For many, acquaintance with cryptocurrencies begins with the exchange. It is a simple and most understandable tool that allows you to buy and sell currencies, thereby earning on fluctuations in value. To establish a cryptocurrency exchange, you need to obtain a Lithuanian crypto license, which will allow operating legally.
What is a crypto exchange?
The first currency exchanges appeared in the middle of the 20th century, and today they are trendy. Millions of people worldwide seek to make money on fluctuations in the value of various currencies.
A crypto exchange differs from its closest relative in the type of currencies used in trading. It performs the following main functions:
- Storage of assets;
- Purchase of cryptocurrencies for fiat or other coins;
- Storage, exchange, and purchase of tokens and NFTs;
- Formation of statistical and analytical data on crypto assets.
Modern exchanges are constantly trying to increase the number of currencies and services. It allows them to maximize the user audience and therefore earn more.
Main varieties
Today there are 3 main types of exchanges:
- Centralized (CEX);
- Decentralized (DEX);
- Hybrid.
Each of them has its characteristics, so it is necessary to consider them in more detail.
Centralized exchanges
CEX is a crypto exchange that has supervisory authority. Usually, a large team of professionals works here, which controls the prices of currencies, writes analytical materials and monitors security, and much more.
CEX is not much different from stock exchanges regarding its functions and website interface. Here you can easily understand the functionality. In addition, many of these sites have a mobile application, which allows you to participate in the auction at any time convenient for users.
Among the advantages are:
- Convenient and straightforward interface;
- A considerable number of currencies and additional services;
- A large number of users with whom you can consult on issues of interest;
- High speed of transactions;
- Supervisory authorities may have little influence on the value of currencies (which is also a disadvantage).
However, CEXs have poor data protection. There are several examples when hackers break open the exchange's assets and withdraw money, which led to the collapse of the service.
Among the most famous services are Binance, Coinbase, and Huobi.
Centralized exchanges necessarily need to obtain a license to operate. Otherwise, its owners may have problems. Lithuania offers the most straightforward licensing mechanism among all EU countries.
Decentralized exchange
DEX operates entirely independently. It's more challenging to use, doesn't have such a pretty interface, but has other benefits.
The principle of these exchanges is open sales: users say that they have a certain amount of currency, tokens, or NFTs, and they are ready to sell it for a specific price. It allows people to find rare assets and buy them at the best price. Because you communicate directly with the seller, you can get a discount or arrange an exchange, not for money but other valuable assets.
Another advantage of DEX is its excellent protection. It uses more complex blockchain mechanisms, as well as smart contracts. It allows you to prevent hacker attacks and create a more secure environment.
The theory of private keys is used here to ensure a high quality of security. So, when making a deal, the system generates 2 keys that can open the cell where your assets are stored. They usually look like a set of characters and are similar to those created for complex passwords. The principle is that only the owner of the assets knows which locks these keys open.
The popular services are Binance DEX and Uniswap.
This type of exchange does not require licensing. The creators do not directly profit, and it is almost impossible to identify them.
Hybrid
Hybrid exchanges have appeared relatively recently. They try to combine the advantages and eliminate the disadvantages of the two exchanges listed above. So, they have an excellent interface and level of protection.
Today there are 2 very effective exchanges, such as Nash and Qurrex, but they still need improvement.
Legal aspects of work
If you have a CEX and want it to work officially in different countries of the world, you need to obtain licenses. Among all the countries in the EU, Lithuania offers the most favorable conditions. Both a resident of the country and a foreigner can get an appointment here. You need to register your company, create an electronic address registered in Lithuania and submit an application to the relevant state body – FCIS. It can be done by both the owners of the exchange and their authorized representative.
The main requirement for the applicant is reputation. It must be crystal clear. Neither the owner nor the board of directors members should have had problems with the law before.
After you have issued a license, you will be required to provide monthly performance reports and information about your customers when required by the regulator. If the inspector notices problems or fraud, he or she will be able to revoke the license.