
Cryptocurrency exchanges present an excellent and lucrative alternative to any person who looks forward to making a profit from cryptocurrency but is not interested in mining. The mining of cryptocurrency has lost its charm because of the growing complexity of the mathematical problem that needs to be solved to get the reward. Alternatively, cryptocurrency exchanges have presented an amazing opportunity, not just for traders but also for aspiring crypto entrepreneurs. Starting a cryptocurrency exchange business is one of the most promising business ideas in the crypto world.
How do crypto exchanges work?
The relevance of the bitcoin exchange platform software is fuelled by the fact that cryptocurrencies are extremely volatile in their value. The volatility, however, is not as chaotic as it seems on the surface. An expert trader can spot the pattern and buy a certain cryptocurrency at a certain value, and sell it at a greater price in the future. This is, in the simplest sense, how a cryptocurrency exchange works.
Every cryptocurrency exchange charges a small commission for every transaction, and this is where the profit for a cryptocurrency exchange lies. Therefore, irrespective of the trader making a profit or loss, the cryptocurrency exchange always makes a profit, making it an interesting and foolproof business opportunity.
Starting a Crypto Exchange Business
A cryptocurrency exchange consists of a lot of confidence working together in tandem with each other. More than the technical aspects, it is the business aspects that deserve increased meticulous attention. We have outlined below the steps involved in creating a cryptocurrency exchange business.
The jurisdiction
Will the cryptocurrency exchange business have a global scope of the late operate confined to a specific region or a country? Based on the answers to these questions, the cryptocurrency exchange business will need to acquire the essential licenses and approvals. The cryptocurrency laws vary from place to place and from country to country. It is advised that you consult with a legal expert in establishing compliance with local laws and jurisdictions, and in obtaining the required license.
The legal requirements
Just like any other financial business that involves the exchange of currency, a lot of governments mandate that cryptocurrency exchange businesses adhere to the KYC/AML requirements. The KYC process ensures that the identity of the customers is verified through government-issued proofs of identity. The AML formalities are in place to restrict the use of the exchange money for activities that might not be in the interest of the nation.
Find a payment partner
Finding a payment partner for your cryptocurrency exchange might not be as easy as swiping right. It is to be remembered that your partner bank will need to process payments via fiat currency and should have the legal bandwidth to deal with cryptocurrency. In addition, factors like the speed of transaction and the extent of automation needs to be taken into consideration. It is recommended that you partner with a bank that provides a lot of online banking options.
Find a technology partner
To create your bitcoin exchange platform software, you will need to partner with a company that has proven expertise in bitcoin exchange development. The company not only needs to understand technology but also the business aspects of the cryptocurrency exchange.
Enhancing liquidity
Liquidity is the measure of the volume of transactions that take place on your cryptocurrency exchange. It is only natural that no new exchange will have big volumes of transactions. To circumvent this challenge, you can consider simulating transactions within your exchange by creating two artificial accounts and operating them with bots. Alternatively, you can also consider implementing an API that connects your bitcoin exchange with another existing exchange, so you can draw the benefits of liquidity in that exchange into yours. In recent days, another look at the alternative is to become a member of a network of cryptocurrency exchanges. These networks will tie up the equity of all the exchanges within their network. The magnitude of liquidity is directly proportional to the size of the network.
Enhance security
Crypto experts consider the cryptocurrency exchange to be the weakest and the most vulnerable point in the entire crypto ecosystem. The vulnerability can be attributed to the fact that cryptocurrency exchanges are fairly centralized. Therefore, meticulous care needs to be taken to ensure top-notch security for both the funds and the investor-information. Implementing simple best practices like two-factor authentication and multi-signature wallets can go a great distance in enhancing security.
Provide support
Once you have lost your exchange, it is important to provide customers with ongoing support across multiple channels, including but not limited to email, phone, and chat. They should also be dedicated forms where customers can participate and, if possible, solve their queries by discussing among themselves.
The components
As discussed earlier, a cryptocurrency exchange is the grand culmination of different companies working in tandem with each other. Let us look at the different entities involved in the building of a bitcoin exchange platform software.
The first thing that meets the eye of the user for any bitcoin exchange is the user interface. The user interface of the exchange should be simple, intuitive, and easy to navigate. It should be remembered that people who frequent these bitcoin exchanges are not experts in technology but investors whose main focus is on the profit and not on the tech that goes behind these crypto coins. The interface should be minimalistic and decluttered, but at the same time, be comprehensive enough to provide all the facilities that the user might need. They should find it easy to register a new account, deposit and withdraw currency, few transactions and orders, please buying and selling orders, and accessing the support mechanism.
The next entity that users will access in the cryptocurrency exchange is the wallet. The cryptocurrency wallet is, in essence, a bitcoin daemon that runs on the exchange server. Since this is the place where bitcoins are stored, the security needs to be at its max. In any exchange, there are two wallets - the hot wallet and the cold wallet. The hot wallet allows customers to instantly withdraw Bitcoins to the external wallet without the need for approval from the exchange operator. The cold wallet, on the other hand, is completely off-line and is considered more secure than the hot wallet. In most cases, the cold storage wallet is either a piece of paper or a USB stick. A proper bitcoin exchange should allow a smooth flow between both of these wallets.
The trade engine is considered the heart and soul of a bitcoin exchange. The train engine has the power to access order books, match buying and selling orders, execute transactions, and calculate balances. The trading engine to the bitcoin exchange is like the CPU to the computer.
Overseeing all these three entities is the administrator who has access to the admin panel. The admin panel functions like business intelligence and management software, and it is responsible for functions like alteration of liquidy, editing the spread and trading fees, approving KYC requests, and managing currencies.
Creating a cryptocurrency exchange
The cryptocurrency exchange is, without question, a marvelous piece of software engineering. There are different ways in which you can create your bitcoin exchange platform software.
You can choose to build your software from scratch by hiring a team of developers. This is one of the most basic methods to create any software. You will need to work on the aspects like the programming language, the auxiliary aspect like hosting, and needless to say, the costs associated and the time estimate. In general, this process is considered to be draggy and inefficient, although it gives you complete command over all the features of your exchange.
Another method is to use open-source scripts. There are a lot of scripts for a cryptocurrency exchange available on platforms like GitHub. You can directly take these scripts and customize them according to your requirements. It is required that you have some technical knowledge to work on these lines of code. There is not much of guarantee that the script could be secure and reliable. It could be infected with a lot of bugs, and there might be points of vulnerability in the script, including malicious lines of code. The customer support is quite limited in this regard.
One of the most dependable and reliable methods is to go for a white label bitcoin exchange software. It arrives at a fine line between customizability and cost-efficiency. It has already been tested for bugs, and you can be assured that there will not be any,ith regards to the basic functionality of a bitcoin exchange platform software. Since the product is available off-the-shelf, it does not take a lot of time for you to launch your bitcoin exchange business as well.
Conclusion
Should you be one of those aspiring entrepreneurs who would like to create a business out of a white label bitcoin exchange software, all you need to do is get in touch with companies that specialize in bitcoin exchange development, with a focus on white-label solution customization. It will be just a matter of a few months before your exchange is primed and ready to launch into business!
DISCLOSURE
Comments here are not of the author's opinion. Users are responsible for their comments.