After the number of owners of bitcoin as the first electronic money began to number in the hundreds, and competitors appeared on the market, it became necessary to exchange cryptocurrencies among themselves and for fiat money. Where there is demand, supply will also appear. Thus, in the same 2009, the first crypto-exchange appeared - New Liberty Standard. Since no one was involved in the exchange of digital assets before it, in order to determine the value of a coin at the first auction, it was necessary to start from the cost of electricity spent on mining.
Over the past 12 years, hundreds of crypto-exchanges have already begun their work, the total trading turnover of which is billions of dollars. At the same time, the demand for the provision of high-quality services for the exchange and storage of cryptocurrencies is not decreasing, which gives a chance for a successful launch for many startups. Moreover, it is not so difficult to become a happy owner of a successful crypto-exchange.
The cost of obtaining a crypto license differs significantly - from 4900 euros in Estonia to 30000 euros in Japan.
How to start a crypto exchange
In fact, a cryptocurrency exchange is an ordinary trading platform where one can exchange one cryptocurrency for another or for fiat money online. The better the platform engine is developed, the clearer it works and the more users it has. Moreover, the exchange rate is approximately the same in all sources. Everything that customers want to get - reliability, guarantees, speed of all processes, high-quality technical support. Despite the fact that now more than three hundred such sites are functioning - not all niches are occupied, the demand is constantly growing. Therefore, the launch of another similar startup can be quite successful.
How does a crypto exchange differ from a cryptocurrency exchanger?
It is necessary to distinguish between two platforms for working with digital assets. If the exchanger acts as its parties in any operation - it buys or sells cryptocurrency from its own reserves, then the cryptoexchange acts only and exclusively as an intermediary between the seller and the buyer. Its task is to outline the boundaries of the exchange rate, to ensure the reliability of the transaction and the security of personal data. In this case, the final exchange rate on the exchange is determined according to market principles, depending on the ratio of supply and demand.
Types of crypto exchanges
In order to launch your own project, you need to decide which crypto exchange to open. Of course, the division of exchanges into categories is rather arbitrary, but their types can be distinguished:
- centralized exchanges operating according to the classical principle using a server at the headquarters of the company. Such sites are usually susceptible to hacker attacks - and this has happened more than once;
- decentralized - using new blockchain technology. This method is currently considered the most secure. But such exchanges can practically not be controlled by the state due to the fact that they do not have a single leadership and the ability to block individual accounts;
- mixed type, or hybrid - which use technologies of the two previous types to varying degrees;
- with the exchange for fiat money and only for the exchange of cryptocurrencies, specialized. A narrow specialization always carries with it certain risks, this should be taken into account.
The choice of the type of cryptocurrency exchange primarily depends on the purpose of its creation. A centralized exchange will rather provide profit, but it will also require significantly more funds for security and more attention when choosing a jurisdiction.
Stages of the project
So, in order to open your own crypto exchange, you should go through several stages:
- determining the type of crypto exchange and its jurisdiction;
- development of software for the operation of the site;
- development of effective security systems;
- passing the licensing process of the crypto exchange;
- testing and launch.
In the future, the most important condition for the functioning of the cryptocurrency exchange will be the stable operation of the system itself and the observance of security measures during operations. Profit will directly depend on the type of crypto-exchange - it can be a percentage of the exchange amount, a fixed fee for an operation, a fee for storing cryptocurrency in electronic wallets at the project site.
Cryptocurrency exchange licensing
In order to operate in a legal field, a crypto exchange needs a license. Of course, the first exchanges worked without any registration and control by the state, but now it will be much more difficult to work this way. After digital assets are included in the legislation of many countries of the world, only licensed exchanges can exchange cryptocurrencies for fiat money and vice versa. Of course, the presence in the legislative field imposes certain obligations, for example, to pay taxes and control the legality of transactions. On the other hand, the presence of a license provides an opportunity for judicial protection from the state, which increases the reliability of the site itself, including in the eyes of users.
