Many people are interested in learning how to profit from cryptocurrency. One of the reasons for this is the numerous benefits of cryptocurrencies, such as transparency, no downtime, security, and user anonymity.
The problem with other currencies like the U.S. dollar is that they are not backed by anything except a “promise to pay.” Cryptocurrencies are decentralized digital currencies. They do not have a physical representation such as paper or coins because they exist electronically in computer code.
An individual can make money from the crypto industry by starting crypto exchange. There has been tremendous interest in this idea because people realize that they can make millions of dollars if their services become popular. One of the first steps for individuals who want to start cryptocurrency exchange is understanding what type of exchange they would like to run. There are three main types:
Centralized Exchange (CEX) – A centralized exchange is run by a company or an individual dealing with the custody of funds. The main benefit of these exchanges is that they are easy to use and understand for people who are not too familiar with the cryptocurrency market.
They offer minimal costs in addition to being simple to use. They have a lot of liquidity, and they are considered safe because the company that runs the exchange is responsible for keeping it operational.
However, several drawbacks of this type of exchange include high fees, lack of anonymity, security issues, and oversight from outside parties. Users must comply with KYC procedures, meaning they must provide their personal information.
Decentralized Exchange (DEX) – A decentralized exchange in which no major parties are involved in the transaction. Instead, trades are completed directly between users through an automated process.
Advantages of this type of exchange include anonymity and no oversight from third-party companies. Transactions are completed using smart contracts, which allow for higher security since no security breach is possible.
However, because any company or individual does not run them, there is little chance for assistance if something goes wrong. As a result, it can be difficult for beginners to process transactions, making it less appealing. Nevertheless, more experienced users tend to gravitate toward decentralized exchanges. This is a significant factor to consider if you want to create cryptocurrency exchange.
Hybrid Exchange – A combination of the best features of both worlds. The main benefit is that it provides users greater control over their funds. Unfortunately, these exchanges are still in the early stages of development and may not be functional for several years.
What are the licensing and regulation requirements for CEX?
The licensing requirements for centralized exchanges are dependent on the individual country. Governments have established basic guidelines to help companies become compliant with existing laws. However, this is still not enough to meet all regulatory requirements in many cases. Also, since the government regulates CEXs, their activity can be restricted or entirely banned.
What are the licensing and regulation requirements for DEX?
Since decentralized exchanges do not have any central parties involved in performing transactions, they are not under any government’s jurisdiction; they cannot be shut down or banned. This means you don’t need to acquire a license to create your crypto exchange.
If you want to start your own crypto exchange, selecting the correct type of exchange for your business plan is step one.
There is no “perfect” exchange type. Your needs will depend on your skills and preferences. Before you start, you must be aware of the advantages and disadvantages of each trade. Prepare to put forth the effort regardless of your pick.