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Starting Your Own Crypto Exchange – CEX, DEX, or Hybrid?

Cryptocurrencies are booming, which leads to the period when people are starting to find ways to benefit from them. Cryptocurrencies offer several innovative options, such as anonymity, top-level security, transparency, and many more.

The main problem with most currencies across the globe is that they are not backed by anything anymore for several years now. However, essential to notice is that people trust these assets collectively because of the power of the government. That means currencies such as the euro, US dollar, and others are centralized by state authorities, whereas cryptos are not. They solely operate on blockchain technology, which means they only provide a digital version of these assets.

All of these benefits lead to the fact that many individuals can profit from crypto assets, especially by starting a crypto exchange. It is certainly possible to make massive profits. However, before that, you should understand what type of exchange you want to set up. 

Here are three main alternatives:

Centralized Exchange (CEX) – A centralized exchange is managed by a firm or individual dealing with fund custody. The essential advantage of these exchanges is that they are simple to use and comprehend for those unfamiliar with the cryptocurrency industry.

Moreover, they have low operating expenses and offer a modern, user-friendly approach. They offer a lot of liquidity and are deemed safe since the exchange’s operator is responsible for keeping it running. 

Before moving forward, remember that there are significant disadvantages to this type of exchange, including higher additional costs, a lack of anonymity, security concerns, and outside control. Clients must follow KYC requirements, which entail providing personal information.

Decentralized Exchange (DEX) – Utilizing this solution, users are involved in a decentralized transaction where there are no parties engaged. Trades are instead performed directly between users thanks to an automated algorithmic process.

This form of trading offers anonymity and the absence of third-party control. That means no unauthorized access is likely. Smart contracts are used to complete transactions, which provide greater security.

There are a few downsides too. Since not a single company or individual runs them, there is little possibility of getting help if any problem occurs. Consequently, newcomers may find it challenging to execute, making it less desirable for most people. Nevertheless, more experienced users tend to gravitate toward decentralized exchanges. Consider before you decide to create a cryptocurrency exchange. 

Hybrid Exchange – As the name indicates, it is a mix of both exchanges mentioned above. The best part is that it gives people more control over their funds. Sadly, many exchanges are still in their infant stages and may not be operational in upcoming years.  

What are the licensing and regulation requirements for CEX?

The licensing criteria for centralized exchanges differ in all jurisdictions. State authorities have set fundamental principles to assist businesses in compliance with existing regulations. But, in many circumstances, this is unlikely to meet all regulatory requirements. Furthermore, considering CEXs are regulated by the state watchdogs, their activities can be reduced or completely prohibited at any time if they do not follow the rules.

What are the licensing and regulation requirements for DEX?

Decentralized exchanges are not subject to government regulation since no central parties are involved in transaction execution. That indicates that you don’t need a license to start a decentralized crypto exchange. It is an ideal solution for those who want to stay anonymous because they cannot be taken down or prohibited. 

Step one in starting your crypto exchange is determining the best kind of exchange for your company’s strategy.

Bear in mind that there is no ideal exchange. Your requirements will be determined by your talents and preferences when deciding in what direction to go. 

Before you begin, you should know the benefits and drawbacks of any plan you choose. Get ready to work hard, irrespective of what you pick.