- The rules that govern transactions and cryptocurrencies vary from country to country, and it might have a totally different set of regulations when it comes to operating in an international market.
- For the purpose of people making a payment, you will need to establish a partnership with a bank or any other payment service provider which can transact Fiat currency.
- It requires some technical expertise to develop a cryptocurrency exchange platform.
Bitcoin is to cryptocurrency as Ferrari is to supercars. None of them knew about the existence of the blanket term until the brand became bigger. Bitcoin has not only brought cryptocurrency to the masses but has also demonstrated that it could be the revolution that the world is looking forward to in less than a decade, and this time gap could mean a lot in terms of growth of investments. With the newly found craze and value for Bitcoin, a lot of curious and enterprising individuals want to start their own Bitcoin exchange. This article is exactly what you need!
The six steps: There are a few questions for which you will need to have clear answers before embarking on your journey into creating Bitcoin and cryptocurrency exchange:
- Which geography and which country do you want your business in?
- What are the relevant regulations that govern the exchanges in that area?
- Which is the bank or the payment processor that you would like to partner with?
- How do you go about establishing a transaction history and liquidity on the exchange?
- How to implement the best security practices?
- What is the best mechanism to offer in class customer support?
Once you have clear answers to these questions, it is just a matter of execution and time before you have your fully functional cryptocurrency exchange platform.
Let us deep dive into all of these and find out how things work!
Establishing the operational scope: It is first to be decided if you would like to have your exchange operate globally or specific to a region or a country. Respective of your scope, you will be required to get the approvals and the licenses for your company to open a bitcoin exchange. The rules that govern transactions and cryptocurrencies vary from country to country, and it might have a totally different set of regulations when it comes to operating in an international market. As an aspiring exchange creator, it is important for you to know the rules and regulations that govern the transaction in order to not face any unwanted and unwarranted repercussions of violation.
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Establishing compliance: The governments of most of the countries require the financial Institutions including cryptocurrency exchanges to establish compliance with the norms of “Know Your Customers”, commonly abbreviated as KYC. It is the process in which a financial institution is required to verify the identity of the customers through a government-issued identity card or any other document that establishes their identity. This takes care to minimize the instances of money laundering. Establishing your compliance to KYC is of Paramount importance if you were to open a cryptocurrency exchange.
Finding the right payment processing partner: Any exchange is about taking a monetary asset, investing and getting returns for the invested amount. For the purpose of people making a payment, you will need to establish a partnership with a bank or any other payment service provider which can transact Fiat currency. There might be a lot of banks that might not charge you high on the transaction payments, but at the same time they might not be a trustworthy entity. When it comes to transacting cryptocurrencies, finding a trustworthy bank that facilitates internet banking transactions would be an added asset.
Creating liquidity: For any exchange, liquidity is of utmost importance to operating successfully. Liquidity is what attracts customers to place orders and deposit funds. It is quite normal for any new exchange to encounter issues on liquidity. However, there are effective practices that can kick-start your liquidity:
– Simulation of trading activities within your exchange by creating two artificial accounts and facilitating buying and selling between them.
– Creation of an application programming interface which connects your Bitcoin exchange to an external exchange that facilitates transactions.
– Consideration of joining cryptocurrency exchange aggregator which will tie together the liquidity of all the exchanges within the network. A bigger network ensures better liquidity.
Ensuring the highest standards of security: One of the foremost requirements for any exchange is to ensure top-notch security. The requirement of security applies to both your customers’ Private data, the bank account information, the traders’ funds and everything else that leads to or originates from the exchange. The instances of security breaches have resulted in almost 1% of all the bitcoins in circulation been stolen. As a consequence, security is one of the most important aspects that an exchange needs to take care of.
Providing customer support: Let’s admit it! Investors have trusted your exchange and have decided to trade through it. It is your duty to have extensive and robust customer support that will take care of KYC request, address customer complaints, process deposit, and withdrawal and any other challenges that your customers might encounter. Customer support is one of the marketing points that will help your exchange grow and prosper.
The different components of the exchange engine: The exchange engine is what facilitates transactions and it accesses orders, executes transactions and calculates balances. The engine is an essential functional part of the exchange.
The user interface: The user interface stands as a close second to the exchange engine. The user interface determines the ease with which users communicate with the exchange platform. The user interface should be mobile friendly and should offer an impeccable, intuitive and impressive trading experience. The absorption of concepts of minimalism can come in handy because the fewer options the users have, the more likely they are to engage with the application. Instead of making the web interface mobile friendly, it is highly advised for a mobile application to be created for both of the major platforms. The user interface should facilitate registration of a new account, view of deposit maintained, buy and sell orders, withdrawals, and more importantly, access the support system. These are the basics of any banking interface.
The passbook or the wallet: The wallet is the Bitcoin daemon that runs on the exchange server. The wallet is where your bitcoins are stored and it requires the maximum security. It is important or rather mandatory for exchanges to implement both the hot and cold wallet system to diversify the instances of risk events.
The admin panel: The admin panel governs all the different components of the exchange from above. It takes care of the transactions and can alter the liquidity. The admin panel also performs important functions like crediting and debiting of currency, while also facilitating the support system.
Getting the technical expertise: The exchange engine is a smart piece of technology – it is the heart of your exchange. It requires some technical expertise to develop a cryptocurrency exchange platform. You can use it to develop your in-house exchange software which might cost anywhere between 300000 to 400000 euros including multiple language interfaces, currency conversion facilitation, and mobile application. Alternatively, you can also use open source scripts which are available on platforms like GitHub. However, anything that is open source comes bundled with a few risks. It also mandates that someone with the right amount of technical knowledge processes this open source code and customizes it to your requirement. There are chances that you might find bugs in security and performance. Besides this, you can also choose to use a white label exchange software that has been tried, tested and proven to work. This can be considered one of the best options for a new cryptocurrency exchange developer because it falls right in between the economy of an open source and the security of in-house developed exchange software.
Get it going: Now that everything is done, it is up to you to let the world know that you have an exchange which can facilitate the transaction of praised Cryptocurrencies like Bitcoin, Ethereum or any other coin that might come in in the future.