The Exchange Story

4 min read

Once an institutional game, now a website.

First, what are exchanges? They are places for sellers and buyers to meet and agree on an exchange of a good. But what’s interesting about exchanges is that they have grown so abstract and big that they are no longer seen as accessible, instead, they are largely decaying infrastructure left to institutions and governments to participate, manage and control.

In this article, we will demystify the exchange and show why we think technology is changing the exchange model to be open and free for anyone to build and run their own exchange.

Depending on who you ask the origins of the exchange can go back as far as the 1200s on a bridge in Paris. But most will say the first exchange was started in Amsterdam in 1611 by The Dutch East India Company — unsurprisingly the largest company in the world at the time, valued at over 7 trillion dollars by today’s value.

Many countries followed suit, marking the beginning of the institutionalization of exchanges. Despite mass adoption, participating in the exchange was largely left only to powerful and vetted individuals, marginalizing most of the public from the profits.

Depending on who you ask the origins of the exchange can go back as far as the 1200s on a bridge in Paris. But most will say the first exchange was started in Amsterdam in 1611 by The Dutch East India Company — unsurprisingly the largest company in the world at the time, valued at over 7 trillion dollars by today’s value.

Many countries followed suit, marking the beginning of the institutionalization of exchanges. Despite mass adoption, participating in the exchange was largely left only to powerful and vetted individuals, marginalizing most of the public from the profits.

Detailed is a timeline of how trading exchanges have evolved:

To learn more about the HollaEx Kit click here. To get the PDF version of the timeline click here.

As we can see from the timeline, exchanges in recent times have evolved rapidly thanks to computers, the internet and now open public blockchains and their digital assets. But the basic concept remains — Exchanges are just digital gathering grounds for buyers and sellers to meet.

Still, when people think of exchanges, what first comes to mind is the New York Stock Exchange (NYSE) and the NASDAQ which have become inaccessible and complicated places.

Both of these exchanges combined are valued at $40 trillion USD. For perspective, the next biggest stock exchange down is in Japan, valued at a measly or not so measly… $5.6 trillion USD.

Exchanges are gigantic. Economies are literally dependent on them and because of this interdependence, they are ruthlessly protected and regulated. This protectionism has made it unthinkable to open an exchange because of the extreme costs and complex procedures that one must go through.

But change is slowly occurring — exchanges are no longer special places that men in suits control.

Getting your company listed on the NYSE is now seen as too difficult and inaccessible for most and since the financial crisis and due to the growing competition, the dominance of the NYSE has begun to erode — down 10 percentage points in the last 10 years.

The truth is competition approaches from all directions and today a single motivated individual can now launch their own trading empire from their bedroom.

How is that even possible? To answer that, we must tell the story of how crypto exchanges really become a thing.

Back in 2011 an exchange called Bitcoinica launched, an operation based in New Zealand. This little exchange created a huge vipers nest in the crypto ecosystem but was the ultimate catalyst for more crypto exchanges.

Bitconica was a loosely coded exchange website built by Ryan Zhou, aged 17 at the time (AKA Zhou Tong).

Fast forward to August 2012, the exchange Bitcoinica was attacked, resulting in 46,703 BTC lost. Today that loss would be valued at $379 million (1BTC = USD $8,120).

At the time of the hack, Bitconica was run by a newly hired hand Amir Taaki from Britain. Amir decided after the hack to leak the exchange code on Reddit under an alternative alias. Amir unknowingly or knowingly gifted the world ‘open-source’ crypto exchange code which resulted in multiple exchanges being opened overnight, all using the faulty Bitcoinica code.

Bitcoinica’s freely distributed codebase demonstrated that there was a feverish global demand for digital markets.

One such player that noticed the potential was Jean Louis van der Velde a Dutch entrepreneur who started an exchange with the faulty code, which is infamously known as Bitfinex today.

It began with the Bitcoinica codebase which is what Bitfinex used to launch their own exchange. Back in the day, Bitfinex was a ‘meta-exchange’ that sourced outside orderbooks and aggregated them in one place which proved highly popular.

Bitfinex got popular but along with that a load of security and scaling issues occurred and thanks to the Bitconica codebase the exchange inherited a boatload of problems and hacks to boot. Urgent upgrades were required.

Bitfinex again outsourced their technology to a white-label exchange provider but failed to integrate the system. Bitfinex did manage to upgrade their technology on their own.

The story of Bitfinex perfectly illustrates the turbulence one must endure to operate a global marketplace but more importantly showed us that it was now possible to run your own exchange operation without permission.

So where are we today? Are exchanges really that easy to launch?

There are interesting exchange solutions out there, the most common of which are the white-label cloud exchange solutions, where you’d just connect a bank account and focus on the operations, offloading all your technology upkeep to a third-party provider.

The other option is a DIY style starter pack, where the exchange technology code is handed over and development can begin from that toolkit.

Much of the open-source exchange code out there is obviously questionable, and we only need to review the history of Bitcoinica to see that but the industry has matured and there are viable options available with much better security.

bitHolla creating an alternative exchange software

At bitHolla we’ve recently released the HollaEx Kit, a quick-launch kit which can be accessed through a command-line interface, once the launch command has been sent the exchange will automatically set up on any computer.
Building on top of the HollaEx Kit is simple, with all parts modularized adding a variety of customized components to your exchange can be done inhouse. For operators that don’t have the tech team handy, they can add exchange features simply as an add-on to the exchange.

Streamlined and flexible, the HollaEx Kit comes with the added frontend web client as well as the admin source code, allowing anyone to rebrand their exchange website and mobile application.

The big advantage is that all the complex logic inherent in exchanges are now a non-issue and allows the exchange operator to focus fully on business.

The HollaEx Kit will be powered by the HollaEx Token (HEX), reducing upstart cost by up to 95% which greatly reduces the risk of opening an exchange.

On top of that, the exchange operators will have a clear recourse if they want to back out. Simply sell and transfer the HollaEx Token and along with that the software rights to someone else and salvage the initial cost.

Example of the HollaEx Exchange trading page that can be fully customized.

To conclude, the global nature of exchanges today are something to take a step back and marvel at.

Still, somewhere, somehow there is a man in a suit who’s gonna make you pay for the privilege of running an exchange. bitHolla’s open exchange kit changes that — In the hands of motivated individuals these kits will spawn new markets around the globe.

As bitHolla’s CEO, Mr. Beikverdi explains, “HollaEx Kit is built to be like WordPress which made it easy for anyone to make a website — we’ve made it easy for anyone to make their own exchange and open new markets globally. It is not unthinkable that exchanges will become as easy to launch as a personal websites are today.”

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