Current market conditions are extremely favorable for starting a brokerage business in the field of cryptocurrency exchange. Why? First off, this type of business is increasing and the crypto industry is showing very healthy growth on a daily basis primarily because the profitability prospects for such ventures far exceed those that can be had through the trading of traditional financial instruments. This being said, it is also true that crypto exchanges are more well-represented and developed than the field of brokerage services in the cryptocurrency market, where there is a lack of awareness and exposure as to what is on offer.
What is certain is that while the most traditional stock and forex brokers are facing difficulties and there is a customer-losing trend in their field, cryptocurrency brokerage services are on the rise and becoming increasingly popular. Now is the time to jump on this bandwagon then and this post aims to provide a brief overview of the hows and whys of starting your own cryptocurrency brokerage business, as the upward trend in this field is estimated to continue for the coming years, aided by improvements and new developments in the overall crypto industry.
What Is Cryptocurrency Exchange?
A cryptocurrency or digital currency exchange is a business through which customers can trade cryptocurrencies or digital currencies in exchange for other assets, such as conventional fiat money or other digital currencies. As in the trading of other financial instruments, a cryptocurrency exchange is either a market maker, taking the bid-ask spreads as a transaction commission for its service, or simply a matching platform that charges the corresponding fees.
Due to the increase in the popularity of cryptocurrencies, there are many investors who seek to explore the different ways in which setting up a business in this niche could enable them to make money. Such money-making opportunities include mining bitcoins, launching their own Initial Coin Offerings (ICOs), investing in digital assets, and even creating proprietary cryptocurrency exchange trading platforms. However, not all of these are equally easy or accessible. For example, due to the fierce competition that has already developed in this field as well, launching an ICO is not as accessible, mining your coins is not an easy task and continuous volatility means that cryptocurrency trading is riskier than one would have liked. This is why cryptocurrency exchanges emerge as the go-to solution for those seeking to make money in the crypto world.
There are several benefits associated with a cryptocurrency exchange, chief amongst which are:
- The anonymity factor: The identity of cryptocurrency exchange users can remain private until they wish to disclose it, or forever if they so wish. They can use the exchange in complete anonymity since transactions are performed via e-wallet addresses for which no verification is required. Moreover, a new e-wallet address may be generated whenever needed, so anonymity is not compromised at any time.
- Being always open for business 24/7: Contrary to other types of trading financial instruments, a cryptocurrency operates on a 24/7 basis. In other words, there are no time limits or barriers as to when you can exchange cryptos, waiting for the market to open. The exchange is there ready to accommodate you, and enable you to exchange cryptos, round the o’clock, 7 days a week and 365 days per year, instantly and easily
- Decentralization: This in fact lies at the heart of any cryptocurrency exchange and it is exactly this decentralized nature that makes a crypto exchange differ so much from traditional financial trading and traditional financial institutions. Because there are no middlemen and intermediaries involved, crypto exchange transactions are not only instantly executed, but are also immune to manipulation, thus making them more transparent.
All these benefits and many more can be included in a Cryptocurrency Exchange Platform that you can acquire through an expert platform development company, in order to ensure it is robust and reliable. The demand for cryptocurrency exchanges is rising as the use of cryptocurrencies is gaining momentum and earning the confidence, preference, and appeal of people across the globe.
However, before taking your next step into the crypto world, you should first consider that there are different types of cryptocurrency exchanges
Types Of Cryptocurrency Exchanges
There are three different types of cryptocurrency exchanges:
- Regular Exchanges: The first type is regular exchanges, which are centralized and used for the exchange of altcoins, i.e. all cryptocurrencies alternative to Bitcoin, of which there are hundreds. A regular crypto exchange adheres to traditional trading methods and is built in a simple, straightforward manner and design, so as to allow simply anyone to sign up and buy and sell crypto coins.
- Peer-to-Peer Exchanges: The peer-to-peer exchanges tend to attract scam traders and are often associated with dark, dodgy business so this is a risk and danger that is best to be avoided. However, in an attempt to ensure that participating traders are honest, such peer-to-peer (P2P) exchanges are now using escrow accounts or smart contracts.
