Hi there! The fact that you’re here, reading this, means that you’re in the market currently looking to start your very own crypto exchange, or maybe you’ve heard how people are becoming millionaires overnight through their crypto exchanges. Whatever your reasons are, keep reading because this article contains all the information you’ll need to start your crypto exchange platform.
Things to Consider Before Starting a Cryptocurrency Exchange
The first step when it comes to starting a crypto exchange is to decide what kind of platform it’s going to be. Crypto exchanges can be classified into one of two categories based on how they operate, they are
- Centralized crypto exchange (managed by a central entity/entities) — CEX
- Decentralized crypto exchange (no central ownership) — DEX
There’s also a third hybrid option, which claims to provide the best of both worlds, but we’ll come back to that later.
CEX vs DEX
In layman’s terms, a CEX is when you rely on a third party to run the exchange and protect your funds. DEX, on the other hand, puts the responsibilities of exchanging and protecting funds or assets directly in the hands of the users.
To explain it more technically, CEX relies on company-owned servers, and the company takes responsibility for maintaining the network and storing your data. This keeps things simple and easy for the users, providing high liquidity with a large user base, but at the cost of privacy as all users must reveal their identities or other sensitive information, with which the company may do as they please. CEX is also less secure, as relying on one single entity with maintaining the network and data means that the entire system has one big point of failure, and if the company goes down, the CEX goes down with it.
DEX, on the other hand, uses peer-to-peer connections on a blockchain network, without the need for a 3rd party to supervise the users and their activities. Users remain anonymous and the network is more secure, however, DEX platforms are a bit harder to use, and have a much smaller user base and less liquidity compared to CEX, as well as slower transactions.
So the choice boils down to what kind of audience you want to cater to: CEX works best for newbies and not-so-tech-savvy folk, and DEX is better suited for a crypto nerd-saturated user base.
Key Features and Components of a Cryptocurrency Exchange
Regardless of which type of exchange you decide to go with, there are a few key features that can be applied to all crypto exchanges. Although these are always subject to change due to evolving trends and the underlying technology. This section will give you a bird’s eye view of everything that makes a crypto exchange tick- No, Don’t be scared! It’s not rocket science, I promise!
The first thing to consider is how to provide your users with a simple and interactive onboarding experience. Verification is an important part of crypto apps, especially CEX, to minimize fraudulent activities and maintain transparency. Two-factor authentication and anti-bot verification (and throw in a few more KYC features while you’re at it), go a long way toward making your crypto exchange platform a better place for everyone.
Okay, so technically the UI isn’t exactly a feature, but worth talking about when it comes to starting a crypto exchange. UI is arguably one of those things that could make or break your crypto exchange. Besides the obvious stuff like quick access to cryptocurrency exchange features such as order history, fund withdrawal, Creating and canceling orders, and Customer support, consider adding more pictorial elements. Candlestick graphs are the most commonly used but feel free to come up with your stuff when designing the UI, as long as it’s not too over the top or convoluted.
Notifications are also a must-have for any NFT marketplace, and doubly so if you also want to incorporate mobile apps. Constantly nagging users to take a look at what’s going on in the market probably sounds annoying, but due to the constantly fluctuating nature of the NFT market, notifications are vital and users will thank you for keeping them updated.
Digital wallets are software entities that allow users to make electronic transactions using virtual currency. A good wallet should integrate a wide selection of cryptocurrencies, and Integrate multi-wallet functionality, as well as Integrate with leading banks (for CEX) and payment gateways to facilitate fast transactions. Since different tokens will require separate wallets (or addresses), you need to meticulously address these issues, which can get pretty tricky if you’re not tech-savvy.
To give you a better understanding of how wallets can be implemented, let’s consider the most popular Bitcoin wallets, which are divided into hot wallets and cold wallets.
Hot wallets are linked to the internet, making them less secure because they are exposed to attacks by fraudsters and such.
Cold wallets store crypto tokens offline, offering improved security. The downside is that cold wallets are less accessible compared to hot wallets, making them harder to use. By giving users the ability to transfer funds between hot wallets and cold wallets, the bulk of their tokens can be secured with cold wallets and small amounts can be kept in hot wallets for quick access.
