Cryptocurrencies, such as Bitcoin, are popular. Early Bitcoin investors and miners amassed small fortunes, and the concept is gaining traction.
Well-known investor Peter Lynch once observed that while most gold prospectors lost money during the Gold Rush, those who sold them equipment like picks, shovels, tents, and blue jeans did quite well. Like the manufacturers of picks and shovels during the California gold rush, those who run bitcoin exchanges can be compared to the miners who used them.
If you see the potential reward and want to start your own Bitcoin exchange business, this step-by-step guide will help you get started.
How to Launch a Crypto Exchange in 10 Easy Steps
1. Seek legal counsel to ensure that all licensing requirements are met.
2. Obtain venture funding.
3. Locate a provider of cryptocurrency exchange software solutions.
4. Connect your exchange to others to increase liquidity.
5. Collaborate with a payment processor.
6. Put best security practices into action.
7. Go live through beta testing.
8. Begin a marketing and public relations campaign.
9. Provide customer service.
10. Keep a legal team on hand to ensure ongoing compliance.
What exactly is a cryptocurrency exchange, and how does it operate?
A cryptocurrency exchange is a marketplace for buying and selling cryptocurrencies such as Bitcoin, Ether, and Dogecoin. Cryptocurrency exchanges operate similarly to other trading platforms you may be familiar with. They give you accounts where you can create various order types to buy, sell, and speculate in the cryptocurrency market.
Some cryptocurrency exchanges offer advanced trading features such as margin accounts and futures trading, though these are rare for users in the United States. Others include features such as crypto staking or crypto loans, which allow you to earn interest on your cryptocurrency holdings. Finally, the best exchanges provide educational resources to keep you updated on crypto.
Start a Cryptocurrency Exchange
Now that you know what steps you need to take to start your cryptocurrency exchange, let’s look at them in more depth.
1. Seek the advice of an attorney to be sure all necessary permits are in order.
Before you put your plan into action, you should talk to a lawyer to determine the rules for your new business. Every area where the company wants to do business needs the proper licences. There is little oversight of cryptocurrency exchanges in many places because government and regulation have yet to catch up with technology. In other areas, like the US, Bitcoin operators must be licensed Money Transmitter businesses and follow SEC and CFTC rules, among others. Proper legal counsel is a must. Exchanges usually have to follow Know Your Customer (KYC) rules, which are becoming more common to stop money laundering. This is because exchanges are a type of currency exchange. In the U.S., these rules have been in place since 2002, when the Patriot Act was passed. Different areas have different rules, so talk to an attorney who knows the business.
2. Get money for the venture.
Before you start your project, you should have a good idea of how much it will cost. A cryptocurrency exchange will need at least $135,000 to be built and put on the market. This includes the cost of technology, hosting, initial legal advice, registering with the government, and advertising at the start. Even though not all funds are needed immediately, ensuring the business has enough money to get off the ground is essential. Startups make a big mistake when they plan for something other than the future and only get small amounts of money initially. This may cover development costs, but it will only give the business the money it needs to run once it starts making money. Startups also often need to avoid getting licenses from shady crypto exchange providers who charge ongoing fees and don’t tell them about the legal requirements and costs of setting up and running an exchange.
3. Find a company that can help you with technology.
Modulus offers turnkey, custom cryptocurrency exchanges for a one-time license fee. There are no ongoing fees or royalties. This means there are no ongoing fees, clients can host the business themselves, and clients get the complete source code, which is essential for auditing since some regulators want to look at the source code. Modulus has been building stock exchanges for more than 20 years, and their back-end technology is used by some of the biggest stock exchanges in the world. They are always looking for ways to give their clients more value.
Why should a white label have source code? White-label exchange software with complete source code lets you customize it as much as a custom-built exchange, but it gets to market much faster and costs a lot less overall.
4. Link your exchange to others to get more money.
Liquidity is the most crucial part of a successful exchange. Potential customers will be sceptical about your new business without an order book and trades. We can connect your exchange to a network of other exchanges, which will increase its liquidity and help you get around these problems without having to use fake accounts in the new exchange. Remember that your new business will have less trouble with liquidity the more significant the network of interactions is.
5. Work with a company that handles payments.
Not all payment processors are equal. Fee structures are one thing that will vary a lot from company to company. To compete with other exchanges, you will need the lowest transaction rate. Also, some processors hide fees in their contracts, so ensure you understand what you agree to before signing. Other things that make processors different are their settlement times and whether or not they follow PCI DSS, a set of best practices for cyber security. You should be aware that federal law does not require you to follow it in the United States, but many state laws do. So make sure your payment processor meets PCI standards to protect your new business from cyber threats. This is another example of how important it is to understand complicated industry rules.
6. Use the best security methods.
Using offline cold storage wallets, two-factor authentication, and encrypted databases, exchanges made with Modulus technology are some of the safest in the world. Also, passwords are not saved by Modulus technology (only hashes). We have written a lot about the notorious data breaches in the industry, such as the ones at Mt. Gox and Bithumb. What’s the point? Hackers and cybercriminals have found cryptocurrencies to be an easy target, so exchanges are scrambling to find ways to set themselves apart based on security.
7. Let beta testing help you go live.
You’ve built your exchange. You have made a deal with a payment processing company. And you’ve been in a lot of trouble to ensure your exchange follows all the rules. You have made sure your business is safe from cybercrime. Now is the time to start your exchange and test all its features in beta.
8. Start your PR and marketing campaign.
Once your exchange runs, you should start getting news from places like Coindesk. It is essential to plan your marketing activities and how much they will cost so that your first round of funding doesn’t leave you scrambling to find more money. Most exchanges need a budget for marketing. So instead, they use free social media marketing until they have enough traders.
9. Be careful when you help customers.
Customer service is the last step in making a thriving cryptocurrency exchange, but how well you do in this area will determine your long-term success. People who deal with customers need to pay attention and find suitable solutions to customer complaints and technical problems. Customers should get answers quickly, so use a ticketing system like ZenDesk and staff it with knowledgeable, helpful people available 24 hours a day, seven days a week, since cryptocurrency trading never stops.
10. Make sure you follow the law by keeping a legal team.
We need to say more about how important it is to stay legal and follow all current and proposed rules and laws, not just in the country where your exchange is based but also in all foreign countries where your exchange members or traders will live or trade from. Global cryptocurrency laws are changing quickly, so it’s essential to hire a full-time legal compliance team or outsource to reputable law firms if you want your exchange to be legal everywhere you do business.
Even the most detailed step-by-step guide can only answer some of your questions. Hopefully, this has helped you develop a first plan of action that you can use to move forward. As always, SDLC is here to help you along your journey. If you have more questions, feel free to call or send an email.
Crypto exchange is a platform that helps an individual buy and sells cryptocurrencies. Furthermore, it offers robust securities. Moreover, one of the best crypto exchanges is Coinbase. Apart from this, some analysts have observed that cryptocurrencies will rise more than triple by 2030. Additionally, the number of cryptocurrency investors has been steadily increasing worldwide.