- Cryptocurrency Brokerage Firms: Building on the successful example of online retail firms offering the trading of other, more traditional financial instruments, such as forex for example, cryptocurrency brokerage firms are on the rise and are now the go-to solution for those who want a share of the huge profitability potential that cryptocurrency trading has to offer. Through such cryptocurrency brokerages, you can fund your account with bitcoin or any other altcoin or with fiat money and start trading and exchanging cryptos immediately.
If you are intrigued and want to know what steps you should take and what options you have if you want to create your own cryptocurrency, the first thing to take into account is that there are three different courses you could follow, namely, white label solutions, open source solutions and the hard way of building it all from scratch.
How To Build Your Own Cryptocurrency Exchange
Want Your Own Cryptocurrency Exchange? Here’s how:
- White-Label Solutions: This is the easiest path you could follow and the one that will quickly enable you to set up shop and enter the market. Due to the increasing popularity of cryptos and crypto trading, there are today many companies that provide cryptocurrency exchange white-label software and white-label crypto brokerage solution packages. Thus, you can easily start your own crypto exchange platform, through a white label ready-made solution. On the downside of this path, though it is fast and easy, it could mean less profit for you and allow little flexibility since you will have to go with what is on offer. On the plus side, your white-label provider will be able to offer you support and guidance, this could make your journey smoother and maximize your chances for success.
- Open-Source Cryptocurrency Exchange Solutions: These types of solutions are readily available and have been developed by other peers, who put them at the disposal of anyone who wants to use them, for free. Provided you have the necessary knowledge to compile it all together, you can set up your own crypto exchange in a relatively short period of time. However, such open-source solutions tend to be less secure and less reliable, and it is also doubtful that the original developers of such an open-source cryptocurrency exchange would offer the kind of support and guidance necessary for you to start your venture.
- Custom Software Development for Cryptocurrency Exchange: The third type of solution available is the hard manual labor method of developing the entire software and platform as well as the entire crypto exchange venture from scratch. This method of doing it all from the beginning, allows for maximum flexibility and differentiation in the offering, while also holding the maximum profit potential, compared to the other two options. However, starting to build from scratch inevitably means that more time is needed, while it also presupposes that you have not only the time, effort, and commitment to invest but also the knowledge and skill set necessary to develop it from scratch and put together all the necessary pieces in order to set your exchange up and running and open for business.
How to Start a Cryptocurrency Exchange Step-by-Step
The arrival of Bitcoin on the financial scene over a decade ago, revolutionized the way people thought of and viewed cryptocurrencies. Bitcoin’s success gave rise to numerous other alternative cryptocurrencies and all of them have built a trending, healthy, and booming industry that offers substantially greater returns than the trading of traditional financial instruments, especially since this particular niche is still relatively unsaturated. The trading of cryptocurrencies then is rapidly evolving into an exciting and lucrative new sphere of financial trading that keeps attracting growing numbers of individuals and companies.
Starting a Cryptocurrency Exchange business involves the following basic steps:
- Clarify any legal issues and obtain licenses
- Have enough capital available to proceed
- Find and team up with the right Liquidity Provider
- Connect with a reliable Payment Processing Service Provider
- Ensure you have the best possible Security Practices in place
- Perform rigorous testing before going live
Once you complete the steps listed above you will be ready for business and able to start promoting your offering to attract customers. But prior to that, lets us explore further the initial steps required for you to start your own cryptocurrency exchange.
- Clarify any legal issues and obtain licenses : The first and very important step you should take is to seek legal advice through a lawyer that is familiar both with the industry and with the legal requirements of the jurisdiction in which you wish to operate. Legal requirements and regulations vary from jurisdiction to jurisdiction and it is also true that cryptocurrency exchanges went unregulated and unattended for a long time. However, the trend is that authorities around the world are taking a tougher stance on the issue and do require cryptocurrency exchanges to comply with several rules in order to combat money laundering, such as for example to implement rigorous Know Your Customer (KYC) processes. Getting legal counsel and making sure you adhere to what is needed in your jurisdiction will enable you to obtain the necessary licenses in order to able to operate your own cryptocurrency exchange.
