We have often heard a lot of motivational speakers talk about converting your weaknesses into opportunities. This is what precisely happened with cryptocurrency. As you may have already known, the value of even the most prominent crypto coins like Bitcoin is bound to be volatile. It might not be possible to use them as proper instruments of the transaction, especially when business people are looking at long-term value.
The volatility that was standing as a stumbling block for cryptocurrency to be used for everyday buying and selling had now made it an ideal candidate for another new type of business: the cryptocurrency exchange.
What is a Cryptocurrency Exchange?
The cryptocurrency exchange is literally what it means. It is a platform that enables people to buy and sell crypto assets at predetermined prices set by marketing dynamics. A person who has a thorough understanding of how the price of an asset will move in the future can make a profit out of every trade.
The world of crypto that was largely confined to people who knew technology had now transcended into a realm where common people can use and make a profit. This had literally opened the floodgates of cryptocurrency to every person on the planet.
It is to be noted that even in countries where cryptocurrency is not legal, a cryptocurrency exchange is accepted as a valid financial business. This opens up opportunities for crypto entrepreneurs to start their own cryptocurrency exchange business even if the country does not allow transactions using cryptocurrency.
The different types of crypto exchanges
Based on the way in which the exchange functions, cryptocurrency exchanges are classified into centralized and decentralized cryptocurrency exchanges.
A centralized exchange, as the name implies, mandates that the custody of the funds be interested to a third-party to execute the exchange. The users of a centralized crypto exchange do not have access to the private case of their crypto exchange wallets.
A decentralized exchange, on the other hand, keeps the virtue of complete decentralization and the absence of any kind of authority. Instead of connecting orders, the exchange connects users. The exchange does not, at any point in time, hold the funds of the users.
A hybrid crypto exchange brings the best of both worlds. While keeping the magnitude of centralization optimal, it also ensures that no third-party is involved in maintaining custody of user funds.
The avenues of profit
Any business should have a profit model and the cryptocurrency exchange is not an exception to this unwritten rule. There are multiple avenues for a cryptocurrency exchange to make its share of profits.
The first avenue of profit is the trading fee that is charged as a commission for every transaction on the crypto exchange. This might be small in value but it is adequately balanced by the number of transactions and the number of users. In a decentralized exchange, the transaction is charged to accommodate the gas fee and the amount to be paid for third-party arbitration.
Crypto entrepreneurs have taken to this new habit of getting their token directly listed on a crypto exchange instead of going through the hassle of selling all the tokens and awaiting the listing on the exchange much to the dismay of investors. A crypto exchange can charge a percentage of the total number of tokens as a listing fee. In the long run, it also translates into enhanced profits as new tokens also increase the number of trades.
In addition, a cryptocurrency exchange can also make its profit by hosting ads on its platform.
Starting your own crypto exchange
Starting your own crypto exchange business is a grand culmination of multiple activities and areas.
The first step you will need to carefully take is to ensure secure legal clearance. As you may have known, the laws that govern cryptocurrency and blockchain are uncertain and shaky across various jurisdictions. Therefore, it is important that you ensure proper legal compliance with the laws of the land where your cryptocurrency exchange business is being incorporated.
Since the cryptocurrency exchange is a financial business, you will need to follow all the requirements of any financial institution and it would mean that you will need to comply with KYC/AML formalities. While the process of establishing compliance is simple and straightforward, it is to be taken care of that cryptocurrency is about privacy and anonymity. and your KYC/AML process should not jeopardize the privacy of your users.
It is true that once you start a cryptocurrency exchange, your profits will keep flowing. However, to start your crypto exchange is a capital-intense affair. There are a lot of instances where exchanges frizzled out midway because of the lack of adequate funds. Therefore, it is important to ensure that you have enough funds to not only kickstart but also run your crypto exchange business but also cover all its operation and marketing expenses, at least for a year.
The next step is to create the cryptocurrency exchange software solution. This particular point deserves a special section and we will talk about this aspect in detail at a later stage.
Although abstract, another important feature needed to create your exchange is liquidity. In the context of an exchange, liquidity is the measure of the volume of transactions that happen on your exchange. Investors study the magnitude of liquidity before they commit their crypto funds to your exchange.
It might not be easy for a relatively new crypto exchange to showcase liquidity. They can consider tying up with an existing exchange through an API to reap the benefits of the older exchange’s liquidity. If it is a centralized exchange, they can even emulate trading between two bot accounts to showcase some trading volume.
Security is of paramount importance in a crypto exchange. While simple security practices like two-factor authentication and multi-signature wallets can ensure security from the users’ side, it is expected that the exchange should also protect itself from SSRF (server-side request forgery). It should not be forgotten that the entire blockchain ecosystem is most vulnerable in its points of centralization, and a crypto exchange is possibly one of the most centralized points in the crypto ecosystem.
All the efforts taken towards development, liquidity, and security will go down the drain if your exchange is not adequately marketed. You will need to have a comprehensive marketing and PR plan in place. Your marketing efforts should include search marketing, social media, community engagement, press releases, blogs, airdropping, affiliate marketing, influencer marketing, and everything else you can imagine and innovate. It should be remembered that mainstream digital advertising platforms like Google and Facebook heavily restrict advertising crypto products.
Your exchange should offer robust customer support across multiple channels. Since the exchange business is global in most cases, you should have your customer support team operating 24/7. Support should be available across multiple platforms like phone, email, and chat. You can even extend your support to channels like Twitter.
Developing a cryptocurrency exchange software
Just like the business itself, a cryptocurrency exchange software includes a lot of basic and advanced features to be put together to work in tandem with each other.
- The exchange should be provided with an admin panel to take care of all the activities that happen on the exchange.
- The matching engine can be considered the heart and soul of the exchange. It takes care to match the buying and selling orders to execute a successful exchange. It is not an exaggeration to say that the quality of the exchange is proportional to the quality of the matching engine.
- The exchange should support multi-currency wallets. The more the variety of trading pairs your exchange can support, the higher the probability of you attracting new users.
- Your exchange should support advanced trading features like margin trading and short trading. This will ensure that even the most seasoned investors stick to your exchange.
- Your crypto exchange should be integrated with a versatile payment gateway that can accept payments from multiple payment methods like credit cards, debit cards, Internet banking, wallets, and different crypto coins.
Your exchange should be garnished with an intuitive user interface that is suitable for everyone right from amateur traders to seasoned trading professionals.
Conclusion
As we have already seen, if you can get the cryptocurrency exchange software up and running, it is quite some job done. However, building your crypto exchange from scratch might be a cumbersome and daunting undertaking, irrespective of you hiring your own team of developers or you outsourcing it to a cryptocurrency exchange development company.
To make the entire process of cryptocurrency exchange development easier and faster, you can consider using a white-label exchange software. A white label cryptocurrency exchange software is easy to customize and can be made to bear the features that you would want in line with your business requirements.
All that is left for you to do is get in touch with a cryptocurrency exchange development company that specializes in white label cryptocurrency exchange development services. They will take care to understand your requirement and provide you with a perfect exchange, so you are ready to launch your exchange business in the shortest possible time.
