Do you want to start a cryptocurrency exchange business? There’s never been a better time than now. The global cryptocurrency market is projected to reach $1.40 billion in 2021, exhibiting a CAGR of 6.18%, showed a Markets and Markets report.
The rise of the cryptocurrency market has surged the demand for cryptocurrency exchanges. Venture capitalists are keen on investing in crypto exchange startups.
By the end of this post, you’ll have an in-depth blueprint of how to start a cryptocurrency exchange business from scratch.
Let’s get started.
Cryptocurrency Exchange: What Is It & How It Works?
A cryptocurrency exchange is an online platform where you can exchange cryptocurrencies or digital currencies for fiat money or other assets. Coinbase, Bittrex, and Kraken-Bitcoin are common US-based cryptocurrency exchanges. In Europe, Kriptomat, Coinmama, and Coinbase are popular exchanges,
Cryptocurrency exchanges are of three types: centralized exchange, decentralized exchange, and P2P exchange.
Let’s discuss these types in brief:
- Centralized Exchange: This type of exchange includes an intermediary between the buyers and sellers. The middleman handles all the transactions, thereby ensuring credibility. However, in exchange, the intermediary charges 0.1-1.5% of the trading fee.
- Decentralized Exchange: In this type of exchange, no third-party or middle man is involved. While decentralized exchanges are more secure, they lack liquidity, and hence, are not prevalent among traders.
- P2P Exchange: A peer-to-peer (P2P) exchange allows buyers and sellers to trade cryptocurrencies without any third-party involvement. An intermediary comes into play in case of dispute redressal.
Cryptocurrency Exchanges work similarly to a stock exchange. Investors must register an account with the exchange. Once registered, they can buy or sell cryptocurrencies at the market value at a given time.
Like a stock exchange, a cryptocurrency exchange doesn’t set prices. They perform as intermediaries, and the prices are determined by the supply and demand of the assets.
Some differences also exist between a cryptocurrency and a stock exchange. These differences are in terms of assets traded, market maturity, market reach, volatility, and fees & regulations.
However, the major difference is that a cryptocurrency exchange allows trading 24/7, compared with a stock exchange that’s open only for selected hours.
Read More: Cryptocurrency Trends to Look for in 2021
Cryptocurrency Trading: What Is It & How It Works?
Cryptocurrency trading or crypto trading includes speculating cryptocurrency price movements and taking positions with the aim to generate profits.
The trading process is similar to stock trading. You can transfer coins – usually, Bitcoin and Ethereum – to your exchange account and then invest in the assets of your choice. If you don’t have a wallet, you can also purchase coins directly from the exchange.
Once you have coins to trade, you can exchange them for other assets listed, like Ethos and Monero. If you want to cash your coins for profit, you can trade the assets back to basic coins like Bitcoin and transfer them to your crypto wallet.
Benefits of a Cryptocurrency Exchange Business
As we’ve entered 2021, the cryptocurrency exchange has emerged as one of the most lucrative business ideas for startups and solopreneurs. This is especially true in the US and European countries where crypto trading and investing are on the rise.
Here’s why starting a cryptocurrency exchange is one of the best business ideas in 2021.
1. Launch Your Cryptocurrency: Starting a crypto coin has become trivial. Many new crypto businesses are doing it. But what’s challenging is getting that coin listed on an exchange. When you have your own crypto exchange, you can launch your cryptocurrency and allow people to trade it alongside Bitcoin and Ethereum.
2. Alleviate Setup Costs: Setting up and launching a cryptocurrency exchange might sound daunting. But the cryptocurrency exchange platform development process is seamless and cost-effective, provided that you work with the right crypto wallet development company.
3. Exchange Business Is on the Rise: As the popularity of cryptocurrency trading continues to grow, the demand for crypto exchanges will surge in the future. Once you set yourself up as a renowned exchange, you can explore other avenues such as lending, derivatives trading, and more.
4. Manage from Anywhere: Unlike many businesses that require on-site monitoring, a cryptocurrency exchange business can be managed remotely. And since the exchange is open 24/7, you can choose your time of working.
5. Simple Business Model: While how blockchain and cryptocurrencies work might be puzzling, the cryptocurrency exchange business model is straightforward. Buyers and sellers register on your exchange and trade cryptocurrencies. You get a small commission from every executed trade.