- Have enough capital available to proceed: Once you sort out any legal issues, your next consideration should be to ensure you are sufficiently capitalized in order to proceed. In fact, you should have a pretty clear idea of the costs involved before embarking on the project, to begin with. Though there are many costs you need to take into consideration, the biggest chunk will definitely go into developing, maintaining, and constantly upgrading the cryptocurrency trading software in-house, since you are building it from scratch. To be able to put a price tag on this venture you need to take into account the factor of the time needed as well. Developing such software from scratch is painstaking and time-consuming and may take more than a year to complete, or even longer. Thus, if you hire experienced developers to perform the task and also ask them to incorporate added functionalities into your cryptocurrency exchange in order to make it more appealing to potential traders, be prepared that their salaries alone could cost you several hundred thousand dollars. Although you don’t need to have all the funds to give upfront, it is important to be sure that you have access to the necessary capital from the onset as if you don’t you will not be able to get your crypto exchange up and running and maintain its smooth operation.
- Find and team up with the right Liquidity Provider: You simply cannot operate a Cryptocurrency Exchange without connecting with a Liquidity Provider as access to liquidity is the cornerstone and the key to a successful exchange. This is true in the trading of other financial instruments as well, especially forex, and the same principles apply in the case of cryptocurrency trading as well. You will need a deep order book and a sufficient volume of trading activity if traders are to take you seriously and give you their vote of preference. Especially at the initial stages of operation on an exchange, this can be problematic, and some cryptocurrency exchanges tried to address this by resorting to dummy accounts in order to simulate trading activity. Such tricks should be avoided however as they will mean you lose credibility. Thus, what you will need is to form a partnership with a reliable and reputable cryptocurrency liquidity provider, one that is long established and has a solid presence amongst the existing network of cryptocurrency exchanges. Ensuring high liquidity is of paramount importance and this is why choosing your liquidity provider should be attributed the importance it deserves.
- Connect with a reliable Payment Processing Service Provider: A payment processor is also an essential part of the process, so you will need to ensure that you choose such a provider carefully as well. There are several such providers around, so compare their offering and their pricing to figure out which suits you best. Obviously, the actual transaction costs are of the essence here, so take care to ensure the lowest possible fees in this regard, otherwise it will be very hard to compete with other cryptocurrency exchanges around. Besides competitive rates, also ensure fast settlement times and the maximum available security to shield you against cyber threats. As a crypto exchange, you absolutely need an integrated cryptocurrency payment providers gateway through which all types of crypto transactions will be processed.
- Ensure you have the best possible Security Practices in place: One of the biggest risks associated with having your own cryptocurrency exchange is that cryptocurrencies are a very usual target for hackers and cybercriminals. In order to protect your business and your clients’ funds from such, therefore, it is imperative that you implement watertight security practices. Make sure you incorporate and make provision for multiple security layers, such as requiring two-factor authentication, and make sure you use database encryption as well as implementing anti-phishing measures. Better be safe than sorry.
- Perform rigorous testing before going live: Once your platform is developed, all legal and security matters are sorted and you have chosen your liquidity and payment processing providers you should undergo a period of rigorous testing of all your exchange’s features and capabilities in beta. This period of test usage in real conditions is very important in order to uncover any areas that need correction or further improvement. Thus, you should gather the experiences of early users and communicate them back to your developers who will then need to do some fine-tuning in order for the entire venture to go live in mint condition. This testing period will also allow the gradual building of visibility and anticipation for the actual launch, thus giving it a good head start.
So, once you tread this initial set of steps you will be ready to start your cryptocurrency exchange journey. However, the initial steps are not enough. Marketing and proper public relations are crucial steps of the process as well and they are as necessary as they are in other industries and business models. Simply thinking you can use social media to attract customers is not enough. You need to properly build and develop your brand and use the full array of available tools at your disposal, be they digital marketing or traditional marketing.
The successful launching and smooth initial operation of your crypto exchange are by no means a guarantee that you will succeed in the end. To ensure the successful continuation of the operations of your crypto exchange you will need to adopt a strategic approach that encompasses the need for continuous improvement of your offering and strengthening of your market position. As the industry grows with respect to cryptos as well and new players enter the game, increased competition will mean that only the truly best and truly able will survive in the long run.
