About a decade ago, the idea of a currency existing outside any banking system and completely in the digital realm might have sounded utopic. Today, however, it is a reality that the world of finance, technology, and even the governments of countries cannot afford to ignore. Such is the transformation that cryptocurrency has effected within a short span of time since its creation.
The bitcoin, which is a brand bigger than the concept of cryptocurrency itself, had skyrocketed in its value reaching close to $20,000 in December 2017. Today, it hovers around the $6000-Mark. This concept has also given rise to a lot of other cryptocurrencies, numbering almost 3000.
A crypto coin like bitcoin might have high market value, but it cannot be denied that almost every cryptocurrency suffers serious volatility. You could possibly buy a pizza with a certain cryptocurrency today, and with the same money, buy a MacBook the very same day. With this level of fluctuation, it might not be possible for cryptocurrency to be used as a main stream instrument of transaction.
This volatility, however, open the floodgates for another profitable business opportunity-cryptocurrency exchanges. The extreme fluctuation in the values of cryptocurrency against one another has led to market experts predicting the possibility of increase or decrease in cryptocurrency values.
This means that making a profit using cryptocurrency is not just confined to people who are technically aware, but also people who have the capacity to assess the market and scientifically predict price increases and decreases. This makes cryptocurrency more democratic and accessible for even a common investor.
How to start a cryptocurrency Exchange business
It is easy to think that a bitcoin and cryptocurrency exchange software is the crux of any crypto exchange business. While this might be true to a considerable extent, there are a lot of other factors to consider if you have to make your cryptocurrency exchange business a success.
The first and foremost factor to consider is the Country in which you intend to incorporate your crypto exchange. In addition, you will also need to figure out if your scope of operation his local or global. The legal requirements might vary from place to place. Therefore, it is imperative on the part of the business owner to ensure that they cancelled a legal expert regarding approvals and compliance with the local rules and regulations. It is to be remembered that a cryptocurrency exchange falls under a financial company and all the legal regulations that apply for any financial institution account for cryptocurrency exchanges as well.
The reception on the legal front for cryptocurrency exchanges has been burying across a wide spectrum in different countries. The United States, Malta, Estonia have been quite accommodating and receptive to this revolution. China and South Korea on the other hand, have been completely averse to the idea of cryptocurrency. India, although it does not accept cryptocurrency as a method of payment, still entertains cryptocurrency exchanges as a valid business.
Some countries that treat cryptocurrency exchanges as a valid financial businesses mandate that the exchange complies with the KYC/AML requirements. This might be considered a compromise on the privacy of users but to keep up with requirements like crypto funds not being generalized into terrorist activities, these formalities are mandatory. There might be a few decentralized exchanges that might not require KYC/AML. It is important for you to understand the requirements from the legal side on a case-by-case basis.
To trade in crypto, that has to be a fiat intervention at some point in time. It is essential for cryptocurrency exchanges to partner with a bank or a payment processor. Needless to say, it is important to choose a bank that offers a lot of online facilities. Some banks might not even be involved enough to accommodate transactions just because the business involved has something to do with cryptocurrency. Therefore, meticulous research has to be done in finalizing a perfect payment processor right during the time of your cryptocurrency exchange development.
One of the biggest factors that traders consider before investing in a crypto exchange is the liquidity. Classically, liquidity is defined as the magnitude of these which you can convert an asset into cash. In the realm of cryptocurrency exchanges, liquidity is defined as the volume of transactions that happen on the exchange. It might be difficult for a new exchange to showcase liquidity in terms of transactions.
There are different ways in which you can kick-start the liquidity of your brand new cryptocurrency exchange.
You can consider simulating trade activity within your crypto exchange by automating selling and purchase between two artificial accounts/trading bots.
You can use an API that will connect your crypto exchange to another existing exchange, so you can capitalize on the liquidity value of the parent exchange.
There are a lot of cryptocurrency exchange networks that you can become a member of. These exchanges ensure that the liquidity of one exchange is distributed across all crypto exchanges in the network, so you can reap the collective benefits.
A cryptocurrency exchange is viewed as one of the weakest links in the crypto ecosystem by purists. They consider a cryptocurrency exchange as a business that goes against the Central philosophy of cryptocurrency-decentralization. It is a matter of infamy that most of the hacks and compromises in the crypto world have got something to do with cryptocurrency exchanges. Therefore, ensuring top notch security for your crypto exchange is of paramount importance. In addition to the KYC/AML formalities, you can also consider implementing two factor authentication and multi signature wallets to strengthen the security of your exchange.
