1. pg. 1
A study of Crypto Currency Exchanges (& Digital Wallets)
Version 1.0
06.December.2017
Ketan Chawda
Mumbai, India.
ketan.chawda@gmail.com
www.linkedin.com/in/ketanchawda

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1 STUDY OF CRYPTO CURRENCY EXCHANGES (& DIGITAL WALLETS)
2 CRYPTO CURRENCY EXCHANGES .........................................................................................3
2.1 A short History ....................................................................................................................................3
2.2 Recent Regulatory Related Developments in South Korea & Japan.....................................................4
2.2.1 South Korea...........................................................................................................................................4
2.2.1.1 Market..........................................................................................................................................4
2.2.1.2 Regulation ....................................................................................................................................4
2.2.1.3 Recent Developments ..................................................................................................................4
2.2.1.4 Observations ................................................................................................................................4
2.2.2 Japan .....................................................................................................................................................4
2.2.2.1 Market..........................................................................................................................................4
2.2.2.2 Regulation ....................................................................................................................................4
2.2.2.3 Recent Developments ..................................................................................................................5
2.2.2.4 Observations ................................................................................................................................5
2.2.2.5 Blockchain Demonstrations/POCs................................................................................................5
2.3 A Study - Crypto Currency Exchanges (& Digital Wallets) ....................................................................6
2.3.1 Findings of the study/evaluation ..........................................................................................................7
2.3.1.1 Types of Platform .........................................................................................................................7
2.3.1.2 Types of Currency Pairs, & Trading Pairs......................................................................................8
2.3.1.3 Currencies traded – crypto currencies traded, fiat currencies traded/accepted.........................9
2.3.1.4 Trade Actions – basic Buy & Sell...................................................................................................9
2.3.1.5 Registrations & Self Declared/Adopted Adherences..................................................................10
2.3.1.6 Investor processes – KYC, AML/CFT ...........................................................................................10
2.3.1.7 Funds Processes .........................................................................................................................11
2.3.1.8 Provisions similar to Depository, Trading Accounts, Clearing & Settlement..............................11
2.3.1.9 Order Types................................................................................................................................12
2.3.1.10 Measures to Ensure Fair Market Price .......................................................................................12
2.3.1.11 APIs for Market Participants.......................................................................................................12
2.3.1.12 Platform Infrastructure (Servers, Data Centres) & Information Security (ISMS)........................12
2.3.1.13 Software Changes (Forks) – Impact & Adaptability....................................................................13
2.3.1.14 Financial Security........................................................................................................................13
2.3.1.15 Legal Framework – provision & practise ....................................................................................13
2.3.1.16 Audits – provision & practise......................................................................................................13
2.3.1.17 Governance – provision & practise ............................................................................................13
2.3.2 Summary/Snapshot of the Study/Evaluation......................................................................................14
2.4 Inference - Models, Advantages & Disadvantages of Crypto Currency Exchanges, Digital Wallets....15
2.5 Proposition........................................................................................................................................16
3 REFERENCES......................................................................................................................17

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2 CRYPTO CURRENCY EXCHANGES
2.1 A SHORT HISTORY
Taking advantage of/from the Blockchain innovation, multiple Crypto-Currencies have emerged in
recent years. A July 2017 estimate puts the number at 900+ crypto-currencies, which has grown to
1150+ as of October 2017.
Naturally, many Crypto-Currency Exchanges have evolved to facilitate the trading of such Crypto
Currencies, which have taken different forms & evolved into varying platform offerings. These
exchanges run an estimated 5600+ markets for trading in crypto-currencies, as of October 2017.
The estimated Marketcap of these Crypto-Currency is $ 150 billion+, with a daily trading volume
average of $ 3 billion+; wherein Bitcoin (symbol BTC) alone contributes to 50% of the average
trading volumes per day (as of October 2017).