The easy way to start a Cryptocurrency Broker
It is evident that setting up your cryptocurrency exchange from scratch is by means an easy task. In fact, it is rather a complicated, time-consuming, burdensome, and expensive process that requires great effort and investment. This is why many avoid this option and opt instead for the easier way to enter the crypto trading market, namely by setting up a cryptocurrency brokerage via a white-label solution. Resorting to a white-label crypto exchange software is clearly less expensive than starting from scratch and almost entirely hassle-free. The license fee is significantly lower than the cost you would have incurred for developing software on your own, while the fact that the white label provider offers you a solution that is already established on the market and is thus tried and tested and has proven results, means that you don’t need to worry about technical requirements, hiccups in the smooth operation of the exchange platform and how to cover its ongoing maintenance needs. Moreover, if you choose a white-label provider that offers a complete turnkey solution that this saves you the trouble of looking elsewhere to find your crypto liquidity provider or payments processor since turnkey solutions usually have all aspects covered.
White Label Crypto Solutions Pros & Cons
If you want to own a crypto exchange, a white label solution will help you save time in developing your own platform, it will definitely save you a lot of money as well and it is the most swift and smooth method to get you into the market and into the action. By buying a license to an existing, white-label solution you avoid the technical headaches and can focus on attracting clients immediately. However, bear in mind that not all white-label crypto solution providers offer the same offering, so you will need to search and figure out what suits you best. Moreover, though white labeling is the easiest and fastest way in, it does not mean that it is always the best strategy to follow.
The Pros
With the risk of sounding repetitive, it is clear that speed of access to the market is the greatest benefit of a white-label solution to start your crypto brokerage. What makes market entry even faster and easier is the fact that the white label provider usually also undertakes the installation and sets up the whole operation on your behalf, so that you can start immediately. Thus, once you find the right white-label vendor and pay the fee you will be good to go…
White labeling is also a great way to overcome the most usual problem that a newly set-up exchange would face, that of limited liquidity. Liquidity is essential and the absence of it is a show stopper, while exchanges that can ensure high liquidity levels are those who attract the most customers since they are after the increased profit-making and trading opportunities that increased liquidity enables. Usually, white label providers will share their own liquidity pool with their licensed white labelers, so that problem is sorted too.
Besides developing the software for the exchange, a white label solution provider will usually also undertake its maintenance, future upgrading, troubleshooting, and fixing of any bugs so as to allow trading to be executed smoothly at all times. This is another advantage of resorting to a white label provider, as it would be very difficult to have to deal with all the technical aspects of the endeavor on your own.
The Cons
However, not all white label crypto exchange solutions are perfect, or perhaps none of them is. Some offer features that may sound impressive but are of little real use, while they lack their essential components. Moreover, very few providers actually offer truly all-encompassing solutions and it appears that competition in the market as well as regulatory demands will mean that some technical knowhow on behalf of the white labeler is also required in order to manage the necessary modules for KYC, compliance, verification, support, administration/CRM, as well as the offered charts and trade view.
Also, though they all claim the contrary, you should have security concerns even when you do with a white label solution. In fact, it is better to hire an external, independent expert to perform due diligence in terms of security, before you commit to buying a white-label solution. In addition, though shared liquidity is a good thing, especially at the nascent stages of your crypto brokerage, it also comes with the added risk in case of any breach that could affect your clients’ funds, who would then seek compensation from your exchange directly.
This being said, white labeling is still the fastest and most attainable method to set up shop in the crypto exchange market and attempt to attract a share of the huge profit potential of this industry. However, you need to choose your white-label crypto exchange solution provider carefully and also built your own in-house team of experts who will be able to cover technical and security issues, as these are very important in the long run and majorly affect the smooth operation of the exchange. What white labeling in this case surely offer is time for you to focus, not on the mundane and demanding task of software development, but on other aspects that will help you succeed, such as creating a better user experience for your client, effectively differentiating your offering, creating a strong, recognizable brand and building it to be viewed as trusted and reliable. Achieving this synergy, between the right white label solution provider and your own effort and commitment is the true passport toward the longevity and success of your cryptocurrency exchange in the long run.
