How to Start Your Own Cryptocurrency Exchange

Looking to start your own cryptocurrency exchange? We cover the main areas of importance you’ll need to sort out when going through the process; from deciding on the type of exchange you want, to obtaining legal counsel.

#How to Start Your Own Cryptocurrency Exchange

Since blockchain and cryptocurrencies were introduced in 2008, the technology has managed to make an immense impact in almost every sector of the world's economy. 

Today, companies worldwide are working towards incorporating blockchain into their business, and cryptocurrencies are now the most liquid assets in the world. 

Furthermore, the growing popularity and adoption of cryptocurrencies can be linked to exchanges, which allow customers to trade cryptocurrencies for other assets.

#What is a Crypto Currency Exchange?

A cryptocurrency exchange is an online service platform that can help people trade their cryptocurrencies or digital currencies for other assets like fiat and vice versa. There are two main types of cryptocurrency exchanges, along with a third, which is a hybrid of the first two types.

1. Centralized Cryptocurrency Exchanges

Centralized cryptocurrency exchanges, or CEX, are exchanges that act as middlemen for the buyers and sellers that use their platform. As with traditional stock exchanges, the exchange handles users' money and helps them find buyers or sellers when they want to trade their cryptocurrencies.

1. Decentralized Cryptocurrency Exchanges

Decentralized exchanges, or DEX, are built on the philosophy behind the crypto industry, decentralization. Middlemen are eliminated in these types of exchanges, creating a marketplace where buyers and sellers meet and process the transactions directly between one another.

1. Hybrid Cryptocurrency Exchange

Hybrid crypto exchanges are often referred to as the next generation of crypto exchanges. Hybrid exchanges combine the functionality and liquidity of a CEX with the privacy and security of a DEX.

#How Do You Start Your Own Cryptocurrency Exchange? 

After deciding on your preferred type of crypto exchange, the next step would involve building the exchange, for which you’ll need to undertake the following steps:

1. Obtain Legal Counsel

Before starting your cryptocurrency exchange, it is important to get proper legal counseling for all the jurisdictions your exchange plans to operate in. This will help you understand the regulatory demands and meet the licensing requirements of your new venture. Legal counsel becomes a must because licensing and regulatory demands differ based on your location. 

1. Gather Funding

Your great plans for the next big cryptocurrency exchange would encounter difficulties taking off without appropriate funding. The average startup cost for a cryptocurrency exchange service is $17,491. However, it can cost north of $100,000 to acquire the technology, host the website, create mobile applications, ensure government registration, along with the cost of initial legal counsel, and advertising. 

Therefore, before embarking on the building aspect, you should know how much capital you would require to build an exchange and get funds for the processes.

1. Leverage a Technology Solution Provider

This is one of the fundamental tasks critical for starting and ensuring the success of your exchange. The technology solution providers oversee the building of the architecture to support:

1. the execution of transactions on your exchange
2. wallet operations
3. admin panels
4. trading platform
5. depositing 
6. withdrawals

To simplify the process, you can build on a white-label cryptocurrency exchange. By using a white label exchange you’ll be able to build the exchange under your own company and with your unique angle; but you’ll leverage the technology of the software provider. Going through a white label exchange can save you both time and money, as all the technology has been tested and is ready to deploy, so you wont need to do much software development on your own.

However, security is a top priority area that should be emphasized in the building of your exchange. Generally, cryptocurrency exchanges built with Modulus technology are among the most secure. In addition, utilizing offline cold storage wallets, two-factor authentication, and encrypted databases adds to the exchange's security. The best security architecture for your needs will depend on the type of exchange you want to create.

1. Partner with Exchanges and Market Makers for Liquidity

Liquidity is one of the major cornerstones of any successful exchange. The more liquidity an exchange has, the less the wait time involved in buying and selling. Thus, more customers are attracted to exchanges with higher liquidities. The best way to get liquidity for a new exchange is from existing exchanges and crypto market makers.

1. Partner with a Payment Processor

Integrating payment processors on your exchange will allow users to easily buy cryptocurrencies directly on your platform – an important feature of exchanges. To attract customers to a new exchange, you will need to integrate payment processors with the lowest transaction rate to be competitive with other existing exchanges.

1. Run a Live Beta Testing

After payment processors have successfully been integrated on your exchange, the next step involves running closed beta testing. This would give you a good idea of how your exchange performs on the end of the user. In addition, you also get to see potential areas that can be improved upon before the main launch. 

1. Start Marketing and Launch

Before launch, a marketing campaign can be embarked upon with possible incentives for early users. This will help build excitement ahead of the launch of your exchange. 

Alternatively, once you have launched, you can leverage existing crypto news outlets and influential figures in the space to promote your exchange as affiliates. After the launch, your focus should be shifted to maintaining a good customer support team as a means to ensure lasting success.

Post-launch development to ensure your exchange stays up-to-date with the latest blockchain infrastructure is key to its sustainability. Lastly, it is extremely important to maintain legal compliance and follow all current regulations at launch; including all the foreign jurisdictions in the case of an expansion.

#The Rewards of Having Your Own Exchange

Building and launching your own cryptocurrency exchange can feel like a massive undertaking, but by getting your game plan mapped out before you begin, you’ll save yourself from wasting both time and money. Use the steps we outlined above as a guideline for the process, and to ensure you have all your bases covered. Once you do you’ll be well on your way to launching your own cryptocurrency exchange.