Premium Content

What It Takes to Build a Cryptocurrency Exchange

Cryptocurrencies have quickly become one of the most talked-about topics in the financial world. In less than a decade, they have reached over $1 trillion in market capitalization. While this number is still far below that of traditional stock exchanges like NASDAQ or NYSE, it presents a major opportunity for those looking to start a cryptocurrency exchange.

Many benefits come with starting crypto exchange platform. As well as gaining control of the revenue generated from trading fees, you can earn a lot of money by using a token-based system. This is one of the most efficient and profitable methods so far, so it’s worth considering if you want to make money in the crypto world.

In addition, you may be able to plan the development of your blockchain-based cryptocurrency to attract more users to your exchange.

Here are some challenges you might face when you start your own crypto exchange:

Regulatory and compliance issues

Cryptocurrency exchange platforms have long been shrouded in legal ambiguity and doubt. This is because cryptocurrencies and tokens are built on blockchain technology, which is largely unregulated. Consequently, operating a crypto exchange can be a risky proposition.

There are several ways to keep your business compliant with local regulations, but the most common one is to implement Know Your Client (KYC) and Anti-Money Laundering (AML) systems to identify traders and ensure that there is no illegal activity happening on your platform.

A good way to ensure compliance is to use fiat-to-crypto exchanges as a method of ensuring compliance. To accomplish this, one needs to set up a business that will cooperate with another company and act as a “payment processor.” This will allow users to deposit money into their accounts and transfer funds to their crypto wallets.

Nevertheless, some countries operate with stricter regulations regarding crypto exchanges — for example, the South Korean government has announced plans to ban all cryptocurrency trading by the end of 2017. The public outcry against this plan ultimately scrapped the plan altogether.

Security Issues

The popularity of cryptocurrency exchanges has led to the emergence of hackers, who have been trying to steal cryptos from investors. This is a problem that has become very serious for significant crypto exchanges over the past few years. Because of this, it is crucial to ensure that the platform is secured as much as possible by utilizing the best security means possible (such as a 2FA authentication and more). It is becoming increasingly common nowadays for exchanges to use cold storage, in which most of their assets are stored offline or on paper, thus making it almost impossible to break into their systems.

In addition, you must work with reliable service providers who can prove their trustworthiness and dedication to their clients.

Insufficient Liquidity 

Most well-known cryptocurrency exchanges use an “order matching system” that allows traders to post their bids and asks on the order book. This system helps to ensure liquidity on the exchange, which is essential for its survival. Without adequate liquidity, an exchange will have difficulty staying afloat.

Aside from that, exchanges are also equipped with high-speed servers, which can facilitate their ability to perform trades in real time with optimal prices.

For the best user experience, it is advised to work with popular coins and tokens in order to prevent low liquidity from negatively affecting the user experience. Providing more volume will attract more users, resulting in higher revenue for an exchange.

User experience

Different people have different needs when trading cryptocurrencies, and a good exchange will cater to as many of these needs as possible. Some users might want quick order execution, while others prefer to use stop-loss orders. Depositing and withdrawing cryptocurrencies should be straightforward, and the exchange should offer excellent customer support in case anything goes wrong. Therefore, user experience is one of the most important factors to consider when you create your crypto exchange.

With the volatile nature of cryptocurrencies, it is important to remember that anything can happen. This is why planning and taking measures to ensure security and liquidity are so important for cryptocurrency exchanges. Offering safe and efficient ways for users to trade cryptocurrencies is essential to maintaining a successful and profitable platform.

As you build cryptocurrency exchange, you may also have to deal with other challenges, like legal issues and customer support. These challenges can be overcome if you work with professionals who know what they are doing and who are dedicated to helping you. Your cryptocurrency exchange will be better positioned to maximize the value it generates for its users if you take this approach.

Leave a Reply