Cryptocurrency Exchange Initial Difficulties

This post is dedicated precisely to this, to expose the most notorious cryptocurrency exchange initial difficulties that should be faced in the first months and to explain in a transparent and general way what is BitKings Exchange plan to overcome them.

We are only a few weeks away to launch BitKings Exchange. We have gone through a long period of technical and general development, more than we would have liked; but that’s the way it is in the world of specialized software and we have to adapt to it.

Even so, this stage is just the tip of the iceberg of adventure that is coming. The excitement of opening a Cryptocurrency Exchange is proportionally related to the difficulty and responsibility of managing it correctly and converting it into a successful Exchange from scratch.

Next, we will break down in a general way the main difficulties new exchanges may face:

GENERAL TECHNICAL DIFFICULTIES

“Stability, scalability and speed are the most important fundamental technical aspects an Exchange requires.”

It is essential that the entire software of an Exchange is stable, scalable and fast. In fact, there are many software providers in the market that sell software solutions to exchanges and also offer maintenance services. Unlike most new exchanges, which work with these software licenses from external providers; BitKings Exchange has decided to develop its whole code from scratch, hence being wholly owned.

On the one hand, having your own code implies a series of disadvantages:

  • Longer initial development time
  • Higher code creation and maintenance costs (improvements, updates, audits)
  • Higher risks of initially presenting bugs that other codes tested and maintained for years do not have.

But on the other hand, the advantages of having your own code, which is always improving over time, are:

  • The code is a great asset for the company in the long term;
  • It allows to reduce technical maintenance costs when the Exchange gains traction, maintaining competitive prices for customers;
  • It allows total flexibility and freedom when adding, removing and promoting new features and ideas. And as the saying goes: “Freedom is priceless”.

BitKings starts this adventure with a clear fundamental value: Differentiation from competitors is the key to success; and such differentiation cannot be achieved without Software freedom.

The above being said, we can foresee our BitKings Exchange Matching Engine being a bit slower, and the software may have more bugs in the FrontEnd than our competitors; but we are convinced that in a not too distant future, we will be at a very similar technical level and having a superior capacity to improve the standard market product than our competitors.

SECURITY DIFFICULTIES

“It is impossible to be 100% safe, but it is possible to reduce risks to a minimum level”

Security is another fundamental pillar of any Exchange.  You can count the number of exchanges that have not been hacked throughout history on one hand… As soon as you open a Cryptocurrency Exchange, you go from being a stranger to capturing the attention of an entire network, including its criminals.

To avoid and combat them, special attention has been given to the development of the exchange security system and BitKings has partnered with companies with extensive experience and reputation in the sector for some of the most critical security issues such as crypto fund custody. We will explain this association in more detail in another article.

It seems impossible to be 100% safe and specially in this type of business, however, BitKings has done everything possible in order to minimize risks in both security protocols and code endorsement through extensive audit processes. 

BitKings will initially prioritize the security of its clients’ funds over speed; for that reason, a withdrawal protocol will be established every 24 hours. This protocol implies a slowdown in customer withdrawals; however, many possible attacks are eliminated. This method has always been used by the well-known BitMEX Exchange, and for the moment, it is an exchange without any hacked funds.

BitKings also offers its users different tools to protect their accounts from possible attacks such as: Withdrawal Whitelists, IP restrictions, Two Factor Authentication (2FA) protocols and account checks via mail in sensitive processes and events.

LIQUIDITY CREATION DIFFICULTIES

“The chicken and egg problem: without clients there is no liquidity, and there can be no clients without liquidity”

Liquidity is another of the biggest problems that all cryptocurrency exchanges face, especially small ones.

Unlike in traditional financial markets, there are very few market makers that allocate their own inventory or that of their clients to provide liquidity to the markets in exchange for a difference between the purchase price and the sale price (spread). In fact, the majority of existing Cryptocurrencies do not even have market makers; making them very illiquid markets and scaring away most medium-large capital investors.

In addition to this, we have to bear in mind that most of cryptocurrency market makers are operating in the largest exchanges; with greater influx of customers and benefits on their part. This suggests that new and small exchanges are forgotten by large purchase and sale orders, generating bad liquidity conditions, and therefore, slowing the acquisition of medium-large clients.

