- Every cryptocurrency exchange charges a certain commission for every raid conducted on the exchange, and the commission has to be paid by the traders irrespective of them making a profit or a loss.
- In addition, crypto exchanges can also make money from initial exchange offerings (IEOs) where projects list their tokens directly at an exchange, so their investors can invest with an assurance of returns.
- There are more than 9000 different cryptocurrencies operational today.
Considering the highly intense volatility of cryptocurrencies, it might not make sense to use it as a mainstream instrument of transaction. However, the volatility does open up a new avenue of making a profit from the crypto realm – crypto exchanges. While traders stand to benefit from crypto exchanges, going by the philosophy that the ‘house always wins,’ even cryptocurrency exchanges can make a sure shot profit in every transaction made on the exchange.
This article sums up the nuances of a robust and complete cryptocurrency exchange, the factors to consider before launching one, and a quick look at the essential features that make up the exchange. Upon reading, you will also be able to understand the business relevance of white label cryptocurrency exchanges, their dependability, and the clear-cut advantages they present over building a cryptocurrency exchange from scratch.
Why Crypto Exchange?
Cryptocurrencies might be considered a breakthrough in terms of technology. However, they still stay in the territory of being just an idea when it comes to their applications in mainstream transactions. One of the biggest reasons that contribute to this uncertainty is the magnitude of volatility. Let’s take Bitcoin for example. At a certain point in time, the bitcoin was worth close to $20,000. Today, it covers somewhere in the vicinity of $9100, and a couple of weeks ago, it was just worth a little over $5000. With this fluctuation, it might not be possible to use any cryptocurrency (except for stablecoins, maybe!) as a mainstream instrument of transactions.
This volatility, however, opens up an entirely new business avenue – crypto exchanges. Just like forex, crypto exchanges or platforms or software where you can trade cryptocurrencies and in understanding the market, and the fluctuations of a certain currency against another, make a profit or a loss in the trade.
Cryptocurrency Exchange As A Business Idea
Cryptocurrency exchanges seem like a simple process, but hidden within it is an extremely profitable business idea. Every cryptocurrency exchange charges a certain commission for every raid conducted on the exchange, and the commission has to be paid by the traders irrespective of them making a profit or a loss. Therefore, if an exchange can facilitate a certain number of transactions, the commissions alone can contribute to a major chunk of their profit.
In addition, crypto exchanges can also make money from initial exchange offerings (IEOs) where projects list their tokens directly at an exchange, so their investors can invest with an assurance of returns. Therefore, it is quite evident that irrespective of the fluctuations in the prices of cryptocurrencies, an exchange is bound to make its profit.
Developing a cryptocurrency exchange software is straightforward but at the same time, it requires a thorough understanding of a multitude of factors.
Factors To Consider
1) The Type Of Exchange
Cryptocurrency exchanges are far from being bland! There are different types of crypto exchanges, and as an exchange entrepreneur, it is important for you to finalize on what kind of crypto trading software you will be launching. You will need to figure out if it will be a centralized exchange or a decentralized or a P2P exchange.
A centralized exchange involves intermediaries, and the involvement of intermediaries enhances the intensity of trust. As a direct consequence, the exchange also charges a commission of about 0.1% to 1.5% of your trade volume as a training fee. It offers enhanced liquidity, and since the commission is on the higher side, the possibilities of profit or proportionally high.
A P2P exchange eliminates the need for intermediaries, but at the same time, the traders will need to pay for an arbitrator who will take care of dispute redressal. P2P exchanges use a smart contract-based escrow to establish trust. It is gaining popularity among traders, and what is missed out in terms of commission rates is made up in terms of trade volume.
A decentralized exchange is a marketplace that facilitates transactions without intermediaries. It might not present advantages in terms of liquidity but it surely offers enhanced security.
