Bootstrapping a Cryptocurrency Exchange in 2018
Where it began
The following sets the scene for the inception of Coinstock.io, an alt-coin cryptocurrency exchange in the making:
It was December of 2017 and Crypto-mania was in the air. I found myself having conversations about cryptocurrency everywhere I went. From co-workers in the office to family members to random strangers in Starbucks, everyone seemed to want in on the action. There seemed to be one limiting factor that was holding most people back. They just couldn’t easily buy what their altcoin of choice. They were waiting on verification at some exchange or another or trying to get their buying limit raised, or trying to figure out how to transfer their coinbase-purchased Ethereum or Litecoin to Binance with the right trading pair while incurring the fewest possible transaction fees. Speaking of Binance, have you seen that interface? It’s a little bit intimidating for the average user who has never day-traded.
It seemed like most people had heard of Bitcoin of course but what about Ripple, or Tron? What about Dentacoin? A lot of people I talked to seemed to know a little about bitcoin and its history. Some even knew a bit about blockchain technology. But what everyone seemed to know most about it was that they “missed the boat” on it’s recent meteoric rise. People wanted to get on the next “bitcoin”. Others wanted to diversify. A few of us fashioned ourselves as participants in the evolution of digital currency and wanted to “invest” in the technology.
In the midst of this hype a friend of mine came to me and said, “I’m tired of giving family and friends walkthroughs on how to do this. Let’s build our own exchange.” And so it began. We wanted to build something that had the ease of coinbase but still offered all the trading options of Binance and others. Our focus would be purely on Altcoins. We would build a mobile-friendly interface that emphasized simplicity and usability from the ground up. We founded Coinstocks.io, a US based exchange that would focus on bringing Crypto Trading to everyone.
The Path to MVP (Minimum Viable Product)
We decided to just jump into it and start building out the exchange. Luckily we were both software engineers, so we could do this without much cost, spending our evenings and weekends while still keeping our full-time jobs. After all, we each had a family and a mortgage to keep up with. We broke down our product into three core tenets. The platform would be a collection of systems and services that manage:
1. the trading interactions between users,
2. facilitating the dynamic trade transactions between coin pairings,
3. and interact directly with a FIAT gateway.
After a few months we hammered out the interface and back-end. We started with support for Ripple and then added Ethereum and several ERC20-compliant tokens. Things were starting to look good.
We were operating on Ripple and Ethereum testnets and things seem to work for the most part. At this point we knew we had an untested product that no one knew about so we put forth a meager attempt at spreading the word. We recorded a rough video explaining the features and posted it on the Ripple sub on reddit. We also started up a telegram channel and included the link. We got some lackluster feedback and the post was ghost-banned within 12 hours. We wrote it off the poor attempt at marketing. But then people began to show up in the telegram channel. After a few days we had a few hundred. Then one morning I woke up and saw we had over 10,000 join in the span of a few hours. One of our early users had tweeted our link to his followers, which was apparently not an insubstantial amount. We quite suddenly had an audience.
We jumped on this opportunity by inviting people to beta-test our exchange on the testnets. We had also made our own token, IOX (IO Exchange), which would ultimately be used as a utility token to pay fees and facilitate community votes, much like Binance’s BNB coin. We decided we could reward people’s participation in the Beta test with some airdrops and bonuses.
Beta participation surpassed our expectations. Unfortunately (or perhaps just the opposite) many bugs were discovered and our software didn’t work perfectly from inception. Go figure. In particular we had some scaling issues. We quickly got to work fixing bugs and adding some requested features, fixed our scaling issues (mostly with websockets) and quickly followed up with a 2nd Beta. Again, the participation level was very high. Even better, everything scaled beautifully.
We had over 100,000 User registrations now and some great feedback from our community. One of the things that fell by the wayside in our rush to MVP was the mobile interface. In between our beta’s we focused on strengthening the mobile experience.
As part of our revamp for mobile we re-did the trading interface to emphasize our dynamic pairing feature. This is a powerful feature that sets Coinstocks apart from most other cryptocurrency trading platforms. Many exchanges only pair alternative coins with certain coins, (e.g. — Bitcoin, Ethereum, Litecoin, USDT, are the most common pairing base coins). Coinstocks is unique in this respect because any coin that can be traded on the site is able to dynamically be paired with any other coin on the site for trading (thus reducing transaction the additional transaction fees required to go from one alternative coin to another).
Based in the U.S.
Early on we had decided we would be a U.S. based exchange. For one, that’s where live. Secondly there is an issue of trust with foreign exchanges. We wanted to embrace transparency and regulation so people would feel safe with their investments and trades. Also it seemed that among the US based exchanges, few alternate coins were being offered. In order to trade these alternate currencies users had to withdraw funds from trusted exchanges (incurring additional transaction fees) and settle for using higher risk exchanges with unknown regulations. Many users that support Coinstocks have expressed a huge interest in being able to trade these alternate coins on a US based exchange and not have to transfer funds to internationally based exchanges with unknown regulations and little transparency.
Opening a US-based exchange in the US is not a small endeavor, but we firmly believed that with persistence and help from the community we can succeed at making Coinstocks a leading cryptocurrency exchange for the US market.
A Finished Product and the Matter of Funding
We’d come a long ways from our initial conversations. We’d actually built a fully-functional, tested product (beta-tested by more than 25,000 users) that went well beyond a simple MVP. We’d refined our tech stack and made it so it could easily scale.
We had more to do for sure. Feature ideas and feedback were still coming and we of course wanted to continue to improve our tech with better, more efficient order-matching algorithms and such. We even found a bank that would handle our FIAT Gateway(bank-issued currency) that would allow our users to buy and sell with U.S. dollars. But with that came the requirement for verifying all regulation, which we did not have yet.
With operating in the U.S. comes some significant legal costs. On the state level we would need money transmitter licenses and be bonded. On the federal level we would want to be sec-regulated and ensure we are not breaking any securities laws. We started to consult with legal counsel and found all of this is definitely doable, it’s just a matter of legal resources. This would be our main cost bottleneck to get started.
I think it’s important to mention here that Coinstocks.io is not VC-backed and at this time has no investors. To date all the money we’ve put into Coinstocks.io has been our own personal money. We had already burned through all if our personal reserves and were starting to go into debt. The path forward was not sustainable. We were not opposed to equity investment but only at a level that would allow us to address the legal requirements and provide ongoing support and development for the exchange. We would began our search for investors but in the meanwhile there was a method of crowd-funding that had grown quite popular lately.
Token Sale Event
We already had our own utility token. We could do a Token sale event and try to raise the money from the community. We’d give backers early access to the exchange and they could use the IOX token to pay fees at 50% off. We’d seen a lot of token sales popping up in the cryptocurrency space lately (not all of them legit). But we figured we had an edge over most of them. We weren’t just talking about building some technology in the future. We had actually made a product. Optimistically we launched our token sale.
The Token sale is still live at this time so we’ll have an update after its concluded. It’s been quite a journey so far and we wouldn’t have gotten this far without a kick-ass community to back us. We now need to get the word out. We are very much operating at a grass-roots level here and could use all the help we can get. If your interest is peaked, you can checkout coinstocks.io and check us out some more. Our limited Demo is now up for the public as well. Feel free to register for free and check out the full functionality of the exchange.
We’ll leave you with a video interview which may provide further insights on our goals and vision for Coinstocks:
