By James Hunt -
Before we assess the current state of the cryptocurrency exchange market, it is useful to first understand how we got here. Further to the release of the Bitcoin white paper in October 2008 and subsequent Genesis Block in January 2009, apart from mining, the only way to acquire bitcoin back then was by trading on forums or IRC, requiring a great deal of trust that the other party would honour the transaction.
As a result, it was only just over a year later when the first cryptocurrency exchange went live in March 2010. The now defunct and little known platform was called bitcoinmarket.com, further to a proposal by “dwdollar” on the Bitcointalk forum to create the first real market for people to buy and sell bitcoins with each other. Early bitcoin users like NLS had proposed a useful pricing system as a starting point - based on the energy requirement for mining, with quotes of around 1,500 BTC for $1 at the time. Bitcoinmarket.com, however, provided far greater overall consensus on the value of bitcoin, presenting a price at launch of around $0.003, moving up to $0.05 in the summer of that year, which is about as far as any price chart will go back to.
The platform used PayPal for fiat exchange initially, but was removed after increasing fraudulent trades in June 2011. By this time, the market for bitcoin was gaining in popularity, with the price now at $23.99. Bitcoinmarket.com had served its purpose, and was an improvement from exchanging on forums, but now struggled to cope with the increasing number of bitcoiners and was about to be displaced by a now infamous brand.
Mt. Gox & Early Platforms
In 2010, Mt. Gox was being developed by Jed McCaleb (now at the Stellar Development Foundation) and in a few short years, 70% of all bitcoin trades were being handled via its platform. 
Originally the mtgox.com (Magic: The Gathering Online eXchange) domain name had been purchased in 2007 by McCaleb for a trading site for Magic: The Gathering cards (a digital collectible card game). With a programming background and interest in Bitcoin, McCaleb later repurposed the site to provide bitcoin to USD exchange functionality, which then exploded in popularity as it was reliably always online, automated and faster. McCaleb had interests elsewhere, however, and didn’t want to manage the site day to day. As a result, within just a few months, he sold the business to Mark Karpelès (aka Magical Tux), though remained a minority owner. 
Whilst hacks had always been a concern, the threat had been laughed off by McCaleb, and the influx of users suggested they were content to take the risk. Complaints of poor management and missing funds had been levied at the Mt. Gox owners for most of its life. Indeed, when McCaleb sold to Karpelès, it is alleged (according to court documents) that 80,000 bitcoins were already missing. Then, in June 2011, came the first hack, with a total of 2,650 BTC removed. As a result, security measures were beefed up, and despite this, Mt. Gox went on to establish itself as the world’s largest bitcoin exchange by 2013. Behind the scenes, however, the situation was very different. An alleged lack of competent organisation by management (meaning Karpelès), website coding issues and poor security measures were the principle failings recalled by former employees. Legal disputes began around this time, followed by the US Department of Homeland Security accusing them (via a subsidiary) of operating as an unregistered money transmitter. As a result, over $5 million was seized by the US government from the company’s bank accounts, subsequently causing suspension of USD withdrawals and long delays. The red flags were already there. These developments were bad, but the real problem was actually far worse.
In early February 2014, all withdrawals were stopped to “obtain a clear technical view of the currency process”. A few weeks later, despite prior assurances from Mt. Gox and influencers like Roger Ver, the exchange suspended all trading, the website went offline and the company filed for bankruptcy protection. It turns out they had been a victim of an ongoing hack for years, going as far back as late 2011 and resulting in the theft of a total of 844,408 bitcoins from their hot wallets in the process. 
Users were shocked, if nothing else because the Mt. Gox management were apparently unaware that such a vast quantity had been missing for so many years. Although Karpelès was later charged with fraud and embezzlement (though not directly related to the theft), the repercussions of this hack and ensuing legal action are still ongoing, years later. Whilst some return for users is likely, perhaps even to the extent of the USD value lost at the time, given the growth of bitcoin in the interim period, there is no chance that users will recover all the BTC amounts lost. This has served as a painful lesson, now embedded in the psyche of early bitcoiners and preached to new participants, that if they are not your keys, they’re not your coins, and as such exchanges should be avoided for holding funds beyond the requirement for short-term exchanges.
BitInstant, founded by Gareth Nelson and Charlie Schrem was another notable alternative in the same timeframe, funded by the Winkelvoss brothers and with Eric Voorhees (who now heads up ShapeShift) as Marketing Director. It met the same fate, again in 2014, though under different circumstances following accusations of money laundering and the subsequent sentencing of CEO Charlie Schrem. 
Since 2011, many more sophisticated exchanges had become further established, building on the functionality of their ill-fated predecessors, albeit with far greater technical superiority and security measures, ready to seize market share following the 2014 Mt. Gox collapse. The business model was boosted by the existence of many more alternatives to bitcoin, now commonly known as alt coins, with increasing demand for trading pairs against both bitcoin and fiat currencies. BitStamp is the oldest of which, having been originally founded in 2011, though with a limited range of trading pair availability compared to its competitors.
