How to create your own crypto exchange in Bulgaria?
The creation of a financial project related to the trading of crypto-currencies in Bulgaria is a process that hides several detailed questions, having for its object specific legal, financial and technological aspects. Crypto exchanges are digital market, financial platforms that allow users to buy and sell cryptocurrencies. Cryptocurrency exchanges may also support trading in other digital assets, such as non-fungible tokens (NFTs). Cryptocurrency exchanges function similarly to traditional exchanges with two important exceptions: there is no physical presence in trading, i.e. crypto exchanges are strictly digital markets. Cryptocurrency exchanges are similar to digital money markets, except that the majority of supported currencies are cryptocurrencies. Crypto exchanges also support a number of fiat (issued by governments) currencies, and trade in so-called stable coins (from the English "stable coins"), which are one-to-one with a specific fiat currency (for example, the crypto currencies USDT and USDC are one-to-one one with dollars).
In order to start the implementation of such a project, the legal and regulatory framework, the necessary licensing regimes and the means of collaboration with the legal entities that would trade cryptocurrencies, including their creators, should be analyzed in detail. As I already mentioned, crypto exchanges are blockchain platforms through which cryptocurrencies are traded, and they are also a technological tool that provides liquidity in the market, but also legal and software security, in order to guarantee the transfer of funds and unification in a common instrument of demand and the supply of blockchain financial assets. There are different types of crypto exchanges – crypto brokers, centralized exchanges and decentralized exchanges depending on the technological, financial, regulatory and legal approach of each such project.
Centralized crypto exchanges are controlled by a single group or organization, such as a publicly traded corporation or private company. Decentralized exchanges (DEX) are controlled by technological protocols that enable large groups of people to efficiently make decisions and reach consensus. Decentralized crypto exchanges are an application of decentralized finance (DeFi). Users can buy almost any cryptocurrency on decentralized crypto exchanges, while centralized exchanges are more likely to screen and limit their supply.
In turn, centralized cryptocurrency exchanges often support various fiat currencies, backed in many cases by a given government. Decentralized crypto exchanges typically only integrate with a few forms of fiat money. From a user-friendliness perspective, the best centralized crypto exchanges are usually easy to use, while decentralized exchanges may require specialized knowledge to access.
If we talk about the "custody of users' funds" issue, we should say that centralized crypto exchanges have custody of users' cryptocurrency assets held on the exchange, while users of decentralized crypto exchanges retain full control over their digital assets. As for privacy, decentralized cryptocurrency exchanges can allow users to transact in complete anonymity, and centralized exchanges are required to collect personal information about users during registration.
If we focus on security as a key requirement for the functioning of crypto exchanges at a technological level, I should note that decentralized cryptocurrency exchanges - if fully decentralized to larger user bases - can be more secure than centralized cryptocurrency exchanges. cryptocurrencies, as users' personal information is not stored in any central location. In this context, you should consider that centralized crypto exchanges can be vulnerable to cyber attacks.
1. Formation and structuring of a crypto company .
The company that will operate as a crypto exchange in Bulgaria should be registered as a commercial company - EOOD, OOD or AD, depending on the purpose of the partners and whether the purpose is a post facto listing on the stock exchange in order to raise capital. In this context, practice shows that most commercial companies that focus on this type of activity in Bulgaria are EOOD (a total of 14 such companies), OOD - 5 such companies (at the moment), EAD - two such companies and one limited partnership (KD).
There is no obstacle for the company that is registered as a crypto exchange on the territory of Bulgaria to be a subsidiary company of a company ("mother") based in a relevant crypto destination such as Malta, Estonia, Great Britain, the Virgin Islands, the UAE, Hong Kong, the USA or in an offshore area like the state of Delaware, Cyprus, etc.
The reference from the Commercial Register indicates that most Bulgarian companies operating in the area have commercial representation and mediation, trade in crypto currencies and blockchain assets. Until recently, the practice of the Trade Register was restrictive and registration of companies with a subject of activity similar to "cryptocurrency trading" was not allowed, but today this practice is being liberalized.
There is no requirement for a minimum authorized capital for the companies that will operate as crypto exchanges in Bulgaria, so they can also bring a symbolic one - some of the companies in question have a capital of BGN 100. My opinion as a lawyer is that, however, in view of the security of civil turnover, this approach should be changed and such companies should have a minimum threshold of not less than BGN 10,000 in order to be able to guarantee that the transactions are not consumers and are not legal entities emptied of content to be used for fraud and other unscrupulous practices.
2.Registration mode in the NRA .
