Developing an exchange - business advice required

[monsterer]

Hi guys,

I've been developing the technology required to run a bitcoin currency exchange (matching engine, api, back-end, front-end, the whole lot), but I'm primarily a developer rather than a business man - I'd like some advice on how I can turn this into something that I can live off.

Should I:

sell the technology
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* open source everything, charge nothing, accept donations
* open source everything, then charge per month for varying levels of support
* keep it closed source, charge per licence

don't sell the technology, run the exchange under my own business
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* seek investment, acquire all relevant MSB/KYC licences
* seek a business partner who is already licensed and experienced with MSB/KYC

I realise that there are varying levels of benefit to each one of these avenues, I'd like advice on whether I've covered all options and what the best route to creating a product which can sustain my business is?

Cheers, Paul.

[daybyter]

Where are you living? What are the regulations in your country?

[monsterer]

Where are you living? What are the regulations in your country?

UK. Regulations would require registration as an MSB with HMRC FSA, compliance with anti-money laundering KYC rules and also a ruling on what bitcoin actually is.

[btceic]

Here are my requirements for the best exchange that I can think of:

• World Class Professionalism
• World Class Security
• Transparency
• True Market Making
• Community Involvement & Leadership
• User Friendly
• iPhone, iPad, Android Integration
• Documented API, with examples and more for the top 10+ popular languages
• Open Source
• Developer Friendly
• MT4/MT5 Integration
• Regulatory Compliance
• World Class UX/UI
• Separation of "ALL" Concerns, ex: separate the trading engine from the UI!!
• On par or better then NYSE, NASDAQ, AMEX, etc
• Distributed connection nodes via DNS etc. ala google etc.
• Sub millisecond connection times

[daybyter]

Hmmh...I know someone in a country with less strict regulations. Maybe it would be smart to partner with such a person...

btceic: ms connection times require a private net? And if the sources are open, how do you keep your competition from using them to start a similar exchange?

monsterer: I have a similar problem, but I work on trading software. I released a part of it as opensource, but I don't have a good overall solution yet...

[bytemaster]

First of all, you face stiff competition from an open source exchange that is already being developed based upon the LMAX arch. which is already going to be the fastest thing out there.   They are organized, have money, and support of the community and bitcoin media has already covered them.  (Don't remember the name right now).

If you are a talented c++ developer then perhaps you will want to invest your time helping to develop the Invictus / BitShare P2P exchange.

https://docs.google.com/document/d/1RLcjSXWuU9vBJzzqLEXVACSCdn8zXKTTJRN_LfoCjNY/

[bytemaster]

I would also point out that you will need amazing contacts to actually run an exchange and not get shutdown.    What new value are you bringing to the table that is better than the competition?

[davout]

You already failed the first test : "you should not reinvent the wheel", especially when quite a few open-source wheels already exist.

[Nagle]

One thing you need for an exchange is a solid contractual banking relationship with a major bank to handle money transfers in and out. One that binds them to handling your transactions and does not allow them to terminate at will without paying a substantial penalty.

Then you need insurance, in case something goes wrong. Commercial errors and omissions coverage, and employee bonding.  Like every other business that handles lots of money.

You'll need a reasonable amount of capital behind the business, at least a few million.

Talk to Tradehill, which has done all that, and ask them why they don't handle small retail customers.

Now you're ready to run a "no excuses" exchange.  One where, when someone demands their money, they get it. 

[davout]

One thing you need for an exchange is a solid contractual banking relationship with a major bank to handle money transfers in and out. One that binds them to handling your transactions and does not allow them to terminate at will without paying a substantial penalty.

Then you need insurance, in case something goes wrong. Commercial errors and omissions coverage, and employee bonding.  Like every other business that handles lots of money.

You'll need a reasonable amount of capital behind the business, at least a few million.

Talk to Tradehill, which has done all that, and ask them why they don't handle small retail customers.

Now you're ready to run a "no excuses" exchange.  One where, when someone demands their money, they get it. 

No offense, but you have pretty much all your points wrong.

[monsterer]

Here are my requirements for the best exchange that I can think of:

• MT4/MT5 Integration

This is impossible. Metatrader is a platform for retail traders who's trades always end up in one currency, which would make it impossible to withdraw both bitcoins and fiat.

