We are familiar enough with margin trading. Now, a million dollar question arises that what and how did margin trading contribute towards Bitcoin Exchange? Well, coinbase has added margin trading to its Bitcoin Exchange. You must be wondering how did it happen? No need to worry. We are going to clear all your doubts and queries related to the topic.
Here we go!
A cryptocurrency is nothing but digital cash which works as a medium of exchange.
For the security of final transactions and control of the creation of additional units, it makes use of strong cryptography.
Now, let us have a brief discussion over something called “ecash”.
An American cryptographer, David Chaum created anonymous electronic money called ecash.
So, as the name itself says, ecash is nothing but just the electronic money where “e” means electronic and “cash” means money.
Later, in the year 1995, he implemented it through Digicash. Digicash is an early form of cryptographic electronic payments. It required user software for withdrawal of notes from the bank.
In 1996, the NSA published a paper entitled How to Make a Mint: the Cryptography of Anonymous Electronic Cash. It described how a cryptocurrency system first got published in an MIT mailing list.
In 1998, Wei Dai published a description of “b-money”, as an anonymous which distributed electronic cash system.
Then, Nick Szabo described bit gold. Similar to bitcoin and other cryptocurrencies that would follow it, bit gold was described as an electronic currency system.
It required users to complete a proof of work function with solutions being cryptographically put together and published. Hal Finney created a currency system which was based on reusable proof.
Coinbase and Margin Trading:
GDAX has added margin trading to the platform, it is a cryptocurrency exchange run by Coinbase. Now, eligible traders can trade three times more leveraged order on Ethereum and Litecoin order books.
As we are pretty familiar with margin trading, we know well that it is a process when an individual borrows money from a broker to buy or sell the asset more than he/she could afford. Via buying and selling traders can make a very good profit than their own cash.
As Coinbase has launched the feature attempting to fit within the boundaries of the Commodity Exchange Act, the feature mainly geared towards institutional investors. It means that it is mandatory for the traders to certify that they meet one of the qualifications to be allowed to trade on margin.
The requirements include things like being a corporation with a net worth exceeding $1,000,000 and trading on margin in order to hedge risks associated with your business. Individuals need to have a minimum of $5,000,000 invested on a discretionary basis in order to be allowed to trade on margin.
Coinbase has excluded a large segment of its user base by deciding to build its product within the guidelines of the Commodity Exchange Act. Exchanges like delta.exchange offer margin trading to all the users. If the company wants consistency, then, it is necessary to move slowly and maintain a favorable relationship.
The company explained: “we’re committed to working with regulators as the blockchain space continues to develop, rather than take on unnecessary risk just to get features out more quickly. Some other digital currency exchanges have decided not to do this. For us, the best approach was to carefully design our margin trading feature and engage with the CFTC to make sure that GDAX remains compliant.”
So, it was all about how did coinbase add margin trading to its Bitcoin exchange. We tried our best to discuss all the necessary details related to the subject. If you still have any doubts or queries, just feel free to contact and ask us.
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