Why do users choose licensed crypto exchanges? For many market participants, the presence of a license from the exchange is a guarantee of the operations being carried out. High-profile scandals with the loss of finances in the exchange of cryptocurrency are still heard. Now clients want to know that the company, which they trust with their money, has passed some verification, its existence and the legality of the operations carried out is confirmed by the state. This level of user confidence is worth spending some time licensing the crypto exchange.
How to choose a jurisdiction
Now at least two dozen different states offer more or less favorable licensing conditions for companies involved in the exchange and sale of cryptocurrency. Among these countries there are offshores, there are countries with standard taxation, and there are also states that offer preferential regimes specifically for working with digital assets. In order not to be mistaken with the choice, you should focus primarily on the countries in which the target audience of the cryptoexchange lives. This will make it easier for users and platform administrators to conduct banking transactions.
Preparing for licensing
Each country has its own licensing requirements. But it is possible to highlight common features for all countries that need to be known for those wishing to obtain a license to conduct trading in cryptocurrencies:
- creation of an enterprise in the territory of the country in which the license will be requested. Most often, the form of such an enterprise, its minimum statutory fund, the presence of a physical office in the country are stipulated;
- the presence of a bank account and accounting in accordance with the rules of the country of jurisdiction of the crypto exchange;
- registration with a tax regulator and payment of taxes, in the agreed amount and within the terms prescribed in the legislation; in many countries tax holidays or preferential rates are provided for digital assets in order to attract new companies;
- introduction to the staff of a specialist in security control of the operations carried out; the same specialist will inform the relevant services in the event of suspicious transactions that may be recognized as terrorist financing or illegal money laundering;
- preparation and submission of all necessary documents, payment of the state fee; you can do it yourself, or you can entrust the process of submitting documents to specialists;
- obtaining a license for the right to trade in cryptocurrencies, sometimes separately - exchanging cryptocurrencies for fiat money and vice versa.
Very often, the whole procedure, subject to prepared documents and fulfillment of all licensing conditions, takes no more than a few months.
Special attention - safety
The new rules for regulating the activities of cryptocurrency exchanges pay special attention to the security of transactions. By the way, it was this point that caused the exit from the market of many exchanges that were successfully operating before the introduction of the fifth EU directive. The new requirements severely limited the ability to preserve customer privacy, which used to be one of the fundamental principles of the existence of cryptocurrencies. But most companies have successfully implemented these requirements.
“Know your customer” is the main requirement of the regulator. The ability to identify the client should prevent the crypto exchange from being used as a platform for money laundering or financing terrorist organizations. Each exchange must have employees who will identify and track suspicious transactions. For this, special procedures, software and monitoring are being developed. Of course, such measures cannot guarantee one hundred percent the legality of all transactions, but they will help to get as close as possible to this level.
The second side of transaction security is the protection of personal data and financial information from hacking. Hacker attacks on crypto exchanges are not uncommon, and the latest major scandals have involved the theft of information regarding millions of dollars worth of cryptocurrency wallets. Most often this applies to centralized exchanges, in which information is stored on a single server in the central office. Therefore, any security system needs constant improvement and modernization - this increases the level of customer confidence and the overall turnover of funds.
On the market, you can find both licensed crypto exchanges and those operating without a license. But the share of the latter is decreasing, which can be considered a quite encouraging trend, as more and more crypto-exchanges are striving to enter the legal field. A license is not only a confirmation of the verification of a company by a state regulator, but also the possibility of further judicial protection of their rights by all bidders. Those companies that have remained on the market and have accepted the rules of the civilized game continue to actively develop and increase trading volumes.
Now is the best time to obtain a license, because many countries still provide preferential terms for working with digital assets. Of course, cryptocurrency is a high-risk asset, so you shouldn't add risks by working in an offshore zone or without registering activities at all.