How to Launch Your Own Cryptocurrency Exchange

You can either set up a Centralized Exchange (CEX), a decentralized Exchange (DEX) or a Hybrid Exchange (HEX). Setting up a CEX is an obvious choice as centralized exchanges are extremely popular among traders. It is also cheaper to set up a CEX compared to a DEX and provides multiple revenue channels via value-added services. However, you will need to comply with KYC and AML regulations, and get a license from the respective government authority.

Setting up a DEX though expensive, requires no regulations. So, you can save big on legal fees. However, DEXs tend to have low volumes and offer only basic functionalities. As a result, your revenue options are quite limited.

Your third choice is a hybrid exchange. Although it can bring the best of both, CEX and DEX, the technology is still young. In short, you will be spending considerable time, effort, and money in the development phase. You will also have limited support from the development community.

Depending on the type of exchange, your target audience, and the scope of your services, you will need to identify the required legal regulations. Most countries don’t consider cryptocurrencies as legal tender. However, their laws for setting up crypto exchanges may vary.

For example, Malta has laid down special regulations for exchanges under the Virtual Financial Assets Act (VFA) with the Malta Digital Innovation Authority (MDIA) presiding over the crypto activities in the country. Similarly, Lithuania, Japan, Australia, Estonia, and Gibraltar, among others also have progressive crypto laws.

On the other hand, countries like India still haven’t set up clear-cut regulations for crypto exchanges, or are in the development stage, while Singapore allows setting up unregulated or self-regulated exchanges. However, a handful of nations including China and North Korea have completely banned crypto coins and exchanges.

This step is essential if you are going to convert fiat into crypto and vice versa. You need to consider the country your exchange is operating out of, AML/KYC rules, processing charges, and transaction time.

Working with a bank providing instant online or wire transfers will help attract customers. You can also provide value-added services such as debit and credit cards with the help of the bank or payment gateway provider.

For example, Bitwala offers a MasterCard Debit Card that traders can use to shop online or offline. It is directly linked to your Bitwala crypto trading account or wallet. The bottom line is, users are going to need a tool that allows them to add and withdraw funds as they please.

The cryptocurrency trading software is the bedrock of your exchange. Using a white-label exchange software developer to build your exchange platform will save you time, effort, and money. You can find several different companies specializing in customized turnkey exchange development solutions.

Usually, a while-label developer will provide you with a trade engine, front-end user interface, cryptocurrency wallets, back-end user interface, and customer support. It is also essential to own the full source code as several regulators request to inspect it while registering your exchange. Plus, it allows you to customize the exchange as and when needed. Make sure to carry out your own research to find an experienced, reputed, and affordable solution provider.

Just adding crypto coins is not enough. Liquidity drives price fluctuation, which in turn, attracts more traders.

Higher Liquidity = More Successful Exchange

If there is no liquidity, your exchange is less likely to see another day. There are two ways to introduce liquidity in your exchange –

• Create two dummy accounts to facilitate trading activity, which will lead to price fluctuation.
• Connect your exchange with a single exchange (having high liquidity) or a network of other exchanges through an API. Remember, a larger network will provide more liquidity to your exchange.

Considering $1 billion in digital assets have been stolen since the start of 2018, security is also a critical factor in running a successful exchange. You not only have to protect your client’s money but also their KYC details and bank account information.

The best security practices include:

• Using offline cold wallets or hybrid warm wallets to store the bulk of your and the traders’ money safely away from potential online attacks. You can also use a Hardware Security Module (HSM) to manage and safeguard cryptographic keys.
• Use two-factor authentication for all user accounts (front and back-end) and encrypted databases.
• Use a registry lock to keep cybercriminals from illicitly modifying or deleting your domain name.

Other technical measures include using Domain Name System Security Extensions (DNSSEC) to authenticate all DNS queries, HTTP-Strict-Transport-Security (HSTS) for secure browsing, X-Frame-Options header to avoid click-jacking attacks, and X-XSS-Protection header to protect users from cross-site scripting attacks.

It is not just about resolving customer complaints and technical issues. Your customer support team will also need to facilitate the KYC requests, and process the deposit and withdrawal of fiat currency.

You should consider embedding a ticketing system such as ZenDesk or FreshDesk into your exchange platform to make sure each complaint gets resolved in time. Set quality standards of your own for better service and a process for evaluating the performance of your team.

You will need to choose your support channel as well. Most crypto exchanges offer 24/7 customer support via email and online chatting. Emails are convenient and excellent for record keeping, but a little cumbersome for real-time conversations.

On the other hand, online chatting is more suited for real-time conversation, but not necessarily for record keeping. While phone support will be your best option, it is also expensive as the crypto market stays open 24/7. You will need to run a call center in three shifts. It can also be time-consuming.

Finally, you will need to promote your newly launched exchange. Plan your marketing activities well in advance. Apart from your own blog, promote your exchange on forums such as Reddit or crypto-related blogs like Medium or Hackernoon. Make sure to participate in the conversation by responding to the comments left by readers.

You can also promote it on social media. Twitter is one of the most popular social platforms among crypto enthusiasts. However, be sure to set up your exchange profiles on LinkedIn, Facebook, and Google Plus. Encourage your potential customers to subscribe to your email newsletter to stay updated with the ongoing news and updates about your exchange.

Make sure to share valuable, informative, and relevant content with your target audience. However, if you are not familiar with online marketing tactics, your best alternative is to hire a digital marketing firm.

Owing to the evolving regulatory framework in many countries, building your own cryptocurrency exchange takes a lot of planning. However, once the profits start coming in, the efforts will be well worth it. Hopefully, when you set out to build a cryptocurrency exchange, these eight tips will help get things started. However, this is not an exhaustive list. If you still have questions or doubts, feel free to share them in your comments. We will be happy to help you.