Finance

Challenges of Building a Cryptocurrency Exchange

Cryptocurrencies are booming, and nobody can deny it anymore. In the last decade, they were able to surpass the $1 trillion market cap. Even though this figure is not as large as NASDAQ or NYSE, it indeed provides new options for those looking to start cryptocurrency exchanges.

As of today, there are numerous advantages to starting a crypto exchange platform. There are multiple advantages to establishing a crypto trading platform. Firstly, you obtain the power over the revenue generated by trading costs as well as generating a good amount of money by using a token-based system, being one of the most efficient and profitable ways used so far. 

Moreover, you can create your blockchain-based DeFi asset asset to be utilized as a payment mechanism on your exchange rather than the traditional form of money, also known as fiat currency.

You face some possible challenges when starting a crypto exchange.

Challenge 1. Regulation and compliance:

Legal ambiguity and uncertainty have always been around when operating a bitcoin exchange. It should be no surprise since cryptos are unregulated and run on decentralized technology. 

Know Your Client and Anti-Money Laundering are the most systematic approaches for remaining compliant and not avoiding the laws. 

Another effective way to ensure legality is to use a fiat-to-crypto exchange. This step can be established by collaborating with a firm that works as a “payment processor.” Offering that, clients will be able to deposit their funds straight into their accounts and eventually transfer them to their crypto wallets.

What you should remember is that numerous jurisdictions are skeptical of cryptos. Therefore, there are tougher laws in place for exchanges. Take, for instance, South Korea. They wanted to ban all cryptocurrency trading in 2017 but failed because public anger led to abandoning this concept altogether.

Challenge 2. Security:

Since the beginning of the crypto era, cybercriminals have taken massive advantage of stealing cryptos from traders since there are many vulnerabilities and have become a significant issue for major cryptocurrency exchanges. Numerous reliable crypto exchanges now use cold wallets and keep assets offline, leaving minimal chances for hackers to get into. That being said, it is vital to secure the platform as much as possible by using all techniques you can. 

The best idea would be to engage with trustworthy providers only who are committed to their consumers and the platform. Before proceeding, do proper research within communities that are involved. 

Challenge 3. Liquidity:

A crypto trading platform would struggle significantly if it weren’t for relevant liquidity. As a result, the largest exchanges have an “order matching mechanism.” Such a mechanism allows traders to place bids and offers on the order book. Furthermore, they use high-speed servers, which enable them to execute trades in real-time at desirable prices. 

Only engage with prominent altcoins to avoid creating a destructive impact on user experience due to low liquidity. Exchanges that can deliver more significant volumes are more likely to attract a large number of users, resulting in increased income-generating.

Challenge 4. User experience:

Regarding user experience, remember that various people have different requirements, especially in cryptocurrencies. Offer as many user options to your traders and let them enjoy benefits. Numerous people visit these platforms to deposit and withdraw their altcoins, while others simply want speedy order execution, effective stop-loss orders, and much more.

Note that many things might not go in your direction when creating a cryptocurrency exchange. Due to that, you should be prepared for ups and downs. Offer security measures, provide a solid amount of liquidity, provide creative solutions for your consumers to trade crypto safely and efficiently, and so on.

Aside from that, keep in mind that you could face other problems when developing a cryptocurrency exchange, such as legal or customer service, which may be handled effortlessly if you work with dedicated specialists. This ensures that your crypto exchange provides the highest value to its users. 

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