How to open a crypto exchange?

Launching your own cryptocurrency exchange

It’s been 8 years since the birth of Bitcoin. Its price is going up and everybody’s talking about it. Now, Ethereum, Ripple, and other tokens are walking in Bitcoin’s footsteps. It is getting obvious that cryptocurrencies are here to stay.

People have found ways to mine, buy and sell crypto coins, and extract profits from that. But very few have come across the thought of launching their own crypto exchange, despite the fact that it is a lot more exciting and profitable. In this article, we are going to talk about how to create your own crypto trading platform.


Content:

  1. What’s under the hood of crypto business

  2. Crypto platform anatomy

  3. Trading platform software types

  4. Recipe for launching a quality cryptocurrency exchange

  5. Cryptocurrency trading is a hot domain

  1. What’s under the hood of crypto business

Think it through a couple of times because opening a cryptocurrency exchange is a tiresome process which is carried out in multiple stages.

  • Study the market

Analyze the modus operandi employed by contemporary exchanges and find out what users’ expectations are. What are the things that traders do and don’t appreciate. What kind of problems do trading platforms encounter? What kinds of pricing policies and commissions are preferred by users? All this can serve as basis for putting together a set of attractive points for clients and a step-by-step action plan.

Besides that, you’ll need to make a decision on the size: whether to work with the global audience, or be present in only one country. Sometimes it is more sensible to start off small and not compete with industry whales, and instead, make an amazing offer to a certain audience that will be swift to make the transition onto your platform.

  • Gather a team

Launching and growing a quality exchange means working in multiple dimensions, which is virtually impossible to pull off single-handedly. This is why you should get assistance from a project manager, an accountant, a PR manager, technical support staff and other valuable team members.

Each will play their role: set up workflow, design pricing policies, promote the exchange in the media, process deposits and withdrawals. An exchange fares well only when there is a well-rounded team working on it.

  • Ensure security

Users’ trust is in direct correlation with how resilient to attacks and how stable the platform is. This is why these factors should be taken care of in a separate manner so that the user count doesn’t slip as the platform goes down more and more frequently.

Clients expect their money and personal data to be safe and sound. However, their expectations are not always met: according to Reuters, between 2009 and 2015, 30% of cryptocurrency exchanges were hacked. Cybercriminals will attack, therefore security must comprise multiple layers.

  • Start promoting

As soon and the exchange is live and bug-free, spread the word about the platform on appropriate forums, websites, and news portals. Get your message about the exchange, its advantages, supported currency pairs and commissions across to wide audiences.

Nobody is going to place orders on a desolate trading platform. You will have to make sure that there is at least some activity going on so that people might deem the platform suitable for themselves. This problem can be solved in 3 ways:

  • Emulation of activity achieved through artificially driven deals;

  • Creation of an API that will connect to other exchanges;

  • Joining a group of exchanges with shared liquidity;

  • Ensure legality

Businesses that provide currency exchange services have to follow the KYC and AML guidelines, which require them to gather and verify client information. These measures were put in place to combat fraud.

Every serious crypto exchange has fiat withdrawal and deposit, usually EUR or USD. In order to implement this, you’ll need an official agreement with a bank or a payment system, who will take care of your fiat-denominated transactions.

But the most important part is license. To claim the crypto exchange title, you have to be either a Japanese company in the form of public joint-stock company or a foreign company holding a license allowing the processing of cryptocurrency operations (preferably offshore).

The list of required documents that are needed for establishing a crypto exchange depends on the country of registration. For example, in order to open a company in the US, for which the best format is LLC, the following is needed:

  • Certificate of registration of a legal entity;

  • Service provider business certificate and license;

  • Business plan;

  • Non-disclosure agreement;

  • Employment agreement;

  • Collective Ltd. agreement;

  • Insurance agreement;

  • Contract documentation;

  • Confidentiality policy documentation;

  • Internal company documents;

  • Memorandum of mutual understanding.

  1. Crypto platform anatomy

Cryptocurrency exchange is an electronic platform that needs software to function. This software comprises 4 components:

  • Engine

This is where the magic happens—the order book is formed, complementing buy and sell orders find each other, transactions go through, and balances are updated. A powerful engine is key, because this is something that can surprise customers in a good way.

  • Interface

You need an uncluttered, convenient, and intuitive interface. At the same time, the website’s pages should be optimized for correct display on mobile devices, since many people use them. A mobile app can present an additional advantage.