2) The Jurisdiction
When it comes to legal status, crypto has always been the cat on the wall. Therefore, it is important to ensure that your cryptocurrency exchange is established in a jurisdiction with robust cryptocurrency laws and a vibrant ecosystem of traders. There are a few countries that have been known to be quite welcoming towards the new digital currency. The countries include the United States, Switzerland, Luxembourg, Japan, Singapore, Malta, Hong Kong, Estonia, and Bermuda.
Once you have zeroed down on the country, you will need to check the laws and regulations that govern cryptocurrencies in that particular jurisdiction. Any lapse in complying with the regulations can be extremely detrimental for your cryptocurrency exchange business.
3) Market Research
There are more than 9000 different cryptocurrencies operational today. As an exchange, it is important for you to perform your extensive research on identifying the current crypto market trends. The research should also include pointers on the anticipated price of the currencies in the near future.
The market research will not only help you understand price trends but also the pulse of the customers and the expectations of the investors. Addressing the needs of investors with utmost precision will help amplify the possibilities of profit.
4) Get the Legal Aspects
The laws and the regulations governing cryptocurrencies are convoluted and complicated at best! Therefore, it is advised that you hire a team of legal experts, and it would be considered mandatory if you do not belong to the legal background.
Most of the countries have nascent laws and they might keep changing from time to time based on new formulations. Therefore, a legal team that is up-to-date with all the legal regulations would be surely a welcome move for your crypto exchange development process.
5) Work On The Costs
Outside all the business and legal aspects, the cryptocurrency exchange software is a technological leviathan. It requires humongous volumes of coding and testing to put together the core of the software. In addition, the tool has to be garnished with an impeccable and intuitive user interface, and every bit of a crypto exchange is going to cost.
There are simpler and cost-effective solutions like a white label cryptocurrency exchange that can considerably slash costs compared to building one from scratch. In all of this, however, it is highly recommended that you have a lavish cost estimate before embarking on developing your cryptocurrency exchange software.
6) Identify The Right Partner
Crypto trading software is the grand culmination of multiple aspects. Therefore, creating a cryptocurrency exchange software or even customizing a white label crypto exchange software requires an understanding of the market, the legal regulations, the technology, and security.
Therefore, it is required that your partner has a seasoned and expert cryptocurrency development company for creating your exchange. Although it might increase the costs a bit, it surely pays off in returns in the long run.
7) Figure Out The Features
There are a lot of features that need to be put in place to get your exchange up and running. The heart and soul of the crypto exchange is the matching engine. It is crucial that your matching engine is robust and uncompromising on performance. There is also a need to enhance liquidity which can be done either by connecting your exchange to an external exchange with an already established liquidity or by emulating internal trading. You will also need to ensure that the KYC/AML processes are in place, so the possibilities of fraud or reduction.
In addition, to make your cryptocurrency exchange software more marketable, you will need to incorporate features like a referral program, multi-language support, and protection against security threats.
8) Market Your Exchange
If creating an exchange is an indomitable task on its own, marketing an exchange is even more daunting. However, the good news is that you can use a lot of classical marketing methods to popularise your exchange among the right target audience.
You can use techniques like search engine optimization, content marketing, email marketing, PPC advertising and social media marketing to increase the reach and brand recognition of your exchange.
In addition, you will also need to incorporate a few exclusive marketing programs like bounties, news, and PR, and also establish a robust presence in communication platforms like Telegram and Slack.
9) Ensure Top-Notch Support
The support ecosystem for your cryptocurrency exchange software can make or break your brand or product. To ensure that your customers stick to your brand, you will have to provide multi channel support across platforms like email, phone, and chat.
You can even consider bringing in new-age technology like chatbots to assist in your support process. Human intervention can be deployed at a time only when it is deemed necessary.
It is, without an iota of doubt, established that a crypto exchange is a profitable and promising business model if you would like to kickstart your picture exchange business you can get in touch with companies that specialize in white label cryptocurrency exchange development. They will take care not only to build your exchange but also customize it and brand it according to your requirements so that you can establish a strong presence in the crypto ecosystem.