How to Start a Bitcoin Exchange in 10 Simple Steps
. Obtain proper legal counsel to ensure licensing requirements are met.
. Attain funding for the venture.
. Find a cryptocurrency exchange software solution provider.
. Connect your exchange with others for added liquidity.
. Partner with a payment processor.
. Implement best security practices.
. Go live via beta testing.
. Start marketing & PR campaign.
. Offer customer support.
1. Maintain a legal team for ongoing compliance.
1. Get legal advice to ensure licensing requirements are met.
Before implementing a plan, it is important to seek legal advice to understand the regulatory needs of your new business. Adequate licenses must be obtained in each jurisdiction where the company plans to operate In many places, cryptocurrency exchanges operate without significant oversight because governments and regulators have yet to catch up with the technology, while in other places, including the United States, bitcoin operators they must have a license to conduct business. Follow money transfer and SEC and CFTC rules and regulations. Proper legal advice is essential. It is common for money exchangers under the currency exchange umbrella to comply with Know Your Customer (KYC) regulations, which have become increasingly common to prevent money laundering. In the United States, for example, these rules have been in force since 2002 as a result of the Patriot Act. Rules vary from jurisdiction to jurisdiction, so be sure to consult with an attorney experienced in the industry.
2. Acquisition of funds for the initiative.
You need to know the estimated costs before starting the project. A minimum of $135,000 will be required to develop and launch a cryptocurrency exchange This includes technology, hosting, some basic legal advice, government registration, and basic advertising costs. While not all funding is required upfront, it is important to ensure that the business has access to the right capital for the right runway. The biggest mistake startups make is not planning for the future, making small upfront raises that can cover development costs, but leaving the business without operating cash until it becomes profitable. Startups often make the mistake of seeking permission from unscrupulous crypto exchange providers who charge ongoing fees and fail to mention the legal obligations and costs associated with setting up and maintaining an exchange. Crypto Trading Business Plan
3. Find a technology solutions provider.
Modulus provides turnkey custom cryptocurrency exchanges, charging a one-time license fee with no royalty or commission structure. This means there are no ongoing fees, customers can run the hub themselves and have access to the full source code, which is important for auditing as some regulators require source code to be audited. Always adding value to its clients, Modulus has more than 20 years of experience in exchange development, including the back-end technology used by the world’s largest exchanges.
Why the white label with the source code? White label exchange software with full source code allows for full customization of your unique exchange and significantly reduces time to market and total cost. Crypto Trading Business Plan
4. Connect your exchange with others for additional liquidity.
Liquidity is the basis of all successful trading. Without an order book and business activity, potential customers will view your new business with suspicion. To avoid these problems, the exchange can be connected to a network of existing exchanges, thus increasing its liquidity without having to simulate activity through fictitious accounts on the new exchange. Remember, the larger the exchange network, the less of a liquidity problem the new exchange will have. Crypto Trading Business Plan
5. Partner with a payment processor
Not all payment processors are the same. Among other things, fee structures also vary widely between companies. You need the lowest transaction fees to be competitive with other exchanges. Also, some processors build hidden fees into their contracts, so make sure you understand the contract you’re signing. Other differences between processors include settlement time and PCI DSS compliance, which are best practices for cybersecurity. Please note that consent is not required by federal law in the United States, although many state laws do. Make sure your payment processor is PCI-compliant to protect your new business from cyber threats. This is yet another example of the importance of understanding the complexities of industry regulation. Crypto Trading Business Plan
6. Implement security best practices
Exchanges built with Modulus technology use the world’s most secure offline cold storage wallets, two-factor authentication, and encrypted databases. Also, Modulus technology does not store passwords (only hashes). We have written extensively about the data breaches that have become notorious within the industry, including Mount Gox and Bithumb. Bottom line? Cryptocurrencies have become a ripe target for cybercrime and hacking, struggling to differentiate exchanges based on security.
7. Launch beta testing
You have agreed with a payment processing company and have made every effort to ensure that your exchange complies with all rules and regulations. Make sure your company is protected against cybercrime. It’s time to start trading and test the full range of its capabilities in beta.
8. Start marketing and public relations campaigns.
For example, once your exchange is up and running, it’s time to get in touch with crypto news agencies like Coindesk. It is important to properly plan your marketing activities as well as your expenses so that initial growth does not force you to raise additional funds. Exchanges often have no marketing budget and instead focus on free social media marketing until they reach a critical mass of traders.
9. Be careful when providing customer service
While customer service is the final step in building a successful cryptocurrency exchange, your expertise in this area will determine your long-term success. Customer service personnel must thoughtfully and satisfactorily resolve customer complaints and technical issues. Customers need instant feedback, so plan to implement a ticketing system like ZenDesk and have knowledgeable and helpful staff representatives available 24/7 because cryptocurrency never stops trading.
10. Maintain a legal team for ongoing compliance
We cannot stress enough the importance of maintaining legal compliance and complying with all current and proposed laws and regulations, not only in the jurisdiction where the exchange is located, but also where the exchange members or traders reside. . Either Trade From Cryptocurrency laws are rapidly evolving worldwide, so it is important to employ a full-time in-house legal compliance team or engage a reputable law firm to ensure that your exchange is legal in all geographies where you do business.
Of course, no step-by-step guide can answer all your questions, no matter how complete. Hopefully, this has helped him develop an initial plan of action to move forward with. As always, Modulus is here to help you on your journey, so if you have any further questions, please feel free to contact us by phone or email.