Digitex Futures Ltd is a new cryptocurrency exchange currently creating a buzz thanks to a recent announcement made at the Malta Blockchain Summit. Digitex announced that it was partnering with Ethereum Plasma to create a trustless no-fee futures exchange for the cryptocurrency market.
What is Digitex?
In a nutshell, Digitex Futures is a new kind of cryptocurrency exchange. There are several things to note about this new exchange, which is planning to go live in December 2018.
Each of these points deserves its own analysis, but it’s important to note that Digitex Futures isn’t just some upstart by a bunch of newbies, as might be the case with many other cryptocurrency startups and crypto exchanges. Brian Armstrong, co-founder and CEO of Coinbase, for instance, hadn’t done much significant prior to founding Coinbase in 2012. He doesn’t even have a dedicated Wikipedia page. His co-founder, on the other hand, Fred Ehrsam, graduated from Duke University with a B.S. degree in computer science in 2010. Then he spent two years at Goldman Sachs and BlackRock as a foreign exchange trader and portfolio analyst, respectively. The Winklevoss brothers‘ biggest achievements, prior to launching Gemini exchange in 2015, were Olympic rowers who successfully sued Mark Zuckerberg for making Facebook more popular than their Harvard University social networking site ConnectU. Oh yeah, and they got filthy rich by putting a few measly dollars into Bitcoin when only a few people even knew what it was.
By contrast, Adam Todd, who also doesn’t have a Wikipedia page, was a pit trader on the London International Financial Futures & Options Exchange, is the founder of BetTrader, and one of the most successful sports betting professionals on Betfair, one of the world’s largest sports betting exchanges. Just so you know, sports betting is huge in England, where it is actually legal and is a big part of the overall economy of Great Britain. In other words, Brits take it seriously.
Long story short, Digitex Futures is a cryptocurrency futures trading exchange founded by a CEO who is a successful sports better and former futures trader who has been actively trading for over 14 years. Its initial iteration will facilitate the trading of Bitcoin, Litecoin, and Ethereum futures.
What is Ethereum Plasma?
Unless you’ve been living under a rock for the past year, or not interested in cryptocurrencies, you’ve likely heard about Ethereum’s scalability issues. There have been different solutions offered over the past year for how Ethereum will deal with these issues, but the consensus is that two solutions are leading the march forward. One is sharding and the other is Plasma. You can read about these two solutions here.
In a word, Plasma is an off-chain solution for smart contracts. It’s a short-term solution to Ethereum’s scaling issues. The long-term solution, Serenity, will not be ready for adoption for another two years. Meanwhile, Plasma and sharding are expected to hold down the fort.
What makes Plasma particularly interesting for the Digitex Futures exchange is that it will essentially change the nature of the relationship between a cryptocurrency exchange and the individual investor. Instead of the exchange holding the trader’s currency, the currency will be held inside a smart contract on the Plasma chain. Doing it this way will allow the exchange to process transactions faster. It’s estimated that transaction speeds will reach 25,000 per second. That’s way faster than Ripple’s 1,500 transactions per second, the fastest among cryptocurrencies according to The Motley Fool, and edging out Visa as the fastest of all.
Plasma will also benefit Digitex Futures by lowering gas costs for traders. Since transactions take place off-chain instead of on the Ethereum main chain, the cost will be lower. And traders will be allowed to monitor profits and losses in real time. If successfully implemented, this will put Digitex Futures light years ahead of centralized exchanges like Coinbase and Binance.
What Are Futures Contracts?
In the world of trading, a futures contract is a type of derivative that allows a trader the right to purchase a commodity at a specific fixed price at some point in the future. For instance, today’s Bitcoin price is below $3,800. If Bob believes the price of Bitcoin will go down and owns 10,000 BTC, he can enter into a contract with Sally to sell 5,000 Bitcoin for today’s price one year from now. If the price of Bitcoin on December 5, 2019 is $8,268.09, then Sally got a bargain. She buys 5,000 Bitcoin at the lower price. Bob, however, loses money on this deal because if he had not entered the futures contract with Sally, he could sell his 5,000 BTC at the higher price.
Futures contracts are used by traders to hedge their bets in a market. They allow large investors, individual or institutional, a way to hedge against expected downturns or upturns in markets. They are very risky financial instruments, but if successful, futures traders can see huge returns on their investments. They can also be used to offset losses on specific investments that are expected to lose or ensure gains in the event markets don’t respond as expected.
Digitex Futures entering the cryptocurrency trading market right now is a historic opportunity for investors. Last year’s bull run could have been a game changer for many investors who have lost money in 2018. Imagine buying Bitcoin in January 2017 at $800. In December, when the price was at $20,000, there would have been no way to know if the price was going to continue climbing or go back down. If you wanted to ensure that you could sell some of your Bitcoin for a profit, you could have entered into a futures contract to sell 1,000 BTC on December 5, 2018 at $20,000. If the price went up and you sold your Bitcoin at that hypothetical higher price, let’s say $25,000, you would have profited but at a huge risk (because the price could have gone down). In reality, Bitcoin’s price declined precipitously. By selling today at $20,000 (because you entered a futures contract), you would have made a great decision and profited almost $200,000 on the transaction. By entering the futures contract, you guaranteed yourself a profitable sell.
Volatility being an intrinsic quality of cryptocurrency markets means wild fluctuations in prices. Futures contracts can be used to ensure profits and mitigate losses if used wisely.
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