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2.2 RECENT REGULATORY RELATED DEVELOPMENTS IN SOUTH KOREA & JAPAN
2.2.1 South Korea
2.2.1.1 Market
South Korea has witnessed sizeable popularity & growth in Crypto-Currency offerings from Online as
well as Offline Exchanges. These exchanges are backed by global venture capital firms. The largest
trading platform for Bitcoin, Bithumb, is operated by a public-listed company BTC Korea. The second
largest trading platform, Korbit, is backed by Softbank as well as South Korea’s largest telecom
company SKT.
2.2.1.2 Regulation
Earlier in July 2017, the South Korean government has introduced the revised version of the
Electronic Financial Transactions Act which is an attempt to legalize Crypto-Currency trading
platforms (for Bitcoin & Ethereum) as well as protect the investors & traders against potential risks.
According to the Act, exchanges & platforms are now mandated to maintain a stipulated amount of
cash deposits/reserves as well as strict implementation of KYC & AML/CFT regulations including
complex verification processes. The government has also introduced a temporary ban on domestic
ICOs.
2.2.1.3 Recent Developments
More recently in late 2017, the online trading platforms have also introduced Offline sales via ATMs
& USB devices, which is gaining popularity. For the records, the volumes (& activities) of South
Korean Crypto-Currency markets surged ahead of Europe & China in September 2017. For some
time, until the ban on ICOs, South Korea has witnessed the largest volumes/market in Ethereum.
2.2.1.4 Observations
Market Observers have reported that the regulations have proven to be a major positive factor that
has contributed to the growth of the Crypto-Currency markets in South Korea due to the
standardization of services as well as operations of the platforms.
2.2.2 Japan
2.2.2.1 Market
Post the Chinese government’s ban on Crypto-Currency exchanges, the traders have moved to the
Japanese Market & which has resulted in Japan becoming the largest Bitcoin Exchange market, with
a 50% Global Market share.
2.2.2.2 Regulation
Recognition has been granted to Bitcoin as a Legal Tender in April 2017 by the Japanese
Government. At the same time, regulation has been mandated for Crypto-Currency Exchanges to
obtain registration with the FSA. This steps were taken post the collapse/failure of Mt Gox in 2014.
The regulation also mandates strict KYC & AML related guidelines, compulsory segregation of
Customer Accounts, & most importantly the strength/robustness/continuous-availability of
computer systems. Additionally, the Payment Services Act, & the Act on Prevention of Transfer of
Criminal Proceeds have been introduced.

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2.2.2.3 Recent Developments
The FSA has granted recognition to 11 Crypto-Currency Exchanges in September 2017, while 17
more applications for registration are under review. Noticeably, 12 Exchanges have shut-down post
the mandate to register i.e. they opted to close-business instead of obtaining registration. The FSA
has denied any possibilities of imposing a ban on ICOs though, which is in contrast to the stand taken
by other Asian Regulators. The FSA has also declared measures to ensure “Full Surveillance” of the
Crypto-Currency Exchanges from October/November 2017. An unnamed FSA official was recently
quoted by The Japan Times, stating “….FSA pursues both – fostering of markets as well as
enforcement of regulation…..”
2.2.2.4 Observations
the introduction of regulations & legal regulation of Crypto-Currency Exchanges has helped increase
in investor trading activity which has possibly been a factor for the spectacular surge in Crypto-
Currency global valuations & market-cap in 2017. Japan is demonstrating early signs of strong
Investor Protection coupled with Fintech Innovations.
2.2.2.5 Blockchain Demonstrations/POCs
• The Tokyo Stock Exchange has published 2 working papers, 1 each in August 2016 &
September 2017, demonstrating “Applicability of Distributed Ledger Technology to Capital
Market Infrastructure”. Under its umbrella, it has formed a consortium with several
companies including the Osaka Stock Exchange, Japanese Securities Clearing Corporation,
IBM Japan.
• Daiwa Securities Group Inc. has published a press release “Testing of a prototype developed
using Blockchain/Distributed Ledger Technology (DLT) in Trade Confirmation”, in September
2017
• NEC Corporation, SBI Holdings & SBI BITS have jointly published a press release
“Commencing a Joint Demonstration Trial of KYC Operations using Blockchain Technology

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2.3 A STUDY - CRYPTO CURRENCY EXCHANGES (& DIGITAL WALLETS)
22 Crypto Currency Exchanges were studied/evaluated, for this paper. Selection of the exchanges
was based on – types of transactions allowed, trade volumes, user reviews, number of crypto
currencies traded, number of fiat currencies traded/accepted, popularity, maturity & global
availability; amongst other things.
The evaluation was based on the following base criteria,
1. Types of Platform
2. Types of Currency Pairs, & Trading Pairs
3. Currencies traded – crypto currencies traded, fiat currencies traded/accepted
4. Trade Actions – basic Buy & Sell
5. Registrations & Self declared/adopted adherences
6. Investor processes – KYC, AML/CFT
7. Funds Processes, Margin Based Trading & Margin Lending
8. Provisions for Depository, Trading Accounts, Clearing & Settlement
9. Order Types
10. Measures to Ensure Fair Market Price
11. APIs for Market Participants
12. Platform Infrastructure (Servers, Data Centres) & Information Security (ISMS)
13. Software Changes (Forks) – Impact & Adaptability
14. Financial Security
15. Legal Framework – provision & practise
16. Audits – provision & practise
17. Governance – provision & practise
{all information that was studied, was, as published by the respective businesses & available on their
websites (public domain), as of September & October 2017}

