Planning to start a crypto business to sell digital assets or manage them on customers’ behalf? Well, before doing anything, you’ll need to secure licenses so you can perform those actions legally and in compliance with your state-specific rules.
However, crypto licensing is not a one-size-fits-all thing. Different tasks require different approvals and licenses, and in today’s article, we’re going to cover the 4 most common ones.
Let’s get started.
Crypto Exchange License
A Crypto Exchange License is an official government authorization. It allows your business to legally operate a trading platform where users can buy, sell, or trade digital assets. It also allows the exchange of cryptocurrencies for traditional fiat currencies like US Dollars or Euros.
However, to obtain and maintain this type of crypto licensing, your business must comply with strict rules set by various financial watchdogs. For example, you need to fully comply with AML and CFT protocols. You also need to meet the minimum charter fund or net worth requirements. These can vary widely by jurisdiction.
If you’re operating locally, you will also be required to appoint a qualified compliance officer for your business.
Crypto Custody / Wallet License
This license is also a regulatory permit issued by a financial authority. This allows you to store private keys or client crypto assets using secure infrastructure (such as cold offline storage).
You can even manage hosted or custodial wallets, where the provider – rather than the end user – holds the recovery keys. This enables account recovery if a password is lost. This license also requires the custodian to keep client funds strictly separated from your company’s corporate balance sheet.
Now, who does actually need this license?
So, exchanges and brokers that hold customer coin balances before or after a trade must get this. Similarly, companies that offer safe storage solutions for hedge funds and crypto-backed ETFs need this as well.
Payment Processing / Transfer License
A crypto payment processing or transfer license is issued by a national or regional financial regulator. It allows a business to lawfully handle, process, transfer, or store digital assets on behalf of customers.
You can move cryptocurrency from one payer to another or across different blockchain addresses. You can also act as an intermediary that accepts crypto from customers and settles the funds either in digital tokens or in fiat currency.
But why is it required in the first place?
So, it transitions your platform from an unregulated or “gray-area” service to a supervised financial entity subject to transparency requirements. Traditional banks and payment rails also typically refuse to work with platforms that don’t have this license.
Token Issuance License
A crypto token issuance license (or ICO/STO authorization) is a formal regulatory approval that permits your company to issue and sell digital tokens to investors.
Because governments treat digital assets differently depending on their function, the requirements of this license depend heavily on whether you’re issuing a utility or a security token.
This authorization will make it clear that the token sale follows anti-money laundering and investor protection laws.