Without clients there is no liquidity, and without liquidity there can be no clients; the eternal dilemma of the new Exchange that must be solved in some way.

Luckily, several ideas have been considered to solve the problem, and BitKings has designed specific technical solutions for this liquidity issue through several strategic bots to incentivize market makers. We will talk in detail about the mechanisms that BitKings will use to create liquidity in another article; however, in general terms we can say:

  • BitKings has developed 2 bots for different initial liquidity creation mechanisms.
  • BitKings has acquired a certain amount of several Cryptocurrencies to be used solely to create what we call “cross liquidity” in the most popular pairs.
  • BitKings maintains close contacts with professional liquidity creators, for upcoming collaborations in a context of expansion.
  • BitKings is developing a system where users can collectively act as market creators of their favourite Cryptocurrencies in a simple way, hence providing liquidity to currencies or tokens that are currently in poor trading conditions. 

USER ACQUISITION DIFFICULTIES

“BitKings firmly believes in a culture of differentiation to attract and maintain users.”

Attracting new users is also a difficulty for any exchange at launch stage, especially when its budget on digital marketing isn’t extremely high. Nevertheless, while referral and similar programs seem powerful for user acquisition, these do not guarantee the retention and growth of real and loyal users in the long term.

For this reason, BitKings firmly believes a culture of differentiation is the best resource to attract and maintain users. Differentiation not only refers to Exchange functionalities, but also in the business culture itself, communication, customer service and promotion of incentives that benefit the sector and the platform users. 

Related to this, BitKings aims to providing crypto educational content and will do so by releasing a Virtual Screen with demo trading features and simulated portfolios that will be part of a public ranking. The objective of this is to create an aura of healthy crypto learning and progress around the BitKings community which will be far from that atmosphere of tension, exaggeration, scams and insane trading that is so typical in most of exchanges today.

It is a priority for BitKings to ensure its users are able to understand and comprehend whether Cryptocurrencies and Tokens may be an opportunity for investment in value or not. While BitKings cannot influence the future behaviour of assets, it is in our hand to rule out those assets that, by mere design, have a high probability of losing value, and therefore, harm our users. For this reason, the policy of listing assets in the Exchange will be very strict, and only those cryptocurrencies and projects that have a clear fundamental value behind them together with an adequate token structure and initiatives will pass the test.

Even so, we cannot ignore the fact that successful exchanges have always offered volatile and innovative cryptocurrencies and tokens in order to satisfy those users (which are a large group) that have hunger for these sorts of assets. 

BitKings Labs section will take the reins in this matter by promoting, creating or listing coins or tokens and new concepts which, not only will be considered as innovative but also of high market acceptance. We will talk more in detail about BitKings Labs projects and tasks in another article.

With these differentiating factors along with more features that will be adapted to the needs of our users, we believe that BitKings will achieve sufficient differentiation that will allow the acquisition and retention of users from the beginning and in a organic way.

GENERAL MANAGEMENT DIFFICULTIES

“Managing an Exchange correctly entails great responsibility and long working hours”

We cannot forget the great difficulty managing an Exchange entails on all fronts: day-to-day technical management, implementation of improvements, mitigation of possible attacks, customer support management, content creation, marketing and event management, legal and accounting procedures and many other tasks.

Managing an Exchange correctly entails great responsibility and long working hours. We have to bear in mind that BitKings will be born with a small team of 8 people, half of them forming the development team, a team that will grow proportionally related to the number of users.

BitKings Team has foreseen the above exchange related difficulties in order to identify and work out a strategy mechanism to mitigate each of them before launch. 

Overall, we would like to express that the entire BitKings team is fully aware of the difficulties we may have in this initial launch stage. We are aware that our competitors have much greater economic, technical capacity and number of users; but, even so, we know that, with our qualities, experience, and with the faithful support of our seething community, BitKings Exchange will be among the best known and respected actors in the crypto sector.

Thanks for reading, 

The BitKings team

To know what is BTK Token: BitKings Token Economic Paper