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2.3.1 Findings of the study/evaluation
2.3.1.1 Types of Platform
• The exchanges exhibited the following types of trading platforms,
o Exchange
o Digital Currency Sales
o Exchange + Digital Currency Sales
o Digital Currency Wallet
o Digital Currency Wallet + Debit Card
o Peer-to-Peer
Exchanges exhibited exchange-like characteristics i.e. orders were accepted from clients which
either got matched (traded) with existing orders in the order book OR were listed in the order
book.
Digital Currency Sales type of exchanges exhibited retail sales characteristics.
Digital Wallets, which exhibited Crypto Currency Wallet facility coupled with retail sales
characteristics. One of the Digital Wallets also offered Digital Currency Debit Cards.
Peer to Peer exchanges exhibited 2 types of characteristics –
o the first types (2 exchanges) accepted buy-sell orders from clients & listed on their
platforms, & after matching the buyer-seller were supposed to conduct an offline
(outside the exchange platform) payment transaction, while the exchange held the
crypto-stock into their own escrow account & post confirmation of payment
received by seller, the crypto was transferred to buyer. One exchange also offers
complete offline transactions.
o the second type (1 exchange) runs on an open source software & does not host any
platform or interface. Instead, the open source software interface is installed on
clients’ devices/computers & then the client apps publish buy/sell offers and
communicate with each other peer-to-peer in complete privacy & secrecy for the
transaction. It also has an arbitration mechanism to ensure resolution of any
disputes that may arise in any transaction.

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2.3.1.2 Types of Currency Pairs, & Trading Pairs
Currency Pairs - the Exchanges exhibited the following types of currency-pairs,
• Multi-Fiat, Multi-Crypto
• Single-Fiat, Multi-Crypto
• Multi-Fiat, Single-Crypto
• Single-Fiat, Single Crypto
• Crypto-to-Crypto
Trading Pairs, ranged as below,
• 23% offer 1 pair
• 45% offer between a range of 2 to 50 pairs
• 23% offer between a range of >50 to 100 pairs
• 9% offer between a range of 100 to 530 pairs

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2.3.1.3 Currencies traded – crypto currencies traded, fiat currencies traded/accepted
Crypto Currencies traded
• 23% traded 1 Crypto currency
• 32% traded between 2 ~ 10 Crypto currencies
• 32% traded between 11~20 Crypto currencies
• 4% traded between 21~100 Crypto currencies
• 9% traded between 101~206 Crypto currencies
Fiat Currencies traded/accepted
• 9% traded/accepted 0 Fiat Currency
• 41% traded/accepted 1 Fiat Currency
• 18% traded/accepted 2 Fiat Currencies
• 9% traded/accepted 3 ~ 10 Fiat Currencies
• 23% traded/accepted >10 Fiat Currencies
2.3.1.4 Trade Actions – basic Buy & Sell
• Buy – all 22 exchanges allow Buy facility
• Sell – 21 exchanges allow Sell facility, however 1 exchange does not allow a Sell facility

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2.3.1.5 Registrations & Self Declared/Adopted Adherences
Registrations
• 19 exchanges have known registrations as entities
• 2 exchanges do not have any known registrations in any country
• 1 explicitly announces itself as “Not A Company” and declares itself to be a community of
users only
Self Declared/Adopted Adherences
• 59% Exchanges have Self Declared/Adopted Adherences to various standards ranging from
OFAC USA, IOSCO benchmark for reviews, FAGG Austria & UN Sales Law, Japan Bitcoin
Association, Registration of Persons Act Netherlands/EU, Gibraltar Financial Services
Commission, Prevention on Money Laundering Act & Information Technology Act of India,
various Civil & Sales laws of Germany, Japan Payment Services Act, US Securities Laws,
Digital Millennium Copyright Act (DMCA), SEC definition of Market & Limit Orders
• 1 (5%) has declared “No-regulation applies”, & offers 100% anonymity
• 36% have no information regarding any adherence to any standards
2.3.1.6 Investor processes – KYC, AML/CFT
• KYC
o 90% exchanges have user agreements, as well as have a detailed KYC/CIP
o 23% exchanges also have KYC processes for Institutional Investors
Most exchanges term KYC as an Account Verification Process. They also exhibit a
combination of Basic (Quick) KYC & a Detailed KYC. Many have introduced an innovative
concept, with variations, called the Selfie-ID wherein a client has to upload a Selfie while
holding a clearly visible ID Document. Another variation was interviewing clients using
Online Video-Conferencing tools. A few have also out-sourced the KYC process to 3rd
parties
who provide Global KYC services to multiple industries/domains.

