There’s certainly no denying that cryptocurrency has become rather popular lately. And that’s with good reason — it offers ordinary buyers a chance to make enormous amounts of money in a short space of time.
It’s also an extremely effective way to send money across international borders, and to trade on a peer-to-peer basis. Those with an interest in cryptocurrency are generally pretty keen to shout from the rooftops about its potential to change the way we do commerce.
Until now, though, the cryptocurrency market has been a bit like the Wild West. Because of cryptocurrency’s anonymous, decentralized nature, it’s hard to track exactly what’s going on.
Some countries have taken steps to regulate crypto — one of the most notorious examples of this is China, who shut down all their exchanges last year. But this kind of forceful approach doesn’t really work with an internet-based technology, and it’s still relatively easy to buy and sell cryptocurrencies anywhere in the world.
The result is that cryptocurrency exchanges are still the main avenue for anyone looking to get involved in the market. And that’s an issue, because these exchanges are often riddled with problems.
The problems with crypto
Currently, crypto exchanges are kind of a law unto themselves. They exist outside of any official regulation or compliance rules, and are often anything but transparent about what goes on behind their doors.
One of the major issues facing users of these exchanges is the possibility of hacks. Cyber attacks targeted at exchanges are nothing new, and often have disastrous results. The Mt. Gox hack of 2014 resulted in the theft of $350 million. Often, users simply have to accept that their coins are gone.
There are no bodies holding exchanges to account for poor security, and protections for users are often not good enough.
Another common issue in the crypto exchange space is that of front running. This is a shady financial practice where brokers find out about a large planned trade that is sure to increase the value of stock, and then get in beforehand and buy some, knowing it will surge in price.
In the world of traditional, regulated finance, this behaviour is usually detected and punished. In cryptocurrency, however, it’s harder to track. Since all transactions are kept anonymous, it’s possible for exchanges to jump the line and buy crypto ahead of upcoming trades.
That increases the price for the next buyer, and increases the commission the exchange can charge. Not good for genuine traders.
All of this is bad for exchange users in the short term, but it’s also bad for the reputation of cryptocurrency in the long term. This market has suffered more than its fair share of negative press over the years, with links to crime and money laundering. Allowing dishonest behaviour to go unchecked just makes the whole industry look bad and can deter serious investors.
So what’s the solution?
A company called Legolas believes it can change the way crypto is traded by making the process more transparent.
The team behind Legolas will do this by using blockchain — the very technology that underpins cryptocurrencies. Blockchain is a way of storing data that’s extremely transparent by nature, because it’s a decentralized ledger of information with no central party in control. It’s shared between a pool of users, all of whom can see every change that is made in real time.
If anybody makes a change to the blockchain which is considered fraudulent, the entire network can see and take action to stop it.
Legolas is a new, centralized cryptocurrency exchange that wants to leverage this technology to make cryptocurrency trading fairer and more transparent. To achieve this, they’ll use blockchain to stop front running.
Essentially, every planned transaction will be recorded on their blockchain, and it’ll be impossible to alter the sequence of those transactions. That means anyone who wants to get ahead of a planned trade will not be able to do so.
Legolas will also work closely with regulator firms like Makor Securities and real, brick-and-mortar global banks to increase their credibility. They’ll allow users to store their fiat deposits safely in actual banks and offer protections that other exchanges have failed to offer.
Legolas is headed by Frédéric Montagnon, who sold his previous company, Teads, for almost $400 million last year. There’s also Elie Galam, a Harvard graduate who manages a hedge fund with more than 70 traders in the U.S. and Asia. And that’s just the tip of the iceberg; Legolas’ team contains many more highly experienced and qualified members of the finance industry.
They’ll use their expertise to blend traditional, regulated finance with the world of cryptocurrency to create a safer, more transparent, and more rewarding experience for all crypto traders.