How to start and be successful in a crypto exchange business? The innovative and new blockchain technology is the underlying technology on which cryptocurrencies operate.
The first digital currency launched was Bitcoin in 2009 and a plethora of other Altcoins followed suit which makes these digital currencies comparatively new.
All of these currencies have not only made funds transfer easier but have also posed a significant threat to the existing financial system.
Add to that, crypto and blockchain technology has also opened up a lot of new avenues to make money.
One such opportunity is opening a crypto exchange business.
If you are planning to start a crypto exchange of your own, you really have found a very good idea.
It is quite promising and productive.
But, starting a crypto exchange may be quite easy but running it, sustaining it, and making the business successful is not all that easy.
There are already quite a large number of crypto exchanges out there and some of them are doing so well that they have become the majors in the crypto industry.
These crypto exchanges have set a high benchmark raising the bar in terms of performance and convenience.
Therefore, be prepared mentally and otherwise because you will face very high and very tough competition.
Before you take the big leap, you are therefore advised to consider your situation, assess all possibilities, know your strengths and weaknesses, and then take the next step.
Remember, it is not how you register your business with the state which is important. It is more important to guide your business to success.
This is an article that will help you in that and ensure that your business is well designed, successful, and legally compliant.
How to Start and be Successful in a Crypto Exchange Business?
Crypto currency exchange can only be a successful venture if you know the market and have a solid knowledge of the crypto industry.
To start with, you will need some professional guidance when you want to start your crypto exchange business.
You will need to know the answers of several questions before you even start creating a plan for your business. You will need to know:
- What it takes to start an exchange and be successful
- What are the risks involved
- Why people use an exchange platform
- What you can offer to them and
- How you can attract those people who are maintaining a distance from crypto investment.
Here, the last part is more significant. It is only when your crypto exchange has a huge number of traders your profits will also be higher as a result.
Therefore, first you have to know what the possible reasons that are keeping people away from the crypto exchange landscape are.
Some of them are:
- Lack of physical existence of crypto
- Lack of familiarity with crypto and crypto exchanges
- Lack of external control and governance.
Ideally, you will need to follow a strategic approach to start a crypto business whether it is setting up a simple exchange platform or a decentralized exchange with atomic swaps.
The steps include:
- Planning your business
- Giving it a legal entity
- Registering your business for taxes
- Opening a business bank account
- Setting up business accounting
- Getting all necessary permits and licenses for your business
- Getting crypto business insurance
- Defining your brand
- Creating your crypto business website and
- Setting up your phone system.
All should be in accordance with the crypto or Bitcoin trading and exchange model. It is required to make sure that every transaction made on your exchange brings you profit.
It is only then your crypto exchange business will be successful.
Therefore, it is very important that you first select the right, popular, and productive crypto exchange model.
Typically, you can go for a centralized or decentralized crypto trading exchange.
In general, most startups believe that money will come easily when they get into a crypto exchange business but often end up being unsuccessful.
This is because they forget, and often deviate, from the fundamental thing that will lead to success – building trust among the crypto traders and investors.
In order to raise interest in people towards your crypto exchange business website you will need to:
- Make people aware
- Offer them a user-friendly and easy to use interface and website and
- Provide a lot of variety and trading options.
It will be very easy to achieve success in your crypto exchange business if you provide the users with all available technical advancements through your exchange website.
The technologies and your crypto trading script should enable you to:
- Augment the security level
- Offer trading opportunities without any restriction on the minimum amount
- Give the users a decentralized exchange platform
- Offer instant buy, sell, and other responses
- Secure wallet integration
- Offer a variety of coins to trade with
- Offer a fast trade match engine and
- Lower the transaction fees.
There are lots of other steps to follow and a lot of things to do before, during and after you set up your crypto exchange to make it a successful business.
Right from assessing to selecting the right type of business model and from registering your business to taking the right approach to execute your business plans, it needs a lot of effort.
First Step: Assessment
Just like any other business forms, you should always assess the situation and prospects of it first.
This means that you should first assure that the type of business you choose is just right for you – in this case it is your crypto exchange business.
Typically, a crypto exchange business will be right for you if you are willing to be on the front of technology.
You should not be afraid to experiment because in this space of technological currency there is so much to explore.
Next, you should assess the risks that are inherent with a crypto exchange business.
For that you will first need to know what really happens here on a typical day. Ideally, crypto activities can be segregated into two groups – pre-launch and post-launch.
If you plan to make Initial Coin Offerings or ICOs as well, you will also need to know and spend some time on coding the coin.
And, after that, you must focus on promoting it.