This one is self-explanatory, so let’s keep this section short. An admin console enables the exchange operators or admins to manage operational aspects of the crypto exchange, with options for adding new currencies, crediting/debiting funds, and handling support-related issues. However, additional features can be added to meet the specific requirements of your platform.
This goes without saying, but let’s go over it for the sake of thoroughness. The “crypto” in cryptocurrency stems from the word cryptography, which is a way of ensuring information security such that only the sender and intended receivers can view the information. Security is implied in the name, and it cannot be stressed more that no cryptocurrency exchange can exist without having extreme security measures in place which go way beyond enabling bio and two-factor authentication.
The trading engine does most of the heavy lifting, such as processing information about prices and commissions, showing possible transactions, matching offers and bids, creating schedules, and more. You would need an experienced team of developers to build an effective architecture, upon which the rest of the exchange can be built.
API is a piece of software, or more commonly a standard that tells the software how to build connections and maintain them.APIs are responsible for keeping your exchange up to and running. While implementing an API for your cryptocurrency exchange platform, keep an eye out for the following jargon
- Private and Public API
- FIX Protocol
That concludes the basics. Besides the stuff that has been mentioned, there are a ton of other details that must be ironed out, such as legality, DNSSEC, analytics, etc, and are complex enough to have separate articles of their own, which we might release in the future.
Crypto Exchange Architecture – a Simplified View
This section will explain all the building blocks and how they fit together, without getting too technical. The main components of any crypto exchange are
- Trading engine – The heart and soul of the exchange. As discussed above, this forms the core of all the functions performed by the platform.
- Multi-cryptocurrency wallet generator – By automating the process of generating wallets for every user, the onboarding process is sped up drastically. Sometimes, customers receive multiple wallets, all of which must be synced with their internal wallets for efficient funds movement.
- Authentication server – A server for KYCing and authenticating your customers.
- Front-end eye candy
Steps to Start a Crypto Exchange
With all that out of the way, we can finally get into the steps involved in starting a crypto exchange.
- Step 1: Decide whether you want to build your exchange from scratch, or to go for white-label software – Both have inherent advantages and disadvantages. Building from scratch ensures every aspect of the software suits your preferences and you have granular control at every step of development. However, it will take a long time to develop and is usually very expensive. White-label software is usually much cheaper and fast to deploy, but slightly less customizable.
- Step 2: Create partnerships – This one is a bit less obvious, but, forming partnerships with companies offering crypto liquidity provisioning, and in the case of CEX, partnering with banks, credit unions, and other crypto and financial institutions. This helps establish an initial user base and get your name out there to bring in more users.
- Step 3: Develop the Front-end and Backend – This is the boring part, which involves writing tons of code to customize and integrate all the necessary features, UI elements, and databases that form your crypto exchange product. This is carried out by teams consisting of web developers, blockchain developers, UI designers, testers, and more.
- Step 4: Deployment and Marketing – Now that you have the finished product, which has been tested for bugs and exploits and finally greenlit, a smart strategy is to release it to a small subset of users, called beta, and collect their feedback to see if they found any bugs that might have went unnoticed during testing, or requests for new features and so on. Implementing these changes before the full launch will make a much better first impression, which can then be followed up with marketing campaigns to spread the word.
Starting a Crypto exchange, although a long and exhausting process, is surprisingly similar to launching any other service or product, involving steps such as planning, designing, release, maintenance, and marketing. However, this process can be made significantly easier by availing of services offered by the hundreds of crypto exchange development companies, many of which involve taking full responsibility for every single aspect, from legal counsel, design, and development, to post-launch maintenance and customer support.
Since the crypto exchange is one of the topmost topics spoken by every business people. Binance, one of the largest crypto exchange platforms was focused on by most crypto enthusiasts. Due to this popularity, the binance clone script also has attained its height in the market. So, this is the right choice and time to develop your own crypto exchange platform like Binance. Hopefully, you’ve found this article useful, and I wish you luck with your crypto endeavors.