Crytocurrency Exchanges

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By Roy Walker [1]:

Mt. Gox:

"In order to actually acquire and sell bitcoins, users needed an exchange that would take their fiat currency and trade it for cryptocurrency. The first to do this was Mt. Gox. Mt. Gox was founded in 2006 by a programmer named Jeb McCaleb. I know what you’re thinking: how was it founded in 2006 if bitcoin wasn’t even around until 2009…? This is possible because Mt. Gox was originally founded for a completely different purpose. It was originally founded for fans of the game Magic. The name was literally an acronym that stood for “Magic: The Gathering Online eXchange”.

Mt. Gox was the original crypto exchange; as such, it had a significant first mover advantage and processed the large majority of trades in the early days. Unfortunately, it also experienced several major issues. In 2011, it was hacked for the first time, resulting in a loss of over 2500 bitcoins. While the hack did not diminish the exchange’s popularity (it still accounted for over 70% of trading value), Mt. Gox continued to experience a number of challenges behind the scenes. In 2013, it was sued by a former business partner and investigated by the SEC. In addition to that, it was unknowingly the victim of an ongoing hack that may have begun as early as 2011 and wasn’t discovered until February 2014. After identifying the hack, Mt. Gox temporarily shut down its operations. However, it quickly realized that hackers had stolen 744 thousand bitcoins from its customers and an additional 100 thousand that were owned by Mt. Gox. This hack rendered Mt. Gox insolvent and led to its bankruptcy on February 28, 2014.

Following the bankruptcy of Mt. Gox, there have been a significant number of exchanges that have popped up to fill the void (including MF Global, Bitstamp, Bitpanda, Luno,, Kraken, Binance, Bittrex, Gemini, GDAX, Kucoin, Changelly, CoinMama, Cryptopia, Bitfinex and Poloniex to name a few…). I’ll provide a brief history of three of the most popular exchanges; however, this history will not be comprehensive and I recommend you look into the names above if you want the full background. Also, one last disclaimer before we dive in: the exchange landscape is rapidly changing and will likely look drastically different in a few years.

Coinbase / GDAX:

The Coinbase story starts in June 2012 when the company was founded by Brian Armstrong and Fred Ehrsam. A few months later, the team applied for, and was accepted into, the Y Combinator incubator class of 2012. During the program, Coinbase created a viable product and began offering consumers three important features: a cryptocurrency wallet to store their coins, a merchant platform that allowed businesses to accept Bitcoin as payment and an exchange service to trade cryptocurrencies for fiat currencies. The following spring, in May 2013, Coinbase received its first venture capital investment when Union Square, Ribbit Capital, SV Angel and Funders Club invested in a Series A round. This represented Union Square’s first blockchain investment, a space where they are now highly active.

Following this initial investment, Coinbase rapidly scaled its platform. In 2014, it reached 1 million users, added a number of businesses to its merchant platform (including, Dish, Dell and Expedia) and added several payment processors (Stripe, Braintree and PayPal). As Mt. Gox collapsed in 2014, Coinbase shifted its focus to improving its security. This led to two major decisions. The first was to take clients’ private keys offline and store them in secure physical vaults. The second was to begin to engage with regulators and integrate the platform with traditional financial institutions. These steps positioned the platform as a “safe” crypto exchange, leading to strong adoption among traders. Additionally, this led to a massive $75 million fundraising round from DFJ, the NYSE, USAA and several other banks.

As interest in crypto grew, Coinbase decided that it needed to add an offering for more sophisticated traders. This offering has gone by several names over the past few years. It was launched in January 2015 under the name of “Coinbase Exchange”. In May 2016, Coinbase changed the offering’s name to Global Digital Asset Exchange (“GDAX”) to clarify the difference between Coinbase and the new trading platform,. However, this still didn’t satisfy the Coinbase team so they renamed it “Coinbase Pro” in 2017. This brings us to present day, where Coinbase remains a leading crypto exchange and offers a variety of services to merchants and consumers.


Kraken was founded about a year after Coinbase. It was launched by Jesse Powell in 2013. As legend goes, Jesse had visited the Mt. Gox headquarters to offer assistance following the first major hack. During this visit, he recognized how poorly the organization was run and created Kraken as an alternative in case the exchange ultimately failed. Not a bad prediction…

Kraken initially offered trading between bitcoin, litecoin and euros, enabling it to grow in a slightly different geographic market than Coinbase. Over time, the exchange has gained in popularity by maintaining a consistent focus on security and continuously expanding its crypto offering. Kraken now offers 18 cryptocurrencies (notably, it added Dogecoin in April 2014 and Ether in August 2015) and allows investors to trade in both EUR and USD.

There are a few interesting things to note about Kraken. First, Kraken has built one of the largest crypto exchanges in the world; however, it has raised a relatively limited amount of external funds. While Coinbase has raised over $225 million in venture funding according to Crunchbase, Kraken has only raised $11.5 million to date. That’s a big difference. Second, Kraken places enormous emphasis on security, which is demonstrated by the regular audit that it conducts and the various features it offers to help customers mitigate risk. Third, it has gotten in a number of spats with US regulators because it believed that the regulations they proposed stifled innovation while doing nothing to improve security. If you’d like to read more on these, I’d recommend checking out this article written by James Holmes in Bitcoin Magazine.


The last exchange I want to highlight is currently number one in trading volume: Binance. Surprisingly, the history of Binance is very short. While Coinbase was the first bitcoin unicorn, Binance was definitely the fastest. The company was founded by Changpeng Zhao in 2017. Mr. Zhao had previously founded Fusion Systems in 2005, which built high frequency trading systems for brokers.

To fully appreciate the company’s unprecedented growth, it might be helpful to walk through its timeline. Binance published its white paper in June 2017, completed its ICO ten days later (which generated $100 million in a few minutes), became a top ten crypto exchange by volume 42 days after inception, broke into the top three just 143 days after inception and topped the charts shortly thereafter. It now has almost $1 billion of daily trading volume and has raised capital from the likes of Sequoia and IDG.

While this growth is quite impressive, I need to throw in one caveat. Binance has been accused of falsely inflating its trading volume. Nobody has proven that the claim has merit but its worth noting.

As I said, this is not a full history but gives the background of a few of the most popular exchanges. It’ll be interesting to watch the competitive dynamics of these over the next few years." (