All individuals working with cryptocurrencies, as well as those who have been observing from afar for a long time, can see the progress. By 2024, it is anticipated that up to 4 billion individuals will be utilising blockchain, with a million more following suit as the technology gains traction.
It’s no wonder that so many individuals want a piece of the pie, with so many people jumping into new exchanges on a regular basis. Without expertise or guidance, however, this is difficult to start and sustain. To get started, you’ll need not only money but also access to certain high-level clientele who can help you raise your profile. So, what are the dangers of starting a cryptocurrency exchange?
Firstly, to start your own crypto exchange is extremely dangerous due to the market’s extreme volatility. There have been several reports of nascent exchanges failing owing to a lack of trade activity within months. These firms put millions of dollars into their idea just to have customers not trade on it and eventually withdraw their investment. Without volume, it’s difficult for exchanges to be profitable, thus they fail.
Legal Issues: Starting a crypto exchange and hoping people start trading on it isn’t enough. If you run an unregistered exchange or don’t execute enough KYC (Know Your Customer) checks on people who do transactions on your platform, legal issues like money laundering may develop. Starting new transactions without seeking legal guidance exposes you to claims of reckless behaviour, as well as the possibility of criminal prosecution.
Top-Level Clients/Exchange Profile Boosters are required: Another major issue that occurs when you start to create a cryptocurrency exchange is the requirement for high-profile clientele. It’s difficult to start a new exchange without having access to big-name clientele eager to offer their tokens on your platform. This is because legitimacy and the capacity to trade a token are the top priorities for any firm trying to be listed on an exchange, especially one that is not linked with a well-known brand. Traders are unlikely to trust your exchange if you don’t have someone credible on it, thus they won’t utilise it.
Investment: To build a crypto exchange can be quite expensive unless you’re lucky and can bootstrap the majority of it. Even so, the expenses are still enormous. Purchasing trustworthy crypto trading servers and hiring engineers might cost millions of dollars. There are additional legal and security costs to consider while operating an exchange. As a result, owning at least $1 million USD or more to begin an exchange is strongly advised.
Risks vs. Rewards: It may appear that assuming all of these risks is worthwhile if you receive a large payoff when you first start your exchange (i.e., you make millions), but the chances of this happening without expertise or instruction are slim. Exchanges collapse because they do not properly handle their funds, which means that one day there will be no funds left to trade with!
Overall, creating a cryptocurrency exchange is one of the riskiest companies to start since it involves so much money and time to get off the ground, not to mention the numerous legal issues and hazards. Those that successfully overcome these stumbling blocks and start a cryptocurrency exchange of their own, on the other hand, stand to earn handsomely if their company develops large enough in size and volume.