Cryptocurrency Exchange License vs. Wallet License: Which Do You Need?

• Any operator looking to enter the rapidly growing cryptocurrency exchange market needs a Cryptocurrency Exchange License. The global market stands at approximately US$30.18 billion in 2021 and is estimated to reach US$264.32 billion by 2030 at a fantastic CAGR of 27.8%. There is such an increase in demand that only licensed exchanges will do. One such reason that is seen to lead to such growth is digital asset adoption and mobile-based trading platforms, with more than 762 exchanges for cryptocurrencies all over the world processing an impressive US$308.05 billion trading volume daily. Since the regulatory landscapes are constantly transforming, and most jurisdictions already use licensor licensing, acquiring a Cryptocurrency License has become a pre-requisite for building user trust and ensuring adherence to set standards that would increase transparency and relatively decrease risky money laundering and fraud practices. 

• Tetra Consultants will guide you on how to obtain a Cryptocurrency License in the jurisdiction of your choice at Tetra Consultants. We offer our professionals all-rounded support for the appropriate kind of license offered to you, whether that is a Cryptocurrency Exchange License or a Wallet License, depending on your business model and your objectives. Having our support guides you through these complexities in the hassle of obtaining any licensing, and the compliant, robust foundation that you establish in the crypto market at a more than rapt speed. 

What is a Cryptocurrency Exchange License? 

• A license to operate a cryptocurrency exchange is legally granted to entities wanting to operate a cryptocurrency exchange at which buying and selling of digital assets are conducted, enabling them to facilitate the buying, selling, trading, and other dealing in digital assets. It ensures such businesses comply with local regulations and also maintains the integrity of the financial system. The issuing of such a license is jurisdiction-dependent, but, as a rule, a business should confirm adherence to AML and KYC standards and implement certain standards of operational activity.  

• For instance, some countries, such as the UAE or Kazakhstan, demand from businesses fulfillment of certain regulatory expectations of an authority of a country, such as Monetary Authority of Singapore or Astana Financial Services Authority. These might include more detailed documentation in other areas, such as the business model, financial health, and compliance mechanisms, in a licensing process. The validity received by the company from licensing a cryptocurrency exchange enhances the regulators' perception of the company and the trust of customers to operate legally in multiple markets, further improving opportunities for business. 

What is Wallet license? 

• A cryptocurrency wallet license is a license granted to companies so that they can provide an e-wallet facility or virtual token wallet for storing, managing, and transferring cryptocurrencies. Therefore, business houses providing an e-wallet or a virtual wallet for token service require an appropriate license to carry out their activities within the limits of any legal regulatory framework. The requirements for a license to operate a cryptocurrency wallet vary from one jurisdiction to another, but they are generally significantly based on adherence to Anti-Money Laundering and Know Your Customer regulations, as well as robust protection measures for users' funds. 

• With the wider popularity of cryptocurrencies, wallet services are in great demand with regard to security and reliability. A cryptocurrency wallet license not only verifies the validity of the ongoing business but also inspires confidence in it, ensuring the company is working according to prevailing regulatory standards. Such licenses are issued by relevant financial authorities in various countries and require detailed documentation about the business model, operational procedures, and compliance protocols before granting approval. Cryptocurrency wallet companies can facilitate secure transactions and manage customer assets with reduced legal risks while operating in the cryptocurrency space through a cryptocurrency wallet license. 

What is the difference between Cryptocurrency Exchange License and Wallet License? 

The purpose of license: 

• Cryptocurrency Exchange License: A license to operate a cryptocurrency exchange would thus empower businesses to engage in buying and selling or trading of cryptocurrencies against other cryptocurrencies or fiat currencies. 

• Wallet License: A license allowing companies to provide digital wallet services to securely store, manage, and transfer cryptocurrencies. 

Type of service: 

• Cryptocurrency Exchange License: They enable the holders to organize the exchange of different kinds of cryptocurrencies and fiat currencies, thus making it possible to trade. 

• Wallet License: Licensable user services include the creation of services and private key storage to avoid theft of a user's cryptocurrency. 

Regulatory requirements: 

• Cryptocurrency Exchange License. Here, adherence to more rigid regulations, including AML and KYC protocols, is a must due to the generally considered riskier nature of trading transactions. 

• Wallet License: Still AML and KYC standards but, will be relatively less stringent than those for an exchange when it comes to safety measures that should be in place to protect users' funds. 

Risk exposure: 

• Cryptocurrency Exchange License: Exchanges are more prone to risk as their operations are, due to market volatility and tendency toward fraud or hacking, requiring tough security and compliance frameworks. 

• Wallet License: This wallet providers mainly manage private keys and user funds, so they are vulnerable to risks due to security breaches, but not typically the same kinds of market risk as the exchanges. 

Market operations: 

• Cryptocurrency Exchange License: an exchange is a firm which engages actively in market activities through trade facilitation and the provision of liquidity among users. 

• Wallet License: The wallet providers are not allowed to trade. They provide only the wallet that will be used to add security to the assets as stakeholders. 

User engagement: 

• Cryptocurrency Exchange License: Users interact with the exchanges to exercise trades, requiring usually real-time transaction capabilities. 

• Wallet License: The licensees meet primarily to store and manage their cryptocurrencies; thus, this wallet is more concerned with security rather than trading activities. 

Examples of licensing authorities: 

• Cryptocurrency Exchange License: A License to Operate a Cryptocurrency Exchange issued by entities, such as the Financial Crimes Enforcement Network (FinCEN) in the U.S. or Monetary Authority of Singapore (MAS). 

• Wallet License: Also issued by the financial regulatory agency but may vary depending on jurisdiction-specific requirements regarding the custody of digital assets. 

Conclusion 

• Between a Cryptocurrency License and a wallet license, which one do you go for? It depends on the needs of your business and the scope of operation. What Tetra Consultants can help with making the right choice for you while keeping all the regulatory requirements in check. Beyond licensing, we also offer several other business services such as nominee director and shareholder services, offshore banking license, offshore company incorporation, and more. With Tetra Consultants, you are assured of receiving full support towards setting up a compliant, thriving crypto business. 

• Contact us to know more about Cryptocurrency Exchange License and our team will revert back in 24 hours.