[btceic]

Here are my requirements for the best exchange that I can think of:

• MT4/MT5 Integration

This is impossible. Metatrader is a platform for retail traders who's trades always end up in one currency, which would make it impossible to withdraw both bitcoins and fiat.

let me restate then, I would like to be able to trade btc/usd, btc/jpy, btc/eur  via mt4

[davout]

Here are my requirements for the best exchange that I can think of:

• MT4/MT5 Integration

This is impossible. Metatrader is a platform for retail traders who's trades always end up in one currency, which would make it impossible to withdraw both bitcoins and fiat.

I think you're wrong here (but I'm definitely not a MT specialist), MT does not make assumptions as to which pairs you're trading.

[monsterer]

First of all, you face stiff competition from an open source exchange that is already being developed based upon the LMAX arch. which is already going to be the fastest thing out there.   They are organized, have money, and support of the community and bitcoin media has already covered them.  (Don't remember the name right now).

If you are a talented c++ developer then perhaps you will want to invest your time helping to develop the Invictus / BitShare P2P exchange.

https://docs.google.com/document/d/1RLcjSXWuU9vBJzzqLEXVACSCdn8zXKTTJRN_LfoCjNY/

I dislike the LMAX architecture - it's such overkill. They've taken on the burden of a lot of the functionality of a database which is something which will cause the development time to sky-rocket along with the complexity.

I think there are other ways to achieve performance without throwing the baby out with the bathwater.

I've been a c++ developer for 10 years and I like the idea of a P2P exchange but I need to pay the bills in the short term rather than contributing my time to other projects

[monsterer]

let me restate then, I would like to be able to trade btc/usd, btc/jpy, btc/eur  via mt4

You can do that as long as you accept you'll only ever be able to deposit and withdraw BTC. In fact I think there is already a broker (note not an exchange) which will let you do this: http://bit4x.com/

[davout]

You can do that as long as you accept you'll only ever be able to deposit and withdraw BTC. In fact I think there is already a broker (note not an exchange) which will let you do this: http://bit4x.com/

AFAIK MT does not make assumptions about how you get money in and out.
If you have questions about it, you should ask kakobrekla on #bitcoin-assets, he's behind bit4x

Also, like I said, the tech is about 5% of the work required for an exchange, and you already seem to have lost quite some time by re-doing everything yourself, the business part is the tough part. If you have to learn it by yourself then so be it, but I strongly suggest you pay very close attention to this particular piece of advice.

[btceic]

let me restate then, I would like to be able to trade btc/usd, btc/jpy, btc/eur  via mt4

You can do that as long as you accept you'll only ever be able to deposit and withdraw BTC. In fact I think there is already a broker (note not an exchange) which will let you do this: http://bit4x.com/

Interesting, thanks for the link.

[monsterer]

AFAIK MT does not make assumptions about how you get money in and out.
If you have questions about it, you should ask kakobrekla on #bitcoin-assets, he's behind bit4x

I really don't need to ask, I've developed quite a few MQL4/5 EAs which integrate directly with MT so I'm quite familiar with how it works.

[davout]

AFAIK MT does not make assumptions about how you get money in and out.
If you have questions about it, you should ask kakobrekla on #bitcoin-assets, he's behind bit4x

I really don't need to ask, I've developed quite a few MQL4/5 EAs which integrate directly with MT so I'm quite familiar with how it works.

Ok, so I'll use the opportunity to clear it up for me, because I apparently misunderstand the way MT works...
So, with MT you only have one base currency, and all the rest is expressed in terms of positions on currency pairs relative to your base currency ?
Is this correct ?

[monsterer]

Ok, so I'll use the opportunity to clear it up for me, because I apparently misunderstand the way MT works...
So, with MT you only have one base currency, and all the rest is expressed in terms of positions on currency pairs relative to your base currency ?
Is this correct ?

This is correct, although you can still trade, for example EUR/JPY even if your account is funded in USD but behind the scenes there is a conversion taking place which allows you to do this but has a greater margin requirement than a trade in EUR/USD.