On the exchange’s website, clients should be able to:

  • Sign up and access their accounts;

  • Deposit and withdraw fiat and crypto;

  • View the book order and transaction history;

  • View the account balance and statistics;

  • View graphs;

  • Create buy and sell orders;

  • Contact the support service.

  • Wallet

Harbors all cryptocurrency on the exchange: users create and replenish their accounts, but they actually do it with one and the same wallet. Thus, all funds belonging to all users are stored in the same place. This is why the exchange’s wallet needs maximum protection.

There was a case when the keys to an exchange’s multi-signature wallet ended up in the hands of one person. Hackers hacked into his computer, got access to the wallet and took away all the customer money.

  • Control panel

This is what happens behind the scenes. Rich functionality is needed, so is convenience because administrators should be able to promptly react to events. Success is largely commensurate with these factors. The panel should have the following tools:

  • Liquidity tuning;

  • Commission adjustment;

  • User account verification;

  • Currency and currency pairs management;

  • Withdrawal and deposit methods management;

  • User request processing.

  1. Trading platform software types

Exchange software choice should be based on the abilities, potential, and needs of the owner:

  • A platform built with one’s own hands

It’s hard to build a trading platform from scratch, however, in this case, you (and nobody else) will know about all of its corners. For this reason, your team will have to take on at least one programmer. It would be even better if he/she was privy to the principles that trading platforms follow, cryptocurrency and blockchain peculiarities, data encryption, data security, and could put them into practice.

Before laying the first brick, it would make sense to decide what cryptocurrencies are going to be supported since it has an impact on the programming language. Learn about compatibility between software and banking and payment systems that you are planning of working with.

You should also take into consideration possible time and monetary expenses: trading software is notorious for: a) complexity—development and testing take up to 2 years; 2) expensiveness—salaries, rent, and things like that can cost up to $500,000.

  • Exchange without investment

Everything is on the internet. This notion applies to crypto exchange scripts also—you can find them on Github and other websites. But free scripts shouldn’t be involved in serious projects. Scripts are dissected first and then configured in accordance with the business plan anyway. Code may be fraught with errors, weaknesses or even malicious elements that can subtly steal cryptocurrency and personal data from users.

  • Turn-key exchange

Ready-made exchange software can be bought from companies that specialize in the development of financial software. In such a case, you’ll have confidence in the platform’s reliability, as well as the option to effortlessly configure the exchange before the launch (choose design, languages, currency pairs, graphs).

The engine, the interface, the wallet, and the control panel will be ready shortly after the purchase. This is a much less expensive path than the full development cycle: only legal and financial questions need to be sorted out, and the exchange’s workflow needs to be smoothed out, which can take up to several months. An exchange software license costs roughly $5,000.

  1. Recipe for launching a quality cryptocurrency exchange

  • Exchange ingredients

In order for a cryptocurrency exchange to achieve success, it has to follow the unspoken quality standards.

Therefore it has to have the following::

  • SSL certificate;

  • Protection mechanism against DDoS attacks;

  • Client support ticket system;

  • Two-factor authentication mechanism;

  • API for trading;

  • API user guide;

  • Trading terminal;

  • Mobile app;

  • Exchange user guide;

  • Trading statistics section;

  • Order book;

  • High processing speed;

  • Easy-to-use and uncluttered design.

  • Exchange launch algorithm

Opening a quality exchange can span over several years and require substantial funding and effort investments. But it is entirely doable.

In order to open one’s own crypto exchange:

  • Gather a well-rounded team of specialists from different industries;

  • Design a company development strategy and choose software for the future exchange;

  • Create, configure, test the platform and rent a server;

  • As a separate measure, make sure that the platform is reliable and follows international legal guidelines.

  • Obtain a financial services provider license: purchase a license in Japan or register a company in an offshore country;

  • Sign an agreement with a bank or a payment system that will take care of payments in fiat currencies;

  • Bring about some liquidity;

  • Start promoting the exchange in information space.

  1. Cryptocurrency trading is a hot domain

As of October 10, 2017, the total crypto market capitalization amounted to $163.5 million, and this number is still growing. In the meantime, more and more people are taking on the roles of crypto traders and investors. But this is only the beginning of the crypto industry since it started flourishing just a couple of years ago.

The crypto industry is young and promising, therefore it would be prudent to hop on the bandwagon now. Long story short, if you launch a crypto exchange today, you can reap results in the not-so-distant future. Of course, it is not that easy, but your investment will multiply many times over.


Posté sur
07 novembre 2018