public viewed crypto assets with much skepticism due to events like the Silk Road black market saga, the catastrophic collapse of Mt. Gox, and high-profile hacks and scams. 

And crucially, there was zero legal or regulatory framework for crypto, leaving everyone operating in uncharted territory.

Yet, despite the universal dismissal of vision some of these early exchanges faced, they persisted with their plan to create an accessible crypto exchange.

As Armstrong described it, “We started out with a ‘no.’ This is not going to change. We had the burden of proving to them this was a good decision to make.”  

Apart from the Naysayers, the early exchanges faced other challenges. These include hacking incidents, regulatory hurdles, and the need to constantly adapt to the rapidly evolving crypto market. 

The most notable one was on security. The early 2010s saw a wave of high-profile hacking incidents, including the infamous Mt. Gox hack in 2014. The Gox hack resulted in the loss of 850,000 Bitcoins, worth approximately $460 million at the time, which led to the exchange’s eventual collapse. 

On top of regulatory problems and security risks, major liquidity shortages affected the earliest trading platforms. These platforms struggled with low adoption rates and trading activities, which led to thin order books, wide spreads, and slippage on order book exchanges.

As a result, generating revenue from trading fees was difficult, and substantial investments were required for compliance, security, and technology. It wasn’t until cryptocurrency gained more mainstream awareness in 2017 and beyond that many exchanges could achieve sufficient liquidity for their markets.

Even though these obstacles were a hard learning curve for the crypto exchange market industry, the ability to navigate them and innovate along the way laid the foundation for their current success. 

Overcoming Obstacles

The loss of users’ investment, particularly due to security breaches, revealed the need for strong security measures and the importance of building user trust afterward.

As a result, newer exchanges at that time started to invest heavily in security protocols. They introduced multi-signature wallets, cold storage solutions, and advanced encryption techniques to protect user funds.

The European Commission proposed the amendment of the Fourth (at that time) Anti-Money Laundering Directive which is to include crypto exchanges under existing anti-money laundering laws and create a central database to register crypto exchange users’ identities.

Consequently, crypto exchanges worked closely with these regulators and policymakers to navigate the evolving regulatory sector. 

With this, several of them started to comply with anti-money laundering (AML) and know-your-customer (KYC) requirements. 

Due to the development during this period, the competition within the crypto exchange market intensified. New entrants, such as Binance and FTX emerged, challenging the established players with innovative features and marketing strategies. 

Existing exchanges had to adapt quickly. Some introduced new trading pairs, improved their products, and advanced trading tools to retain and attract users.

One notable rivalry that later emerged was between Coinbase and Binance, two of the largest crypto exchanges in the world. 

Coinbase, focusing on regulatory compliance and user-friendliness, appealed to a more mainstream audience. 

On the other hand, Binance, founded by Changpeng Zhao, catered to more advanced traders with its wide range of trading pairs and features.

However, building trust with users was paramount for these exchanges, especially given the history of high-profile hacks and market volatility. 

Fortunately, they achieved that by implementing strong security measures, transparent communication, a user community, and user resources programs to address concerns. 

Strategies for Success

As the crypto market matured and gained global recognition, the leading exchanges set their sights on international expansion.

Coinbase, for instance, launched operations in over 100 countries and tailored its product offering and marketing strategies to the local markets. 

Binance, on the other hand, pursued a more decentralized approach. It established multiple regional headquarters and partnerships to cater to varying regulatory systems. 

Complying with cultural and regulatory differences was a significant challenge for these exchanges.

They had to adapt their platforms and services to comply with local laws and regulations while catering to different markets’ unique needs and preferences. As you may have guessed right, they succeeded.

Here are three main things that contributed to the success of this crypto exchange. 

Innovation

Innovation played an important role in the success of the current crypto exchange giants like Kraken, FTX, Gemini, Crypto.com, and others. 

For example, Kraken expanded advanced trading capabilities like futures and OTC markets. FTX pioneered innovative derivatives products. Gemini focused on regulatory approval for products like its insured custodial services but that’s not all.

Crypto.com extended its offerings to create DeFi wallets, NFT platforms, and more.  Binance also launched products like the Binance NFT marketplace to tap into the booming NFT market while incumbents evolved into multibillion-dollar crypto exchanges, a new breed of decentralized crypto exchanges with differentiated models which emerged, as against the centralized model.

A prime of this new breed is Zypto. Zypto is building the next generation of technologies and products for blockchain-based digital assets to replace local currencies or act as a viable alternative. The platform offerings include the Zypto App mobile app, Zypto Pay, and Zypto Network.

Community

Community building was another key strategy employed by crypto exchanges. These exchanges now have strong user communities through social media engagement, educational initiatives, and hosting events. 

This helped create a sense of loyalty and advocacy among their user base, which in turn drove growth and retention.

Partnerships

Partnerships and strategic acquisitions were also crucial to these exchanges’ success. 

Coinbase, for instance, acquired various companies to expand its product offerings and enhance its capabilities. These include the acquisitions of Earn.com (for educational content) and Bison Trails (for staking services). 

Also, Zypto is a result of companies and strategic partnerships in multiple locations, including The EU, the USA, Canada, Asia, the Middle East, and Africa 

Overall, these strategic partnerships have helped improve these crypto exchanges’ offerings and ease of use.

Conclusion

Today, there are over 600 crypto exchanges. The untold stories behind the rise of these multibillion-dollar crypto exchanges are ones of perseverance, innovation, and adaptation. 

From humble beginnings, these platforms have transformed into a global financial force, telling a different story of the cryptocurrency industry.

The founders and teams behind these exchanges faced security challenges, discouragement, and intense competition. Their ability to innovate, build trust, and stay ahead of the curve has been key to their success, and that’s the major lesson. 

As the world of cryptocurrencies continues to evolve, these exchanges will undoubtedly face new challenges and opportunities. 

The future market will be shaped by regulatory clarity, institutional adoption, and the emergence of new technologies like decentralized finance (DeFi) and central bank digital currencies (CBDCs). 

However, the most important thing is the lessons learned from the untold stories of these crypto exchange giants. These stories will serve as a blueprint for enthusiasts entering the crypto market.

If you are considering entering the cryptocurrency market, the market has quite improved, and your funds are more secure; however you must have a good strategy to make maximal profit.

On the Zypto blog, we have a wide range of educational resources on cryptocurrencies, NFTs, Web3, altcoins, and the blockchain technology that you can leverage. 

Besides, we’re not just a knowledge hub—we’re also actively developing a global blockchain payments infrastructure to facilitate daily transactions.

Join the #ZyptoCrew and be part of our journey at the forefront of crypto innovation. It promises to be an exciting adventure!

What lessons from the difficult path of these crypto exchanges did you find most inspiring or instructive? Share your thoughts and reactions in the comments below.

FAQs