Your experiences and skill set will also play a significant role in the success of your crypto business.
Therefore, it is vital to know your skills which can be anything from the basic knowledge of coding to programming with C++ to modify the open-source code.
It is also good to know the working process of blockchain technology.
Though it is not absolutely necessary, at least the fundamental knowledge may be helpful.
If you are not very much interested in getting into the complex technical aspects of crypto and blockchain, you may take help from specialized companies for it.
However, it is essential to make sure your exchange or your coin is unique and adds value.
If your coin or your exchange simply copies the technical aspects of others, it will be quite hard to achieve long-term success.
Finally, you should consider the growth potential of your business given that you will need to face cutthroat competition.
Normally, any business based on crypto can grow to an enormous size.
However, factors like the volatility of the market space, the risks of your exchange being hacked and others may cause some hindrances in the path of success if these are not handled properly and efficiently.
Second Step: Preparation
So, you are sure that you are a right fit for a crypto exchange. Now, you should focus on the different steps to follow to set up your business.
Though most of these steps are typically the same for all types of businesses, a few may be unique for crypto exchange business. Here they are:
Step 1: Planning:
For any entrepreneur, it is essential to have a clear plan to be successful.
A plan will not only help you to follow the right path to success but will also help in mapping out all the specifics.
It will also make you aware of the unknowns.
In order to build a clear and well-defined business plan you should essentially consider the following:
What are the initial costs?
Start with the costs involved in setting up your crypto exchange business.
This cost should not involve only the money you need to spend but you should also consider the time factor.
You may also need to take help from some experts designing your coin for an ICO as well as an attorney who is familiar with it if you are planning to launch an ICO.
These will add up to your initial cost but will surely offer long-term benefits.
What are the ongoing expenses?
Next, you should consider the recurring expenses of your business, which, fortunately, are minimal.
Though it will need a lot of energy to run the programs that crypto depends on but that will be paid by the miners.
However, you will need to include the rewards into the equation while determining the ongoing costs of your crypto exchange business.
Who is your target?
You should focus on a particular community and include that in your business planning endeavor.
This will enable you to formulate the next steps easily when it comes to marketing your product and business.
Your target can be any group but make sure that the group is well defined and has the need and uses P2P currency.
How to make money?
You can make money through transaction fees which means that you will need to have a lot of users and a high trading volume on your exchange.
You may also make quite a lot of money through ICOs one-time. Therefore, include this possibility in your business plan as well.
How much do you charge your customers?
It is better to be reasonable than greedy when it comes to the fees and commissions aspect.
Remember, the volume plays a significant role here. Therefore, structure your fees sensibly so that it is affordable for the masses.
Since crypto businesses are free to choose any fee structure, it is better you go for an incremental price structure. This will entice early adopters.
How much profit is expected?
This is another important aspect to consider while planning your business.
The profit potential for a crypto exchange business can be extremely high but you should know how to make it in the first place.
Though marketing and offering continual tech support are the usual ways, mining operations may also create some additional revenue, if the conditions permit.
What to name?
It is important to choose the right name for your business and it is quite challenging as well.
It is best to get help from some guides and not run your business by your own name.
Also, research that the name is not taken. This will help in avoiding the hassles while getting your business registered.
For this, you will need to check with:
- The business records of your state
- The state and Federal trademark records and
- The social media platforms.
It is also needed to check the web domain availability because you will need to secure it before someone else does it.
Step 2: Legal entity:
Giving a legal entity to your businesses is very important. Ideally, businesses can have three basic forms namely:
- Sole proprietorship
- LLC or Limited Liability Company and
Since you will just start, it is likely that you will choose sole proprietorship, which is the most common form chosen by many.
However, in the case of crypto, it is better to establish a legal business entity of an LLC or a corporation.
This will protect our business when and if your business is sued and held liable.
If you want to form an LLC, you can do it yourself by paying a small state LLC costs.
Otherwise, you can hire a competent LLC service for a little extra fee.
Step 3: Registering for taxes:
You will need to pay several state and federal taxes and therefore you must register for it before you start your business.
For that, you will have to apply for an Employer Identification Number or EIN to the IRS or Internal Revenue Service. It is offered for free.
Step 4: Opening a business bank account:
You will need to create dedicated banking and credit accounts for your crypto exchange business.
This is important because it will protect your personal assets such as your car, home, and other valuables if and when your business is sued.
Also, building business credit will help a lot in getting financing, credit cards and others in the name of your business.
This will fetch higher lines of credit and better interest rates.
Most importantly, a separate business account will help in making the accounting process and tax filing much easier.