Yes, it is important to market an exchange business, and you can go ahead with the traditional avenues that have always been recommended by successful crypto exchanges. The strategies include search engine optimization, social media marketing, marking your presence in dedicated crypto forums, and engaging in crypto-exclusive marketing methods like bounty marketing and airdropping. However, what completes your marketing efforts yes your customer support. Customer support for your exchange should be available across multiple platforms including but not limited to email, phone, and chat.
The architecture of a cryptocurrency exchange
You might commit to any cryptocurrency exchange development company to create your crypto exchange software solutions. However, as a business owner, you will need to keep in mind that certain basic confidence need to be in place for your Bitcoin and cryptocurrency exchange software to function properly.
The trade engine can be considered the heart and soul of your cryptocurrency exchange. The trade engine has access to the order book, and it takes care to match the buying and selling orders. It also executes transactions and calculates balances. Ensuring that you have a properly functioning and a robust trading engine is mandatory for the success of your cryptocurrency exchange.
As we have discussed in the earlier paragraphs, a typical cryptocurrency exchange user is not someone who is well-versed in the technology behind it. They are simple traders with their acumen being confined to the art of trading assets. Given this fact, it is important to make the interface of your cryptocurrency exchange as simple, straightforward, interactive, and intuitive as possible.
Most crypto currency exchanges are available as web applications. However, it would be a great idea to make your crypto exchange available as a mobile app as well.
The exchange should make it easy for users to register and access their crypto currency exchange account. They should be able to easily deposit and withdraw both crypto and fiat currency. The profile created as a result of their registration should provide a complete history of their past transactions, statistics, and balances. The interface should also make it easy for them to access the support ecosystem.
Another important component of the cryptocurrency exchange is the crypto currency wallet. The crypto currency wallet is nothing more than a daemon facilitating the storage of your crypto assets. Just like your exchange, your wallet also requires top notch security and it is highly recommended that you diversify your risk by separating your hot and cold wallets. The hot wallet should serve to transact and the cold wallet should take care of your storage. Generally, a cold wallet is considered more secure than a hot wallet as it resides outside the network as a piece of paper or as a USB device.
Overseeing all the activities of your crypto currency exchange should be an admin panel. It is considered an equivalent of the business intelligence and management unit for your crypto exchange. The administrator should have the power to alter the liquidity, edit the spread and trading of your crypto assets, and approve user accounts for trading after verifying the KYC details they should also be able to manage the different crypto currencies listed on the exchange and also the exchange pairs. In short, they are responsible for upkeep and the sanity and sanctity of the crypto currency exchange.
The different ways of crypto currency exchange development
As you can see, a crypto currency exchange is the grand culmination of multiple modules working in tandem with each other to effect and execute the intended process of exchanging to different crypto currencies at a prevalent market-determined exchange rate. It requires extensive coding, meticulous testing, and management skills. There are different ways in which you can create your crypto currency exchange.
The simplest, straightforward, and the most common method to do it is to hire your own team of developers and testers. This gives you a lot of next ability and command over the features that you would like in your crypto currency exchange. On the flip side, it would take you a lot of time, effort, and proportional costs. It should also be mentioned that there might be instances of bugs and coding glitches that might interfere with the basic functioning of your exchange.
Another method you can go far is hiring an offshore crypto currency exchange development company. Running a crypto currency exchange might not be as resource-intense as creating crypto exchange software solutions. Therefore, instead of employing your own workforce, you can outsource your development process to an expert company. They will take care to develop your crypto exchange from scratch. However you will still need to pay the company irrespective of you being successful in your crypto exchange business or not.
One of the most effective and sought-after methods to create your crypto exchange is to use white label solutions. These white label crypto exchanges are available off-the-shelf and are extremely easy to customise and launch. Most crypto currency exchange development companies that specialise in white label solutions also provide customisation services, so you are all set to make your crypto exchange bear your brand language. In addition to being effective in terms of both cost and time, the white label exchange also insures that you do not have any bugs that might interfere with the basic functionalities of your exchange.
If you are one of those aspiring entrepreneurs who would like to build a business out of these crypto currency exchanges, all you need to do is get in touch with a crypto currency development company. If you would want to launch your crypto currency exchange in a short time, it is highly recommended that you reach out to our white label exchange solution provider.
They will take care not only to understand your requirements but also customise the solution according to your business needs. As you may have known, making a profit out of crypto currency exchanges is slow but sure shot. Therefore, with the right amount of investment, capital, and some patience, you could be one of the many who have made a fortune for themselves from this novel business idea.