It's no surprise that cryptocurrencies have taken the world by storm. They have reached a $1 trillion market capitalization in less than ten years. Although this number may not be as high as the world's leading stock exchanges, such as NASDAQ or NYSE, it can certainly provide enough opportunities for those who want to start cryptocurrency exchanges.
There are many benefits to starting crypto exchange platform. First of all, you gain control over the income that is generated from trading fees. In addition to this, you can also earn massive revenue by utilizing a token-based system - one of the most efficient and profitable methods conducted so far.
Furthermore, you can build your blockchain-based cryptocurrency to be used as a payment method instead of fiat on your exchange.
Possible challenges you face when you start your own crypto exchange:
Challenge 1. Regulation and compliance:
Operating a cryptocurrency exchange platform has always been surrounded by legal gray areas and doubts. This is because cryptocurrencies and tokens operate on blockchain technology that is almost entirely unregulated.
The most common methods used to stay compliant are using Know Your Client (KYC) / Anti-Money Laundering (AML) systems to identify traders' identities, their locations, etc.
Another method of ensuring compliance is the utilization of a fiat-to-crypto exchange. This can be achieved by setting up a business that cooperates with another company and acts as a "payment processor." It will allow users to deposit funds into their accounts and transfer them to their cryptocurrency wallets.
With that being said, some countries have stricter regulations regarding exchanges operating within them - for example, South Korea planned to ban all cryptocurrency trading in 2017. However, this plan was scrapped altogether due to public outrage.
Challenge 2. Security:
Ever since cryptocurrency exchanges made their appearance, hackers and other cybercriminals have been using them to their advantage by stealing cryptos from traders. This has become a huge problem for significant crypto exchanges. This is why it's crucial to secure the platform as much as possible by utilizing all means necessary (such as 2FA authentication).
Today, many exchanges use cold storage methods, which involve storing most of their assets offline or on paper, making it nearly impossible to break into them.
It's also advised to only work with reliable providers who prove trustworthy and dedicated to their customers and the platform.
Challenge 3. Liquidity:
Without appropriate liquidity, a cryptocurrency exchange platform will have a hard time surviving. This is why most well-known exchanges use an "order matching system" that allows traders to post their bids and asks on the order book.
In addition to this, they also utilize high-speed servers that allow them to execute trades in real-time with optimal prices instantly.
For user experience not to be affected negatively by low liquidity, it's advised to only work with popular tokens and coins. Exchanges that can provide higher volumes are more likely to attract many users, which will lead to better revenue generation.
Challenge 4. User experience:
This is one of the main factors that can make or break your cryptocurrency exchange. When it comes to user experience, you have to remember that different people have different needs for trading cryptocurrencies. Some are here for depositing and withdrawing cryptocurrencies, and some want quick order execution; others rely on stop-loss orders, etc. These features should be available for traders who wish to use them.
When you create your crypto exchange, you have to remember that many things can go wrong, and you should always expect the unexpected. That's why it's essential to plan, establish proper security measures, ensure liquidity, offer innovative ways for your users to trade cryptocurrencies safely and in an efficient manner, etc.
Also, note that there are other challenges you may face when you build cryptocurrency exchange - like legal issues, customer support, for example - which can be overcome If you work with dedicated professionals who know what they're doing. This way, you will ensure that your cryptocurrency exchange brings maximal value to its traders and owners.