Step 5: Accounting:
You should maintain a proper accounting of your business and include all sources of income and expenses.
This is a crucial aspect which will not only let you understand the performance of your business in financial terms but will also simplify the process of annual tax filing.
Step 6: Permits and licenses:
It is extremely necessary to abide by the laws to run a crypto exchange.
Though the crypto space is not governed by any external authority, incidents of frauds, scams, and money laundering are very common and the government is focusing on the digital currency space now and is coming up with some strict regulations.
Therefore, get all necessary permits and licenses for your crypto exchange business to avoid hefty fines, legal consequences and charges, and even closure of your business.
You may need some state and local business licensing and you will find info on the requirements from the local clerk’s office, the local associations listed in US Small Business Associations directory, and other resources.
Most crypto exchanges do not have any physical location and run out of an office.
However, all these businesses need a Certificate of Occupancy typically.
Having this certificate indicates that your business follows all building codes, government rules and zoning laws.
However, if you want to use a physical location, you may either lease or purchase it.
If you lease a location, make sure that the landlord has the Certificate of Occupancy that is valid for your type of crypto exchange business.
If some major renovations are required, a new certificate needs to be issued.
Make sure that the landlord has it and mention in the agreement that the lease will commence only when it is obtained by the landlord, if it is not already.
If you build or purchase a location then you yourself will need to get the Certificate of Occupancy from the local government.
Make sure that the zoning requirements and building codes are met so that these are in compliance with your crypto exchange business.
Step 7: Business insurance:
Your business will also need valid insurance just like the permits and licenses in order to run safely and legitimately.
It will also protect the financial health of your business by having your losses covered.
Step 8: Defining your brand:
The brand of your company will indicate what it stands for but more importantly it will signify how people perceive your business.
If your business brand is strong it will help your business to stand out from your competitors as well.
When you have the brand decided it will be helpful if you add it to a QR code as well.
Also, follow strategic promotion and marketing techniques to reach out to the desired groups.
Typically, for a crypto exchange business it is important to reach out to two specific groups namely:
- The miners and
- The merchants.
The term miners refers to those who solve complex mathematical equations by using computer programs and are rewarded for their efforts to keep the blockchain network secure.
The term merchants, on the other hand, refers to those places where people can spend their crypto.
You can reach out to these two groups through different channels but the messages that you should convey to each of them will typically be the same.
Ideally, the message should be about your business and crypto and include things like:
- Its unique features
- The safety and security aspect
- Its transparency
- Its utility and value.
This will build more confidence among people thereby paving the path for your crypto exchange business to achieve success.
Transparency of your business along with long-term support guarantee is very important as that is what will keep the customers coming back for more.
You will be ahead of your competitors if your business decisions are clearly known to the people and you have all the resources necessary to support your cryptocurrency.
Step 9: Setting up business phone system:
You should have a dedicated business phone system set up. This will not mix your private and personal life with your business.
Most importantly, an added benefit of it is that it will allow you to:
- Automate your business
- Give legitimacy to it and
- Find the potential customers and contact them easily, and vice versa.
There are lots of services available that will help you to set up the phone system according to your business needs. Hire them.
Step 10: Creating a website:
With all of the above taken care of, you will now need to focus on creating a good and intuitive website and app which is easy to use.
You can do it yourself easily by using the different web building technologies.
Otherwise, you can take help of an expert web developer or designer if you do not want to take risks or do not have any experience of building a website.
However, this step is critical and should not be taken lightly.
The main reason you should not delay in it is your business will be typically online and you will need a good website.
Moreover, social media accounts cannot do the job that a dedicated business website can.
When you create your crypto business website or app make sure that it has all of these following features and services.
These will ensure its success.
Signup and login:
This is the first thing that every user sees while downloading an app or visiting a website.
Simplicity is the key and that is what you should focus on mainly. Ensure that the registration process is hassle free and simple.
You may also include a 2FA or Two-Factor Authentication protocol in it to offer additional security to the users though several sites do not have it.
But you should because it will deter any manipulation or hacking attempts made on your platform.
A proper and thorough user verification process will increase the trust of people on your website or app and thereby on your crypto exchange.
Also, properly verified users can be offered higher withdrawal limits which may entice more users towards your crypto exchange.
A foolproof verification feature will also increase transparency in trading on your site and at the same time will reduce the chances of any scams.
Withdrawal and deposit:
Set proper withdrawal and deposit limits so that none of it is repulsive. This will drive your customers away from your site.
Also, make sure that the process of withdrawing funds from the wallets or depositing the same into it is easy, fast and hassle free.