Natural and/or legal entities, who by occupation provide services for the transfer or exchange, storage or management of virtual assets, allowing control over them, as well as services related to the public offering of virtual assets, are subject to entry in an electronic public register to NRA (Article 9a, Paragraph 1 of the Law on Measures Against Money Laundering). This innovation follows the changes adopted by the National Assembly of the Republic of Bulgaria in the ZMIP and Ordinance No. H-9 of August 7, 2020, which entered into force on March 22, 2024. Currently, there are a total of 23 companies entered in this list . Registered natural persons - none .
Companies and individuals subject to entry in the register must submit an application immediately before starting their activity . It is sent to the revenue agency electronically with a qualified electronic signature to the email: This email address is being protected from spambots. You need JavaScript enabled to view it. or through the Secure Electronic Delivery System (SED).
2.1. The following documents are attached to the application :
2.1.1. Declaration according to the model, according to Appendix No. 1a, signed with a qualified electronic signature, declaring the absence of a conviction for an intentional crime, the fact that the person was not in a management company declared bankrupt, and that he was not deprived of the right to hold a materially responsible position (Article 9d, Paragraph 1, Items 2 and 4 of the Civil Code);
2.1.2. For individuals who are not Bulgarian citizens - a criminal record certificate or other similar document certifying the absence of convictions for an intentional crime of a general nature (Article 9d, Paragraph 1, Item 1 of the Criminal Code);
2.1.3. For persons who are not Bulgarian citizens - a document from an independent official source from the relevant country according to the person's citizenship or permanent residence, or another equivalent document certifying the absence of circumstances falling under restrictions for holding a senior management position (Art. 9d, para. . 1, item 3 of ZMIP);
It is necessary that the documents under items 2 and 3 are accompanied by a translation into Bulgarian and certified by a qualified electronic signature of the applicant or the person authorized by him. Citizens can also submit the application for entry in the register through an intermediary (Article 24a of the Law on Electronic Government). In this case, it is necessary to attach a copy of a notarized power of attorney certified with an electronic signature to the application.
For entry in the public register, a fee of BGN 50 is paid (Article 41 of the Law on State Fees, Tariff No. 12 on Fees),
2.2. The registration fee is owed by the following legal entities :
- persons who, by occupation, provide exchange services between virtual currencies and recognized currencies without gold cover, services for the transfer or exchange of virtual assets, services for the storage of virtual assets and their management, enabling the exercise of control over the assets, and services, related to public offering of virtual assets;
- the providers of wallets (we are talking about hosted wallets) that offers custodial services.
The amounts are paid to the account of the National Revenue Agency at the BNB, Sofia, Knyaz Alexander I Square, No. 1:
IBAN: BG51BNBG96613100174901
BIC: BNBBGGSD
The certificate of registration is drawn up as an electronic document, signed with a qualified electronic signature, sent to the registered person at the electronic address indicated by him and attached to his lot. No entry is made in the register of persons when:
2.2.1. the required information is not provided or the information provided is incomplete, contradictory or incorrect, or the said irregularity is not corrected;
2.2.2. in the last two years before the date of submission of the application, the person was sanctioned under Art. 116, para. 2 and 3 of the Law on Measures Against Money Laundering and/or under Art. 15, para. 2 and 3 of the Law on Measures Against the Financing of Terrorism with an effective criminal decree;
2.2.3. the circumstances under Art. 9d, para. 1 of the Law on Measures Against Money Laundering.
It is important to note that persons already entered in the public register should submit in the period from 22.03. until 22.05.2024, an application for a change in the register (Article 9a, Paragraph 1 of the ZMIP), together with the above-mentioned documents.
No fee is payable when submitting an application to change data in the public register. In the event that an application is not submitted within the specified period, the persons are ex officio deleted from the register.
3. General terms and conditions of your crypto exchange.
The growing number of crypto frauds, precisely through the legitimization of supposed "crypto exchanges" in front of users, leads to a requirement for transparency and awareness of every crypto project. That is why the site of every Bulgarian crypto exchange must contain clear and precise general rules regarding how the client becomes a user of the system, how he acquires his own hosted wallet (with the presumed public and private key), how he invests his fiat (real) money, what bank /card services are offered to power the wallet. In view of the above, the general rules of the crypto exchange must also contain protocols for the protection of personal data under the GDPR (so-called "know your customer" or "KYC" protocols), including the right to be pseudonymized or forgotten, as well as protocols for anti-money laundering measures (“Anti money laundering” or “AML”). What is important is that "cash out" fees should also be specified when leaving the project or turning a user's crypto investment into fiat money.
Author: Мr. Atanas Kostov - blockchain attorney