6. Future-Proof Business: If the pandemic has taught us one thing, it’s that running a business is riskier than working a 9-5. However, a crypto exchange business is pandemic-proof and future-proof. Moreover, it gets better with time like an aged whisky.
7. Create Opportunities for Others: When you start a cryptocurrency exchange business, you do more than just making yourself independent. You also create opportunities for others. Running an exchange requires staff, which will enable you to provide jobs to the needful.
8. Auto-Pilot Business: A crypto exchange business practically runs itself. Once you’ve invested in high-quality cryptocurrency exchange platform development, it can run on an autopilot mode and generate consistent profits.
If you plan to hire a team for your business, make sure that all of the members have significant cyber-security knowledge and are able to recognize possible attacks.
Steps to Starting Your Cryptocurrency Exchange Business
Here’s a step-by-step guide to starting a cryptocurrency exchange business from scratch.
1. Determine the Type of Exchange
As discussed, cryptocurrency exchanges are of three types: centralized, decentralized, and P2P. Each exchange model has a set of pros and cons.
Decentralized exchanges are more secure, whereas centralized exchanges have more liquidity and are more prevalent. It’s essential to understand the risks and benefits of each exchange model and then make a decision.
2. Be Sure to Meet the Legal Requirements
You can either run an exchange in your country or operate worldwide. While scaling globally is more lucrative, it also comes with regulations and compliance requirements. The governments of all countries will want you to stick to the Know Your Customer (KYC) protocols for starting a currency exchange business.
Quytech recommends you work with a legal team to ensure that regulatory hurdles don’t obstruct your business operations.
3. Attain Venture Funding
Getting venture funding is optional, but why not? The cryptocurrency market is at its all-time high, and investors are always looking for investing opportunities. If your business model is promising, you can easily attract venture capital and give a massive boost to your business.
4. Work with a Renowned Crypto Wallet Development Company
Cryptocurrency exchange platform development is a time and resource-intensive task. You’ll need subject matter experts, C-suite executives, blockchain developers, blockchain analysts, crypto marketing experts, and financial advisors.
Therefore, developing a crypto exchange platform in-house isn’t a feasible task, especially if you’re a startup or solopreneur with a limited budget.
Quytech can help. As the leading crypto wallet development company in the US and Europe, we provide tailored solutions that help you develop your dream cryptocurrency exchange.
5. Partner with a Payment Processor or Bank
Once your crypto exchange is ready, you’ll need to partner with a payment processer, like a bank, to process the payments. Choosing the right or wrong payment provider can make or break your cryptocurrency exchange’s operations.
So, be sure to spend an adequate amount of time finding a trustworthy payment processor with robust online transaction capabilities.
6. Create Liquidity
Your exchange will require liquidity to operate successfully. Lack of liquidity is a common issue faced by new exchanges, especially those running on a decentralized model. Follow these tips to boost liquidity in your exchange.
- Simulate trading activity in your exchange by buying and selling between two artificial accounts.
- Implement an API interface connecting your exchange to another exchange.
- Combine multiple cryptocurrency exchanges. This will tie together the liquidity of all exchanges.
7. Ensure Cutting-Edge Security
Security concerns are one of the major reasons why people refrain from trading cryptocurrencies. Ensure that your exchange has top-notch security and protects your traders’ funds and data.
In 2014, Mt. Gox, a Tokyo-based bitcoin exchange, filed for bankruptcy, claiming hackers have stolen bitcoins worth $460 million from its coffers. At that time, it was worth about 1% of the total bitcoins circulating in the market. The incident disrupted the cryptocurrency world, and many experts thought of it as the doom of digital currencies.
But thanks to security enhancements, the cryptocurrency industry has boomed over the past years. But crypto exchanges remain to be a juicy target for cyber attackers. So, it’s critical to prioritize your exchange’s security.
8. Offer World-Class Customer Support
Last but not least, provide high-quality support. We live in a customer-focused business landscape, where customers have way too many options to choose from. But by offering good support and service, you can encourage them to stay loyal and stick to you.
If you want to start a cryptocurrency exchange business, it needs to be now. The competition in the market is growing, and soon, it’ll become saturated with no room for new entrants. So, start brainstorming ideas and come up with a cryptocurrency exchange business plan. Also, get in touch with Quytech if you’re looking for a reliable crypto wallet development company.