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• AML/CFT
o Only 60% exchanges declare AML/CFT related policies
o 36% exchanges declare taking guidance from world standards like - USA Patriot Act,
Bank Secrecy Act, UK AML Legislation, FATCA, Basel Committee, FATF, PS-MLA Law,
Office of Foreign Assets Control (OFAC), Prevention of the Crime of Money
Laundering (Indonesian Financial Transaction Reports and Analysis Centre),
Prevention of Money Laundering Act 2002 (India), FinCEN, SDN, as well as self
declared guidelines
o 40% exchanges have no information about AML/CFT related policies
2.3.1.7 Funds Processes
(across 19 exchanges that trade/accept fiat currencies)
Deposits & Withdrawals
• 74% exchanges permit fiat funds deposits & withdrawals strictly from/to account holders’
bank accounts & do not permit fiat funds from 3rd
parties.
• Known withdrawal periods ranged from 1 Business Day up to 5 Business Days
• 42% exchanges have imposed limits on deposits & withdrawals (per day, per transaction)
Margin Based Trading & Margin Lending
(across all 22 exchanges)
• 23% exchanges offer Margin based Trading, &
• 9% exchanges offer Margin Lending facilities
2.3.1.8 Provisions similar to Depository, Trading Accounts, Clearing & Settlement
(Excluding the exchanges that offer only sales of crypto currencies)
• 89% exchanges have various provisions of Hot Wallets, Cold Wallets (also extra-secure levels
of Cold Wallets in some cases), Client Segregated/Pooled Cold Storages, Vaults

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2.3.1.9 Order Types
• All exchanges have the basic order types of Market Orders & Limit Orders
• A few also have advanced order types
• 2 exchanges have clear capabilities of handling High Frequency Trading (HFT) & Algorithmic
Orders
2.3.1.10 Measures to Ensure Fair Market Price
• Only 1 exchange has Call-Auctions
• Only 2 exchanges (including the above) has the mechanism of Circuit Breakers
• Others do not have any information regarding measures to ensure Fair Market Price
2.3.1.11 APIs for Market Participants
• 68% exchanges have API services – offering Market Data of symbols, pairs, orders, trades,
historical data (Public); & Orders and Trades Data (Private)
• However, none exhibited any known processes to Certify the Client Applications.
2.3.1.12 Platform Infrastructure (Servers, Data Centres) & Information Security (ISMS)
(except 1 exchange which is a peer-to-peer of only community users)
Infrastructure
• 33% exchanges have their Servers on Cloud Service Providers like AWS & Azure
• (Information of 62% of exchanges was available)
Information Security (ISMS)
• 67% exchanges exhibit processes that can be inferred as Information Security (ISMS) being
practised
• However, only 24% exchanges disclose taking guidance on Information Security from
world/regional standards like - Data Protection Act 2000 (Austria/EU), Japan Bitcoin
Association JBA, Data Protection Act 1998, Information Technology Act 2000 (India), Federal
Data Protection Law Germany (BDSG), The Telemedia Law Germany (TMG)
• Only 15% exchanges have disclosed information about having Security Standards
Certification for their Wallets (Hot & Cold) – like FIPS PUB 140-2, FIPS PUB 140-3, AES-256 (as
per NIST), & Digicert

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2.3.1.13 Software Changes (Forks) – Impact & Adaptability
• Due to the types of Platforms of the exchanges, only 73% are impacted by Forks
• Of these impacted,
o 38% have a Pro-active approach to handle the impact
o 25% have a Reactive approach to handle the impact
o Balance 37% have no information as to how they handle the impact
2.3.1.14 Financial Security
• Only 2 exchanges (9%) offer any Financial Security to the clients
o 1 offers insurance for both – Crypto Currency assets as well as Fiat Currency assets
o 2nd
offers insurance for Fiat Currency assets only
• Though a few cite local laws as being applicable, they are more of local bankruptcy
references, & explicit information is unavailable, & may be directly related to the types of
Company/Entity registrations that they hold in the respective countries
• Others (91%) are silent on the subject
2.3.1.15 Legal Framework – provision & practise
• Legal Jurisdiction
o 87% exchanges have declared their areas of Legal Jurisdiction
o 2 of the above have declared a Legal Jurisdiction as a place which is different from
the place of Registration (1 is in a different state of the same country, 2nd
is in a
different country altogether)
o 1 exchange has explicitly denied applicability of any Legal Jurisdiction
• Records/Data Retention
o 36% exchanges have indicated/declared policies/processes regarding Records/Data
retention
o However, only 2 of the above have specified the Data Retention Periods
• Suspected Activity Reporting, Export Controls, Sanctions Compliance
o 14% exchanges have declared policies
o Balance are silent on the subject
2.3.1.16 Audits – provision & practise
• 23% exchanges have declared/exhibited provision &/or practise of Audit policies/processes
2.3.1.17 Governance – provision & practise
• Only 18% exchanges have declared/exhibited provision &/or practise of Governance
Principles like Internal Management Committees & Periodic reviews.
• The balance are silent on the subject.