The likes of Coinbase, Kraken, Poloniex, Bitfinex, Huobi, OKEx, Bithumb, Bittrex, Gemini, and others, now well-known names, began to become more popular and slowly grew market share in the wake of the failure of Mt. Gox. There have, of course, been notable exchange hacks and failures since, though arguably none as significant as the 2014 failure of the largest cryptocurrency exchange on the planet.
[please add the other exchange images where appropriate]
source: please see images
As 2017 began, bitcoin had finally recaptured the $1,000+ price level that was lost following the events at Mt. Gox. Concurrently, and perhaps somewhat fortuitously, Changpeng Zhao and his team were busy at work developing a new crypto to crypto exchange to be named Binance. As spring of 2017 arrived, the first “alt season” and ICO (Initial Coin Offering) boom of that year had begun. The now more established exchange platforms such as Coinbase were resistant to adding additional digital assets for various business and regulatory reasons. Perhaps sensing an opening in the market and recognising an opportunity to take advantage of the ensuing “alt season” and corresponding interest and demand for alternative coins or tokens, Binance set themselves up to offer as many different alt coins as possible, provided they met their criteria, a criteria seemingly far less strict that their major competitors of the time. The new platform launched in July 2017, just as the second stage of the 2017 “alt season” was in full swing, and took full advantage, growing exponentially over the next 6 months to become the largest exchange in the world, leaving their previously established competitors behind, and destroying the market share of some platforms that had previously enjoyed a position at or near the top of the exchange volume rankings.
We have also had the emergence of platforms like BitMex, though these are not exchanges in the same sense and are more accurately seen as derivative trading platforms that have provided exposure to the Bitcoin and major alt coin markets without being an exchange service. Their growth and success are notable, however, as this has likely fed in to volumes in the wider cryptocurrency exchange market.
There was one other new and notable difference with Binance’s launch on to the major cryptocurrency exchange scene, of course. The Binance token (BNB). Building on the success of their offering with a wide range of assets available and greater regulatory flexibility, loyalty to the new platform was also encouraged by offering discounts on exchange fees by using the BNB token as the exchange asset, boosting its utility and value as part of the wider alt coin market in its own right. These new advantages caught competitors off guard, and it would take them more than a year to attempt to catch up, as an increasing number of platforms were also opening up and following a similar strategy to Binance.
Current & Future Developments
2018 and 2019 have seen the rest of the crypto exchange market try to catch up and regain market share. Coinbase has since added several alt coins to their 2017 offering, and other exchanges like Huobi and Bitfinex have followed Binance in offering their own exchange token with similar loyalty-based incentives to try and gain and retain customers.
The IEO (Initial Exchange Offering) has taken precedence over the ICO launches of prior years as successful projects then received instant availability on a large exchange from day one, and the exchange saw the advantage of not only capturing the future exchange fees, but also benefited from the IEO raise being denominated in their own exchange token.
As 2019 continued, Binance and others have come under greater regulatory pressure, especially from the US, culminating in the announcement that Binance.com would no longer be available to US customers from September 12. At the same time, they also announced a new Binance US platform will launch later in the year to counter some of the effects of the lost traffic, but it will have an impact on their overall market share nonetheless as US customers had represented their largest traffic source previously.
This marks an apparent increasing polarisation in the exchange market, forcing centralised players to increasingly offer jurisdiction by jurisdiction platforms, compliant with local regulations and offering varying assets and services, but also allowing for decentralised platforms (DEXs) to establish outside of this regulatory oversight as there is no central point of control or failure. The latter are not yet well established, though Binance again are looking to hedge this potential future by developing a DEX as well as their own centralised offerings. DEX adoption may increase over time, or become incorporated into exist non-custodial services, and those content or who prefer regulatory compliance and oversight will have that option instead. One thing is for sure however, it is the beginning of the end of the grey area that had previously allowed for wider cryptocurrency exchange services to participants all over the world. Whilst VPN usage may allow some to continue in this area for now, it has its limitations as well as higher risks that will ultimately lead those participates down one of the polarised paths over time.
The cryptocurrency exchange market moved slowly in its initial life, understandably given the complexities of building order books of sufficient liquidity, whilst ensuring world-class security of assets held on behalf of customers and navigating the difficulties in transferring to and from traditional fiat currencies and the wider financial system.
As the number of exchange platforms started to grow, the market as a whole was still cautious in its expansion given what had happened to Mt. Gox, culminating in its 2014 failure. The 2017 alt season and ICO boom brought that to an end, and the exchange market saw exponential growth, especially from new, user-led exchanges like Binance.
The market since cooled following the 2018 bear market, and regulators have begun to catch up with the market developments of recent years. This has led to the polarisation between jurisdiction by jurisdiction regulatory compliant, yet more restrictive platform offerings and the future potential of decentralised exchanges (DEXs). The grey are in between is on its way out, potentially resulting in less choice and service offerings than before, and yet an important sign of a maturing market, that will, over time, allow for more institutional players and a mature environment to cater for the next phase of wider adoption.
 - https://news.bitcoin.com/bitcoin-history-part-6-the-first-bitcoin-exchange/
 - https://en.wikipedia.org/wiki/Jed_McCaleb
 - https://blockonomi.com/mt-gox-hack/
 - https://en.wikipedia.org/wiki/BitInstant