Stock exchanges have come a long way from chatter over coffee to being at the epicentre of the global economy.
Bitcoin likewise, first traded in person and via forums, is now traded on vibrant exchange platforms turning billions of dollars a day.
Just as stock exchanges, crypto exchanges started as basic, unregulated services at first, but with the development of the industry, they’ve evolved.
Now, there’s a new initiative among digital asset exchanges to bridge the gap between crypto and global finance.
The History of Stock Exchanges
The history of the stock market dates back to the 1300s when Venetian moneylenders traded debts amongst one another.
The first stock market was formed in Antwerp, Belgium in 1531. However, the Antwerp-based marketplace functioned as a very primitive form of stock exchange.
While brokers and moneylenders dealt with promissory notes and bonds at the time, the world’s first stock exchange had one important element missing: stocks.
The first paper shares were issued in 1602 by the Dutch East India Company, which presented a viable business model in the form of a joint-stock company.
Later on, more East India companies formed that issued stocks and paid dividends from the earnings from the organization’s voyages.
Instead of a stock exchange, investors and brokers in England used coffee shops in London to do business. Eventually, in 1773, the traders took over one of the coffee shops and changed its name to “stock exchange.”
In that historical moment, London Stock Exchange (LSE) was formed as the world’s first stock exchange that actually traded shares.
Following LSE’s footsteps, stock exchanges soon appeared in the American colonies, forming the Philadelphia Stock Exchange (PHLX) in 1790 and the New York Stock Exchange (NYSE) in 1792.
After signing the Buttonwood Agreement – in which signatories determined the listing requirements and costs –, the Wall Street-based NYSE quickly became the world’s largest stock exchange.
The most prominent competitors of New York Stock Exchange includes LSE and the Nasdaq, the world’s first electronic stock market.
From colonial times to the modern era, stock exchanges have developed across regulation, technology, codes of conduct, and participation, and now operate at the pulsating heart of the global economy.
Crypto Exchanges: the Backbone of the Digital Asset Economy
In 2009, the anonymous Satoshi Nakamoto created Bitcoin, presenting a brand new asset class that features a blockchain-powered decentralized network.
At the time, the crypto space was lacking a central platform where traders could exchange crypto assets and fiat currencies.
This changed in March 2010 when Bitcoin Market, the world’s first cryptocurrency exchange, was formed by Bitcoin Talk member “dwdollar,” allowing users to trade BTC and fiat currencies with PayPal as the payment processor.
However, due to the increasing number of scams, PayPal broke its agreement with Bitcoin Market, eventually leading to the downfall of the crypto exchange.
Meanwhile, a new wave of cryptocurrency exchanges had emerged, with the most prominent one being the infamous Mt.Gox.
While Mt.Gox went on to become the largest crypto exchange for a while, handling approximately 70-80% of all BTC transactions at its peak, it collapsed in 2014 after a high-profile hacker attacked the platform for $450 million.
At the time, digital asset exchanges operated as informal services that lacked proper security and compliance with regulations.
Under these circumstances, the number of hacker attacks increased, and at the same time tension with regulators began to grow.
In the wake of the Mt.Gox hack, cryptocurrency exchanges started to evolve, leading to the creation of modern digital asset exchange platforms that offer a high level of security to its users as part of a regulated service.
Furthermore, many modern crypto exchanges feature their own exchange tokens – like AAX’s native AAB token – to provide additional benefits to their users while others have developed fundraising platforms to support Initial Exchange Offerings (IEOs).
It’s also important to mention decentralized exchanges (DEXs) that are becoming increasingly popular with the rise of the DeFi market. DEXs work on a peer-to-peer nature, without a centralized entity (the service provider) or third-party custody of user funds.
The Future of Exchanges: Bridging the Gap Between Crypto and Global Finance
Both stock and crypto exchanges have come a long way to be where they are now.
But contrary to what many may have expected when the trade in Bitcoin really took off, crypto markets will not operate in isolation from other market. And while cryptocurrencies do indeed constitute a new investment class, digital assets as such also reach into traditional markets.
For us at AAX, as we work to make this happen, we saw the need to offer an exchange that is both accessible to everyday crypto traders and digital savvy people, as well as able to meet standards of the regulated investment community.