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2.3.2 Summary/Snapshot of the Study/Evaluation
A Summary based on the emerging characteristics is as below,

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2.4 INFERENCE - MODELS, ADVANTAGES & DISADVANTAGES OF CRYPTO CURRENCY EXCHANGES,
DIGITAL WALLETS
From the study/evaluation of the 22 Crypto Currency Exchanges, it can be inferred that,
Multiple Models of Exchanges viz. Exchange, Wallet, Peer-to-peer & Sales platforms have
evolved in a short span of time. These Exchanges have Ease of Access (Access to everyone),
globally. They are Universally recognised & offer Ease to Trade. Though the Inherent advantages
of the Decentralization benefits of the underlying technologies of Crypto Currencies are an
indirect benefit to them, they have also established a Centralization (as an Exchange) over the
basic concept of Decentralization of the underlying technologies of Crypto Currencies.
These exchanges attract Individual Investors (mostly enthusiasts), but are yet to attract serious
Individual Investors & Financial Institutions; which may result into becoming Speculative
platforms instead of Investment Platforms.
Most exchanges offer Basic Order-Types & are yet to Mature as a Market with varied offerings of
Order-Types. At the same time they are unable to guarantee Transparency, Trade guarantee,
fool-proof security of client funds – digital &/or fiat, as well as unable to demonstrate Risk
Management (& Mitigation).
From Consumer reviews & forums, it was observed that the investors experience difficulties with
Withdrawals, Transfers, Customer Service etc. coupled with Absence of clear Jurisdictions &
Legal Policies.
Regarding Infrastructure, they are yet to achieve maturity viz.– availability, security, scalability,
stability, change-management, disaster recovery, continuity, backups & retention. Also, are yet
to demonstrate finer attributes like NTP Sync, Julian Time Stamps, Persistence Guarantee etc.
Plus, there is Near-Zero information on Root Cause Analysis (RCA) for Incidents, & Corrective-
Actions thereafter. Also, though capable APIs are available, Certification of Client Applications is
unknown.
Also, they have exhibited Near Zero Corporate Governance & have attracted negative remarks
(& actions, in some cases) from key financial professionals, regulators, central banks &
governments.

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2.5 PROPOSITION
Thus, with the growing number of Crypto Currency Exchanges, it would be in their interest to get
together & introduce a Strategy & Vision which can be implemented by a Central Global
Regulatory Authority via a set of Global Standards & Policies, including adoption of other existing
global policies & frameworks. This would result in higher investor participation, higher trade
volumes, inter-operability, convenience of adherence amongst other things. A fair competition
could emerge which may result in a healthy growth of the industry altogether.
It will be in mutual interest of Crypto Currency Exchanges, Digital Wallets & Investors, to
• Define
o Strategy & Vision
o Key Foundations
o Key Pillars
• Establish (&/or Adopt)
o Global Regulator(s) & Regulations
o Global & Regional Associations (for collective representation & learning)
o Global Standards
o Regional Regulators & Regulations – to ensure participation as well as protection of
global investors
o Frameworks for easy integration with Banking & Government systems
o Legal Frameworks
o Corporate Governance
o Effectively Regulated & Compliant processes
• Create
o A Reliable Eco-System
o Highest Levels of Trust
• Protect
o Wealth of Investors
o Health of Exchanges

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3 REFERENCES
1. Nakamoto, Satoshi. Bitcoin: A Peer-to-Peer Electronic Cash System: Cryptography Mailing
List, 2008.
2. www.coinmarketcap.com
3. Respective websites (& documents) of 22 Crypto Currency Exchanges (& Digital Wallets)
{as published by the respective businesses & available on their websites (public domain), as
of September & October 2017}
4. Public Review & Rating websites (for Industry & user opinion)
5. Financial Investment Services and Capital Markets Act (FSCMA), South Korea
6. Financial Instruments and Exchange Act (Act No. 25 of 1948, revised up to Act No. 99 of
2007), FSA, Japan
7. Various News Articles & Publications