You should allow users to buy and sell their crypto to other users easily. This is another main aspect of success for a crypto exchange.
There should be minimal or no chances of errors in the system and it should also offer various possibilities for creating orders.
This will allow the users to decide which one of the ways is more convenient and suitable for them at any particular point in time.
Make sure that your crypto website or app comes with more than one useful tool built in that will help the users to make proper analysis whenever necessary.
It should include different graphs, charts, and stats that will help the users to recognize the current market trends very easily.
This is a very important feature for you to have.
This admin panel will enable you to monitor the trades as an exchange owner and manage the activities that are performed on your exchange.
There are lots of other features that you may include in your crypto exchange app or website over time and down the lane in order to improve its quality and efficiency.
However, these are the most significant features to have in it that will provide the desired building block on which the platform will operate.
Final Step: Execution
Now, you have come to the final step of starting your crypto exchange business – execution.
One of the best ways to ensure success to your business, and help it run just as the way desired, is to find a good and reliable business mentor.
Quality mentorship is a great resource that will take entrepreneurship through the tough times, and there can be too many of it in the crypto space.
Also, ensure that you have a good and reliable support network in place.
This is another key factor of success in the crypto exchange business.
You must learn continually because there is no scope of any complacency in the crypto space.
You may not undertake any crypto course often, though it is recommended for additional knowledge, you can always learn from other exchange owners.
This will help you to gain a lot of insights, entrepreneurial lessons, and tips and advice right from the horse’s mouth.
Design your features according to your target community assuming that you have already identified one.
Focusing on them first and then on the technical aspects is a prudent approach to execute your business plans.
You should also bring marketers, miners, merchants and ambassadors onboard right from the outset and build a proper and reliable team.
Make sure that they are all invested in your business by motivating them with rewards off and on.
This will save a lot of time and labor of yours while achieving success in your crypto business.
Finally, you should focus on continual development of your exchange in order to make profits and continue making them.
To ensure that, you should follow these specific processes:
Research more to know the competition:
The crypto market is developing every day and companies try to establish themselves as the best in this field.
Therefore, you will face a lot of competition from them and will lag behind in the race if you do not know how exactly you can beat this competition.
Therefore, research on the market. Also, find out information about the competitors to see what they are offering and how you can better that and beat them.
You may also introduce a unique feature that no one thought of. This will enhance your visibility.
Know the operational limits:
While planning your development process, you should know the operational limits and the requirements.
There is no point wasting money on developments and features that you will not be allowed to use.
Remember, crypto is a relatively new and an evolving technology and not all countries accept it.
Yes, there may not be many laws on crypto itself but there are lots of laws related to the exchange software.
Therefore, make sure that you research to know about the rules and regulations.
Also, if you want to operate globally, make sure that your business meets the legal requirements of each local territory.
The help of a lawyer who is aware about these laws is essential in this aspect.
Also, know about the changes in the laws, which may be frequent and unexpected, and ensure that your licenses and legal documents are up to date.
Study your target audience:
Assuming that you have targeted a specific community of a specific age-group, you should know about their preferences.
For example, if you are targeting to reach out to the Bitcoin users, you will need to do what most Bitcoin exchanges do to draw their audience towards their website.
The type of software you choose will not only help in the coding process but will also help you to put all your ideas into one place.
Since it will hold everything together, you will need to choose the right software.
Ideally, there are three options open to you to create your website which are:
- You can use white label software
- You can use open source software and
- You can fabricate the software in-house.
In addition to that, you must also make sure that both the back-end and front-end processes of your website operate just as it is intended.
This will ensure that the users of your site do not encounter any technical glitches or bugs that will prevent them from using your site conveniently.
Finally, as said earlier, you must promote your business extensively, if not aggressively.
This is because launching a crypto website, just like all others, is a more strategic process.
You can have a network consisting of different social media platforms and crypto forums in various forms that will promote your site and make its presence felt.
This is a more beneficial move because digital marketing techniques will make it easier for you to reach out to a much broader audience as compared to the traditional marketing methods.
While you promote your business make sure that you focus on features, functionalities, and facilities and also ensure that it creates hype around your brand.
Apart from that, you can also promote your crypto exchange business on several online platforms and channels.
You can do it by:
- Creating blogs
- Writing articles
- Generating guest posts
- Giving free pop up ads and more.
All these will enhance the visibility of your site and thereby ensure that a larger audience comes to it bringing you a lot of profits over time.
With the popularity and profitability of crypto exchanges you can start your own. However, you must know the right ways to start and stay away from legal hassles.
Most owners do not but you are not one of them since you are reading this line of the article.