The cost of owning/operating a Bitcoin exchange

[B.A.S.]

How much does it cost to open/operate an exchange from a non-regulatory stand point?

[RyNinDaCleM]

How much does it cost to open/operate an exchange from a non-regulatory stand point?

Factors:
Development- Someone has to write the code for the front/backends.
Hosting-PC's just won't cut it.
Security-SSL certs, audits
Staff- There needs to be someone available 24/7 to fix any problems that arise


If you are in the US and if you did want to factor in regulations, you better have $500k+. A money transmitter license alone can be $100-200k iirc.
http://www.grimeslawaz.com/technology-and-licensing/money-transmitter-licensing/

The cost for becoming a licensed money transmitter in all 53 states and territories with individual licensing requirements is approximately $176,226.

Then there are other regulatory fees as an exchange, I'm sure.

[1Referee]

How much does it cost to open/operate an exchange from a non-regulatory stand point?

Factors:
Development- Someone has to write the code for the front/backends.
Hosting-PC's just won't cut it.
Security-SSL certs, audits
Staff- There needs to be someone available 24/7 to fix any problems that arise


If you are in the US and if you did want to factor in regulations, you better have $500k+. A money transmitter license alone can be $100-200k iirc.
http://www.grimeslawaz.com/technology-and-licensing/money-transmitter-licensing/

The cost for becoming a licensed money transmitter in all 53 states and territories with individual licensing requirements is approximately $176,226.

Then there are other regulatory fees as an exchange, I'm sure.

These rules are understandable quite heavy.

Do these same rules also apply when it comes to altcoin exchanges without fiat markets?

[B.A.S.]

I always have been genuinely curious about the barriers to entry. Currently, I see exchanges as the sole limiting factor in Bitcoinland. They are so rife with corruption (or at least the susceptibility to it or theft). Many have investor backing, but is that fiat being put towards BTC/fiat solvency or is it being used for something else.

Opening a platform, accepting customer fiat and writing Bitcoin IOUs in theory requires very little starting cash (not factoring in MT licensing, regulatory anything, etc.). Once the fiat pool is large enough, you would have enough cash flow to cover the risk and could potentially invest it through your own exchange.

[RyNinDaCleM]

I always have been genuinely curious about the barriers to entry. Currently, I see exchanges as the sole limiting factor in Bitcoinland. They are so rife with corruption (or at least the susceptibility to it or theft). Many have investor backing, but is that fiat being put towards BTC/fiat solvency or is it being used for something else.

Opening a platform, accepting customer fiat and writing Bitcoin IOUs in theory requires very little starting cash (not factoring in MT licensing, regulatory anything, etc.). Once the fiat pool is large enough, you would have enough cash flow to cover the risk and could potentially invest it through your own exchange.

It is fairly cheap if you can write the code yourself. A good dev can fetch $70+ per hour and upwards of a couple hundred Dollars an hour so not exactly cheap to just start pushing fiat/coins around. Expect 2 months+ for dev time. Then you have to test the everlasting shit out of it (TRY to break it because it's better to break it in a controlled manner than to go live and find it the hard way). Then you may have to put out for a little more dev time because code that is so complex is rarely bug free on the first try.
Investors put up cash to help with start-up costs and operational costs until the exchange is well established. After that, the exchange is somewhat self sufficient except in the case where a major breach happens. But if you limit risk by having no web facing wallets, then you might be alright.

[B.A.S.]

Appreciate the insight. I do not possess the coding knowledge, but have many colleagues who do and I have a few favors in the bank. I am in the US, so this is all pretty much impossible it seems given the uncertain legalities surrounding exchanges, large upfront costs, etc., but none-the-less interesting.

Once the need for exchanges dies off, I wonder where they will go? I figure businesses in the future won't need them as they will have their own built in fiat/BTC payments systems and possible means of exchange conversion.

[Nagle]

Opening a platform, accepting customer fiat and writing Bitcoin IOUs in theory requires very little starting cash (not factoring in MT licensing, regulatory anything, etc.). Once the fiat pool is large enough, you would have enough cash flow to cover the risk and could potentially invest it through your own exchange.

That's called "speculating with customer funds" and is a felony in many jurisdictions.

Running a Bitcoin exchange is cheap until something goes wrong. Then it's very expensive.

[RyNinDaCleM]

How much does it cost to open/operate an exchange from a non-regulatory stand point?

Factors:
Development- Someone has to write the code for the front/backends.
Hosting-PC's just won't cut it.
Security-SSL certs, audits
Staff- There needs to be someone available 24/7 to fix any problems that arise


If you are in the US and if you did want to factor in regulations, you better have $500k+. A money transmitter license alone can be $100-200k iirc.
http://www.grimeslawaz.com/technology-and-licensing/money-transmitter-licensing/

The cost for becoming a licensed money transmitter in all 53 states and territories with individual licensing requirements is approximately $176,226.

Then there are other regulatory fees as an exchange, I'm sure.

These rules are understandable quite heavy.

Do these same rules also apply when it comes to altcoin exchanges without fiat markets?

If you look at cryptsy, they have a FinCEN number. They do now deal in fiats, but they had that number well before the fiat markets opened. Since the people in control say Bitcoin is a "property" but the exchange of it for profit still constitutes capital gain, and with the shit surrounding Mike Caldwell (Casascius) and money transferring, I wouldn't doubt that you would still have to have something with a pure crypto exchange.

[B.A.S.]

If you look at cryptsy, they have a FinCEN number. They do now deal in fiats, but they had that number well before the fiat markets opened. Since the people in control say Bitcoin is a "property" but the exchange of it for profit still constitutes capital gain, and with the shit surrounding Mike Caldwell (Casascius) and money transferring, I wouldn't doubt that you would still have to have something with a pure crypto exchange.

What about opening an exchange that allows the user to trade on the exchange against fiat currencies, however; at time of sale, gives a sum in crypto that equates to the user chosen currency? No fiat is transferred ever.

[Amph]

they will not close because of this drop for sure, they can sustain their work even at a much lowest price than this

[JamesBrown]

they will not close because of this drop for sure, they can sustain their work even at a much lowest price than this

Even more than that, I believe they are enjoying it.

[RyNinDaCleM]

If you look at cryptsy, they have a FinCEN number. They do now deal in fiats, but they had that number well before the fiat markets opened. Since the people in control say Bitcoin is a "property" but the exchange of it for profit still constitutes capital gain, and with the shit surrounding Mike Caldwell (Casascius) and money transferring, I wouldn't doubt that you would still have to have something with a pure crypto exchange.

What about opening an exchange that allows the user to trade on the exchange against fiat currencies, however; at time of sale, gives a sum in crypto that equates to the user chosen currency? No fiat is transferred ever.

That would be akin to CFD ((Contract for Difference) which is illegal in the US), futures or perhaps kind of like a pure crypto binary options.