ShapeShift is one of the leading cryptocurrency exchange services, but its business model is different from a classical exchange.
On a classical exchange a user registers an account, adds money, places orders and executes trades between other participants.
To exchange via ShapeShift, users don’t need to register on the platform. They just send one cryptocurrency to the ShapeShift address and receive another cryptocurrency on the address they specified before executing the trade. The exchange rate is determined by ShapeShift and based on current market conditions.
Customers can’t store cryptocurrencies on ShapeShift, they need to have their own wallets. The way ShapeShift provides an exchange service allows users to keep their digital assets in a safe place, like cold wallets, which can be accessed by them. It means they don’t need to be concerned about possible hacker attacks on the exchange or worry that their account balance is compromised.
History of ShapeShift
Swiss-based ShapeShift was created in 2014 by Erik Voorhees, now a CEO of the company. The idea was to simplify the way to trade altcoins, which were popping up quickly at the time.
From day one the most important issue was the platform security. ShapeShift never stores a massive amount of crypto-assets reserves in a hot wallet. The platform uses cold wallets and quickly moves cryptocurrencies between cold and hot wallets if needed.
ShapeShift has a global team of more than 100 members spread across the globe, including some 70 developers. Today the platform handles from 10 to 30 thousands transactions per day.
ShapeShift is an API-based platform, so any partners, who need a cryptocurrency exchange or transfer services, can integrate ShapeShift. Some big platforms, like Blockchain.info, share their revenue from a turnover.
Technical advantages of ShapeShift
I was curious about what happens if there is a huge demand for ethereum on the market, so a lot of users come to ShapeShift to exchange a large amount of bitcoins for ethereum. Is it possible that the platform runs out of ethereum?
Emily assured this wasn’t not an issue, as they developed algorithms, which do the cryptocurrency balancing.
“Back in old days, when we were a small team, there was a lot of balancing done manually. But as we’ve grown, we developed an automatic system that does the balancing,” said Emily. “There are smart algorithms implemented, which are checking the current situation on cryptocurrency markets, and, if there is a spike in transactions of some exact cryptocurrency on the market, the system does the rebalancing of crypto-assets in its storage to keep up with the market situation.”
“You also need to keep in mind that every ShapeShift transaction has a limit of 5,000 Swiss franks (~5,000 US dollars) in terms of order size. So it’s not possible that a huge market order suddently comes in and abuses our system,” added Chase.
ShapeShift team actively develops other projects.
One of them is CoinCap – a website that provides cryptocurrency prices in real time. Users can also create a portfolio on their smartphone and track its value online. Through the app users can create push notifications if the value of some cryptocurrency passes some user-defined level.
Prism is yet another project – an asset management platform based on ethereum smart contracts. Prism was launched last year and is currently in a private beta phase.
The platform has been created to provide a convenient and secure way for customers to invest in a diversified portfolio of crypt-assets.
“If an investor wants to purchase a bunch of different crypto-assets, he or she needs to keep a bunch of different wallets and think how to store information about all public and private keys of all those wallets securely. That can be inconvenient for many users, especially for those who came recently to the crypto space and don’t understand some security aspects,” said Emily. “Prism allows users to create a portfolio that has exposure to all those assets. The user can create a portfolio and fund it with ethereum, smart contract is created, it tracks the movement of the asset prices.”
I asked what happens when a user sends a collateral in ethereum and buys a portfolio of 1/3 bitcoin, 1/3 neo and 1/3 litecoin?
“Prism physically buys all the cryptocurrencies and stores them. So users can be sure that if the assets in their portfolio show strong increase in value, the platform has them in store,” explained Chase. “Once the user sends the request to sell portfolio, the platform sells those assets and returns the equivalent value of the portfolio in ethereum. The request can be done via sending zero amount of ETH from the same address the collateral was sent earlier. In future we want to allow users to make short and long positions, but right now they are able to add only long positions to their portfolio.”
New users, who come to crypto space, usually store their assets on platforms like Coinbase or cryptocurrency exchanges, but there have been many cases when such platforms got hacked and all money lost. So cold storage in a form of hardware wallet is the best solution to store cryptocurrencies safe. The only way to hack such device is to steel it, plug it in and use the password or seed phrase. So, it’s basically impossible to hack the cold wallet.
Last August ShapeShift acquired KeepKey, a hardware wallet manufacturer. Currently the KeepKey wallet provides functionality to store bitcoin, ethereum, litecoin and dogecoin. The price of Keepkey is $129.
“ShapeShift has been working with KeepKey since 2016. It was the first and the only cold wallet that ShapeShift integrated into its platform,” Emily told us. “KeepKey is solving the issue of a middleman attack, which is when you’re doing an exchange or a trade, you can see an address that you’ve been told to send funds to, and if someone hacks into the system, he can switch the address where the crytocurrency is sent. However, KeepKey wallet has a large screen, so users can always verify the destination address by looking on the screen, making sure that it matches the one that is needed. So no man in the middle can replace that address.”
“Other wallets have a small screen and the address can’t be displayed on the screen entirely, so you have to scroll on such devices,” added Chase.
Besided supporting major cryptocurrencies (bitcoin, bitcoin cash, litecoin, ethereum, dash and dogecoin), KeepKey added functionality to store 30 ERC-20 tokens (Aragon, Augur, Basic Attention Token, Civic, District0x, FunFair, Golem, Gnosis, OmiseGo, SALT, Bancor, ICONOMI, Melon, SwarmCity, Wings, iExec, Status, Numeraire, Metal, TenX, Qtum, 0x, FirstBlood, Ripio Credit Network, SingularDTV, DigixDAO, WeTrust, Matchpool, Edgeless and Storj).
The purchase of KeepKey makes sense since ShapeShift doesn’t provide hot wallet services and encourages users to keep their money in cold wallets. By providing an online exchange service and manufacturing hardware wallets for storing the crypto-assets, ShapeShift provides a full range of services that an average user requires.
Mass adoption of cryptocurrencies. When?
After such an engaging conversation about the company’s services and products I’ve asked a question not related to ShapeShift. I wanted to find out Emily and Chase’s thoughts on when the cryptocurrencies could become a mainstream. When would people start using virtual currency, and not for speculative reasons, but to purchase goods and services for day-to-day needs?
Chase believes that a widespread adoption will become huge when people don’t even pay attention how they interface with cryptourrencies, when there will be a way to transfer money seamlessly without a need to make sense of the technology behind crypto. The same as you don’t have to understand a TCP/IP protocol to surf the web.
Emily added that we are just at the beginning of a journey. The hype last year was unthinkable, which helped to draw plenty of companies to blockchain that strive to innovate. It brought many more developers into the space as well.