Crypto Exchanges - Legal Banking Technology Security and Volume

It is unclear whether governments consider Bitcoin to be a “currency” or a “commodity”. Depending on how Bitcoin is classified, a business may or may need to seek a money transmitter license.

First, you need to decide the operational scope of your exchange, whether you want to operate globally or confine yourself to a specific region or country.

A few tiers to start thinking about: legal, banking, tech+security, and volume.

Legal

• The first question is whether you want to operate globally (e.g. Bitfinex or BitStamp) or focus on a national market (e.g. FlowBTC, meXBT). The next step is to seek legal counsel to help decide where you want to locate and how to incorporate/structure your business.
• You want to think about how you can limit your liability and exposure to litigation, as well as what regulatory/compliance requirements are in your jurisdiction, and what they are likely to be in ther near term.
• Merkle Tree offers a useful high-level global map of the regulatory landscape.

Banking

• What sorts of banking relationships do I need and how can I secure them?
• Note that banks can be heistant to provide services to digital currency exchanges.

Tech + Security

You or a partner need to build and maintain complex architecture that pairs orders, executes transactions, and manages deposits and withdrawals. Major componets are:

• Matching engine
• Risk management system
• Accounting/audit system
• Wallet management
• Payment gateways

Security is understandably paramount. Some things to consider:

• Sound internal security procedures among your team - see, e.g. CryptoCurrency Security Standard (CCSS) (incredibly important, and often overlooked)
• Network and hardware security (secure data center, etc.)
• KYC (Know Your Customer) + AML (Anti-Money Laundering) solutions
• Two-Factor Authentication for users

Volume

Without lots of live volume, all the above is for naught. It is well worth your time to actively consider all of the below:

• Channeling liquidity from large exchanges like Bitfinex to your exchange
• Messaging, media presence, brand creation and maintenance, ads and retargeting
• User definition (is this a retail exchange, for advanced users?, etc.), and using this to inform UI design and to prioritise features for product differentiation