Many experts in the world of investments believe that there is no such thing called an economic depression that would push almost every commercial entity into a state of failure. Peter Lynch, the famed investor, interestingly quoted that during the gold rush, miners might have lost their money, but manufacturers of shovels, tents, and denim made a great profit.
This is the case with cryptocurrency and cryptocurrency exchanges. Cryptocurrency is itself a great location in terms of both finance and technology, and it would not be an exaggeration to say that it is the finest manifestation of confluence between finance and tech. Given the fact that there are thousands of cryptocurrencies out there in the market, it is quite possible to create a proper business out of a cryptocurrency exchange.
Starting a bitcoin exchange can be considered simple at a bird-eye level. However, when you dive deeper, there are a lot of intricacies and complications involved. We have attempted to simplify the process of creating a cryptocurrency exchange. A simple bitcoin exchange can't be started in 10 easy steps.
Legislations and jurisdictions have always shared a love-hate relationship with cryptocurrency and blockchain technology. It is important to seek comprehensive legal counsel before you start your crypto exchange business. This will ensure that you understand all the regulatory demands of your new cryptocurrency exchange.
Cryptocurrency exchanges are, in essence, financial companies. Therefore, it is important for the starters to obtain a proper license for operating a finance business in all jurisdictions that the company plans to operate. It is required that crypto exchanges be licensed money transmitter businesses and they are expected to follow the SEC and CFTC regulations. It also mandates that the exchange must adhere to the KYC/AML regulations.
The laws that govern cryptocurrency exchanges are quite nascent as of now. Therefore, it is also required that your legal team has the essential foresight to understand how the regulation might change in the near future. A proper legal team is required to maintain ongoing compliance with the legal requirements. Although the team that maintains compliance does not need to be as expensive or experienced as the team that initiated the exchange, the resources can still be considered extremely vital.
Starting a cryptocurrency exchange is capital intensive. It involves spending a considerable amount of money for initial legal counsel, registration, hosting, technology, and initial advertising.
Not all these expenses might attack you in one shot. However, there is no way to escape even one of these expenses! Therefore, it is crucial to ensure that you have the essential capital to not just start but also to run your cryptocurrency exchange for a considerable stretch of time.
There have been instances of some crypto startups frizzling out during their course because they do not have access to proper capital and operational cash. It is also to be noted that in an attempt to save money, it is not a great idea to go for mediocre service providers just because they offer cheaper services.
The technology that goes behind cryptocurrency exchanges is the heart and soul of your business. There are two dimensions that need to be taken into consideration. One is that the technology required to build a proper crypto exchange involves hiring people who possess the essential skills, and they might be a tad bit expensive. There are crypto-tech companies that offer white label cryptocurrency exchange software as solutions. This might cost considerably less than building on from scratch. It also ensures that your time to hit the market remains as minimal as possible and that you launch a product without any bugs that might interfere with the basic requirements of an exchange.
While technology might be the tangible core of your cryptocurrency exchange, liquidity, although intangible, plays a vital role in your exchange’s marketability and viability. Although the term might have a different definition when it comes to investments, it refers to the volume of trade that happens within your exchange in this context. Investors might not trust your exchange if you do not have an order book with quite some trading activity. There are two possibilities with which you can initiate liquidity into your exchange. One is that you can emulate trade within your exchange using some dummy accounts, so they will account for a few orders in the order book. You can also consider connecting your exchange with a network of other exchanges, and it also results in the announcement of your exchange’s liquidity.
In this regard, that is a new breed of business called the market makers. The market makers are responsible for enhancing the liquidity in your new cryptocurrency exchange. They use different methods to get this done. They could possibly tie-up with a few traders or even have their own network of exchanges.
Cryptocurrency exchanges present hotspots for cyber-attacks and many other malicious activities. Crypto exchanges have the dubious distinction of being the hotspot for most compromises related to blockchain technology. There are a few simple steps like implementing a two-factor authentication when signing in and using multi-signature wallets to store your crypto assets that might go a long way in ensuring top-notch security for your cryptocurrency exchange.
