At a time when cryptocurrency is still finding its ways to become a mainstream mode of transaction, cryptocurrency exchanges might be a great alternative to finding a utility to this technological marvel.
In addition to this inertia involved in acceptance, cryptocurrency mining also becomes increasingly difficult with every passing day as the complexity of the mathematical problem to be solved increases with every node added. This increase in complexity translates into a demand for great processing power and electricity. Sometimes, the reward that you get for solving the mathematical problem might not even be worth the expenses that you incurred in doing so.
The volatility of crypto assets might be a deterrent in using them for transactions. However, the same volatility becomes an aspect of attractiveness when it comes to crypto exchanges. To understand the magnitude of volatility, let us take the example of the most prominent cryptocurrency-the bitcoin. The bitcoin was worth $2900 in September 2017, and within three months, the value of the coin skyrocketed to about $19,800 in December 2017. A year later, it was just worth about $3300.
Creating a new currency in the offline world is almost close to impossible! However, using the blockchain technology, it is possible to create new cryptocurrencies and even new blockchains. This translated into a lot of crypto coins springing up left, right, and center! An inevitable offshoot of this growing number is the possibility of creating business is out of cryptocurrency exchanges. If there are more than 2900 different cryptocurrencies operational, it only makes sense to bring the possibility of profit using a business model similar to the forex logic.
Even if cryptocurrency is not legal in a certain jurisdiction, cryptocurrency exchange just can’t still be considered legally valid means of business. This is the biggest plot twist that makes cryptocurrency exchanges a favorable avenue for crypto business. This would mean that the crypto enthusiast, even if they reside in a country that might not have completely legalized cryptocurrency can still open a crypto exchange business.
How to create a cryptocurrency exchange?
Cryptocurrency exchanges might be capital-intensive but they present interesting and lucrative opportunities because the possibility of losses is almost close to zero. It is quite similar to the principles in a casino where the house always wins! Irrespective of the trader making a profit or loss, the exchange always makes a profit with every transaction.
Creating a cryptocurrency exchange is not complicated but not easy either! It involves putting together a lot of components that need to be designed to work in tandem with each other to execute flawless and smooth exchange for the benefit of the trailer.
The first aspect that needs to be figured out in a crypto exchange is the legal dimension. It is important to understand the jurisdiction of the country in which your trip to exchange will be incorporated. This step plays a crucial and important in determining the success of your cryptocurrency exchange. There are a few countries where it is legal to run an exchange but illegal to deal with investors present in the same country. As a crypto entrepreneur, it is important for you to ensure that there are no lapses in complying with the regulatory frameworks of your jurisdiction. In all of this, it should not be forgotten that a business license is required in your area of incorporation.
As discussed earlier, creating a cryptocurrency exchange is a capital-intensive process. It involves utilizing expensive blockchain development and testing resources. Knowing the technology alone will not help in this regard – it is also important to know the Business aspects of a cryptocurrency exchange. Since the technology and the line of business is relatively new, the resources are bound to be expensive and could present a financial burden for the investors.
There have been multiple instances of cryptocurrency exchanges shut shop, citing lack of funds as the reason. Therefore, before you start a cryptocurrency exchange, it is important to ensure that you have sufficient capital.
Classically, liquidity is defined as the magnitude of the ease with which you can convert an asset into cash. In the context of a cryptocurrency exchange, liquidity refers to the intensity of transactions that happen on an exchange. If your exchange has a lot of transactions happening, it is considered to be liquid. Liquidity is one of the biggest factors that determine the marketability of your exchange, as investors look at this one factor before they consider investing.
However, enhancing the liquidity of a new cryptocurrency exchange is not simple. You can consider simulating trading within your exchange by using bots. Alternatively, you can also consider dying up with third-party exchanges through an API to factor in the trades that happen on that exchange to yours. There are businesses that specialize in liquidity-enhancement.
Since the first step in an exchange is buying assets, you would need to tie up with a bank to function as a payment partner. A lot of research has to go into choosing the right bank because not every financial institution is capable of handling crypto assets, leave alone being comfortable with handling one! In addition, there are also legal factors that need to be taken into consideration. There might be instances where the bank that you tie up with might not be legally eligible to handle cryptocurrency.
One of the inherent aspects of the blockchain technology is its decentralization. However, in the case of an exchange, a certain degree of decentralization is lost. Therefore, it becomes a lucrative target for hackers and people with malicious intentions. Therefore, top notch security has to be insured at all costs. Simple steps like two-factor authentication and multi-signature wallets can go along way in ensuring security.
To attenuate the possibilities of compromises, it is strongly encouraged that the resources of your exchange are kept locked away in cold storage. Only the fund that is required to execute the trade should be moved from your cold wallet to your hot wallet. Since the cold wallets are more immune to cyber attacks, they are quite likely to protect your exchange.
In the interest of keeping the overall security of your exchange, it is also encouraged that you complete your KYC/AML formalities for all your customers.
Even after creating a robust and technologically sound exchange, the efforts might go in vain if not marketed properly. Cryptocurrency exchange need to be marketed with meticulous care. On one side, it is important to participate in cryptocurrency forms and focused platforms where investors are quite likely to interact with each other. In addition, you should also keep up with the classical digital marketing efforts like search optimization, social media, and content marketing.
It is to be remembered that not every platform has policies that support marketing anything related to crypto and blockchain technology.
The initial support that you provide your investors goes a long way in establishing the supremacy of your exchange. Support should be available across multiple platforms like email, phone, and live chat. It is also encouraged that you create specific hashtags, so your investors can post on social media platforms like Twitter to get immediate support.
It cannot be denied that building a crypto exchange is capital intensive. Alternatively, you can consider using white label cryptocurrency exchanges. They are readily available off the shelf, and can be easily customized to fit your requirements. Since it does not involve building the exchange from scratch, it helps you save a lot of time and money.
All you need to do is get in touch with a company that specializes in building and customizing white label cryptocurrency exchanges. It is just a matter of a really short span of time before you launch your exchange and start making profits out of it.