Topic: I would like to start my own bitcoin trading/exchange site (Read 2392 times)

Ok thanks for all the reply's, this is turning out to be a very interesting topic

First thing on my list is finding a lawyer to see what are the implications for me running an exchange.
So i guess that will take a while.

I will keep you posted!

People, this already exists, has been existing for a long time.
See bitcoin-otc + bitmarket.eu

how would you avoid fraud, scams etc. ?

How about an exchange site that facilitates contact between buyer and seller?

As in, no bitcoins or cash is kept in the websites "account" (Like Mt Gox) - rather you have a list of sell orders that sellers want to sell their bitcoins at, and a buyer comes along - picks a sell order that they like - and then the website goes "Here's their contact details... get hold of them and figure out how to exchange".

That should have no legal obligations should it - I mean after all it's just an ebay for bitcoin?

I can totally relate to that !
Kids remind us about the really important things in life

Can you share the source code with us?

if you make this new exchange work, your kid will sure be grateful  milk is more important now though!

Wow, thanks for all of your replies.... in the morning i will sit down and read it all carefuly!
Because now i have to give my son the bottle and put him to bed, you know the other things in your life that dont have anything to do with computers!

Thanks in advance guys!

It's not a personal opinion, to my honest knowledge, bitcoin is nowhere (yet) considered as money. Had it been considered as money in France I would have gone for the currency exchange license, which is approx. 38k€ which is not very much.

Yes, I think that's how events are likely to unfold in the US.

Yes, don't get me wrong, I'm not arguing that one *should* incorporate in the US.

That would be really great and very appreciated

I hate to argue in this manner (personal opinion vs. personal opinion) so I will end with this: here in the US, you can argue all you want if bitcoin is money or not, but we will not know until a judge rules on this in a court of law. Lawyers' opinion was the judge will probably rule that since it's used as money and fall under the criteria of the law, it IS money. Since that is the case, avoid being a guinea pig by incorporating in another jurisdiction. As for the EU, the lawyer pointed me to a recent EU directive that discusses specifically about things that can be used as money but are not money in the classic sense (sound like bitcoin?) I will post the link here later today, time permitting.

Bitcoin is not considered as money in any jursidiction I know of.

OK, it looks like some clarification is necessary.

In order to stay legal AS AN EXCHANGE in the US or in the EU (and yes, I did check this with two different lawyers) you need to think of bitcoin as money, and obey all regulations regarding money transmitting services, financial/banking rules etc. that apply in your jurisdiction.

This means you (as an exchange) only have two options:

1. stay low volume per day/month (like MtGox) – this makes you useless for serious businesses and/or bigger traders

2. become a fully-fledged financial institution (like PayPal) and obey all the rules and regulations coming with that – which is really expensive and kills privacy (you have to know your customer etc.)

Nothing really wrong with either one of the above, BUT... low volume withdrawals choke the bitcoin economy in the long run (if I sell $10,000 worth of widgets for bitcoin every day and I can only withdraw $1,000 per day, I certainly have a problem...) and... wasn't bitcoin supposed to be like cash not like PayPal/Bank etc. with respect to privacy?

If you incorporate in a jurisdiction where the legislation is more relaxed, you can get away with less legal trouble, be more useful the bitcoin economy, and ultimately make more money. 

My 2 cents...

Yes, I concur, an AML policy should be part of any decent exchange. We're back to the basics : get a lawyer.

How's your current progress going?

I'm not sure avoiding regulators is such a great plan long term either for your exchange or bitcoins in general. First of all it's only so long it will fly under their radar. From that point on it will either be accepted and regulated or denied legitimacy and will likely fail as a result.

Being a regulated exchange in one of the financial centres of the world comes with prestige and legitimacy you won't get by operating from somewhere with a lax regulatory framework.

One of the most serious you probably need to be aware of is Money Laundering. In most places it's a crime to facilitate it you and any of your staff could go to jail if you're not following the guidelines. You can probably even be charged if your operations are offshore and you're seen to be within jurisdiction and facilitating it. I'm not a lawyer, please do get advice.

Now I don't think the bitcoin protocol makes it easier to launder money, I believe the protocol in fact makes it more difficult to obscure where money is going (assuming you know it's original source and eventual destination). The fact of the matter is for current purposes it has to come out somewhere and that somewhere is currently the exchanges.

Money launderers like the mafia have long based their operations on cash businesses for a reason, money generally comes to them as cash and they want to get it into the financial system so they can buy things like cars and houses. Spending vast sums of money in cash is difficult and going to your bank and depositing it raises too many suspicions. So what they do is operate a cash business as a front, say a bar or restaurant. It's very easy then to just add the dirty cash to you till receipts and now you've got the extra money.

Well it's very easy with small amounts of money, and it's a lot of work. Also when the profits from your evil empire start to rise and you've got henchmen to pay you need to build more and more complex systems to hide the money trail with more front companies and dodgy invoices for goods or work between them that's never actually delivered.

Bitcoin makes this easier for investigators if they know where they suspected it entered the bitcoin economy and where it left. Unlike banks and layered companies they just follow the trail in the block chain.

For an exchange though they need to make sure they're not helping make illegitimate money look legitimate and even if you're not a primary means of getting money into the system like a bank you still have requirements to meet.

One of the main cornerstones of money laundering regulations is know your customer. You should know who they are and you should know they have the income that can support the transactions they're attempting. You also have to watch out fo suspicious account activity, large amounts in then back out quickly at a loss are a red flag. Amounts in then out to a third party is another red flag.

As a financial business YOU are required to report suspicious activity, not just help investigators. Failure to do so means jail. You are also prevented from letting the suspected party know in anyway that they are suspect.

Exchanges as they exist right now probably manage to keep under the limits for the regs to apply but eventually they're all going to have to face up to them and they're all going to have to go legit or die off.

I work in the financial services industry as a programmer, I never see customer data but I am legally required to know how to spot suspect transactions and who I have to tell if I do. I'm also required to undertake yearly refresher training on money laundering regulations - it's not complicated the above pretty much sums it up, but I'm sure it's a different kettle of fish if you're the boss or the point of contact with the regulator.

dr.bitcoin should first clarify what exactly is only possible in the three mentioned jurisdictions

I can buy and sell bitcoins in the EU without any problem, I can even sell to someone and simultaneously buy from someone else with a small spread, what would be wrong with that ?

davout, would you care to elaborate?

Untrue

If you are willing to invest the time, effort and money needed to provide a good service, please DO NOT incorporate it in the US or EU. Belize, Panama and Costa Rica are 3 places where you can still do this legally and without laughable daily/monthly limits etc. BTW, Liberty Reserve is incorporated in Costa Rica, I would presume they know why it's better than the other two.

True, but US Dollars are.  Again, you gave good advice, get a lawyer.  Just because it's not "technically" a currency doesn't mean the US government won't use those laws to shut it down.