There are factors like fee structure that need to be taken into consideration when choosing your payment processor. This goes without saying, that in addition to the versatility of the payment processor, and the friendliness that they show towards cryptocurrency and the new technology, they should also be compliant with regulatory requirements like PCI-DSS. One of the biggest factors that determine the popularity and marketability of your cryptocurrency exchange is the trading fee. If your payment partner charges a hefty exchange fee for every transaction, it is quite possible that your exchange might lose out the edge against the competition.
Cryptocurrency exchanges are springing up left, right, and center. Therefore, once your exchange is launched, it is important to launch a proper PR and marketing campaign. On one side, you can be extremely specific in your marketing efforts, having your articles published on crypto news outlets like BitcoinTalk and Coindesk.
In addition, it is not advisable to completely neglect the classical route of marketing, including, but not limited to, search engine optimization, content marketing, social media, and an active presence on forums like Reddit, and being engaging in platforms like Telegram, Discord, and Slack.
As soon as you launch your exchange, it is quite possible that you will be flooded with a lot of support requests from investors all over the world. Therefore, having a support team during your exchange launch and even more so, when your exchange is running is important to complete the last leg of defining the supremacy of your exchange. You will need to put in place a proper ticketing software, and customer support should be made available across multiple platforms including but not limited to telephone, chat, and email. Since the scope of the exchange operating is global, customer support should be available 24x7.
Cryptocurrency exchanges have positioned themselves as a dependable business model in the crypto space. This positioning has been possible only because of how promising the possibilities of revenue are. There are different channels from what you can do on your revenue when it comes to cryptocurrency exchanges.
Crypto exchanges can make revenue by charging a trading commission. Crypto traders will have to pay a certain transaction fee or a commission to validate the transaction. The commission might value between 1% and 3%. Although it might not look like a big value on paper, it is the volumes that contribute to the revenue. Even if 100 traders trade one bitcoin each, the exchange has made a profit of approximately $9600 in that.
Initial exchange offerings or IEOs have positioned themselves as a dependable method for raising funds in the crypto space. They present a considerably better option than ICOs because the companies that require funding do not have to worry about getting their tokens listed on the exchange. An IEO simply means that instead of an independent company offering tokens, the exchange itself offers the tokens with the guarantee that they can be treated. For listing a token on the exchange, any exchange can charge a good amount as a fee. The fee can range between 5 bitcoins to 50 bitcoins for an average or medium exchange. Large exchanges, however, charge in the order of about $1 million-$2 million per listing.
Some exchanges like Binance have launched their own crypto talking. This gave them a better option for user acquisition, and it is not surprising that the exchange offered a 50% additional commission on the training fee when they traded with their native coin BNB. Interestingly, BNB is valued at around $40.
Cryptocurrency exchange can also charge a deposit and withdrawal fees. The fee can vary based on the kind of coins that you are converting. If the exchange operates within the crypto space, there are instances of the exchange charging a flat fee of $10 irrespective of the conversion amount. If you deal with fiat currency, however, exchange commissions can be as low as 0.01%.
There might be investors who have the capital but who do not have the knowledge. For such investors, the cryptocurrency can charge a consultancy fee for trading tips offered to the investor. It makes cryptocurrency exchange a mutual fund company where they charge for putting their expertise at work on the investment of their clients.
Above everything, the cryptocurrency exchange also charges on stacking schemes. Checking simply means locking of traders’ funds in the exchange, so the exchange can utilize it or something else. In return, the exchange pays the investors a certain amount of interest, which might vary between 1% and 10%. This makes exchanges almost similar to a traditional banking system.
Cryptocurrency exchanges are all set to be the business model of the future, and it will not be a surprise if a new cryptocurrency exchange starts to make its profit right from the beginning. If you would like to be one of those aspiring entrepreneurs, all you need to do is invest in crypto exchange development. While building the exchange from scratch might cost you a lot, white label cryptocurrency exchange software presents a lucrative option.
These white label exchange solutions save you quite a lot both in terms of time and money. It means that you do not have to invest in a team of developers and testers. It also implies that you can launch or exchange as fast as you can because it is not something that needs to be built but is a product that is available off the shelf!