How to Create a Cryptocurrency Exchange?

Trading crypto coins- the lucrative nature of this proposition is igniting the interest of numerous folks out there. Slowly but steadily, Cryptocurrencies are becoming mainstream- humongous brands like Microsoft, PayPal, Shopify and Subway are accepting digital money, adding a layer of ease and security to tempt the all-things-tech generation.

Opportunity-seekers have found a vivid rainbow in this- they are keen to enter the crypto market with a relevant product and leverage the hype which seems to stay for the longest time possible. And for this, what can be any better than a Cryptocurrency Exchange application?

With growing trading volumes, it’s no surprise that demand of dependable and trader-friendly exchanges is swelling up. Crypto enthusiasts aggressively look for feature-loaded applications that can help them trade and manage their assets and levy minimal transaction fees. Some of the most sought after features include-

  • Support for both fiat-to-crypto and crypto-to-crypto
  • Largest selection of trading pairs
  • A thoughtful UI and UX
  • A decent trading and withdrawal fees
  • Sky-high Security
  • iOS and Android support for on-the-go trading

All prominent like Binance and Bitfinex meet such customer expectations, and today are celebrated as the go-to sources. So if you are to build your own cryptocurrency exchange application, it’s must for you to find a dependable technology partner that specialises in cryptocurrency exchange development and can help you check off all these entries with perfection.

Build Your Own Cryptocurrency Exchange

To create a smart and straightforward online marketplace to buy & sell cryptocurrencies, here’s a list of initial considerations-

Sketch Your Operational Scope

As they say, a goal without a plan is just a wish.

Before getting started, it’s must for you to assess the operational scope of your crypto exchange app. This undoubtedly makes the first to-do, as only after this you can consider which approvals you will need to proceed further. Registering and licensing as per the local/global law can be easily understood with the understanding of a well-defined operational scope.

Stick with Regulations and Compliance

Cryptocurrency world is the current hotspot- there is a lot of buzz around it, and government all across the world is stern on the adherence of exchange platforms and cryptocurrencies with the regulations. To start off with your own exchange application, your business will need to sync with all KYC norms- this means you will be needed to verify identity of your platform’s users and also maintain a record of the same. This is crucial to mitigate the possibilities of money laundering from the crypto trading.

To keep compliance first place, you would need to integrate a customer verification API in the exchange and build a backend database to store an organised track of records.

Payment Processing

For conversion of fiat currency payments to cryptocurrencies, you would require to have a payment processing partner like bank. Do pay heed to the trade settlement cycles of banks to ditch all possibilities of finding yourself in a murky situation.

If you are backed up by the assistance of a dependable payment processing partner and a robust payment gateway API, you will have this potential to allow your users add and withdraw funds at their ease.

Cryptocurrencies to List

One of the significant things to know is what crypto assets you would like to offer to your audience. A recent study suggests that there are over 1500 active crypto assets in the market, prominent one being Bitcoin, Ether, Litecoin, Ripple, and Dash- carefully vet which ones you want to integrate. You can also choose to launch your own ICO and market it to drive more business and engagement.

Liquidity Management

To be more promising contender, you need to ensure that you have a large pool of cryptocurrency so that assets can be exchanged easily, without facing a radical price change.

There are a few good methods to navigate through this path, one is integrating your exchange’s liquidity position with other exchanges via API calls- being a part of exchange network and sharing liquidity and trade volume data is a proven way to boost liquidity position.

Getting Started with the Exchange Development

There are three different ways to build your own exchange website-

  1. White Label Solutions
  2. Open Source Solutions
  3. Custom Software Development

Let’s understand them better-

In this, So many companies like OKEx provides a ready-made solution. We just adapt its design and start our own exchange platform.

Pros

  • Rapid deployment :- We don’t need to develop anything from ground zero as all the essential elements of a cryptocurrency exchange platform are already developed. We just need to install & configure it as per our project requirement.
  • High reliability :- As we are buying the solution, so it’s well-developed and bug-free.
  • Decently priced :- Buying a ready-made solution is significantly cost-effective than building it from scratch.

Cons

  • Low flexibility :- White label software provides flexibility to make modifications like change the design and functionality, but the customer needs to pay more money.
  • Profit reduction : — The price of white label exchange software usually involves a one-off activation fee and recurrent monthly/annual fees. Moreover, many a time vendors consider commission splits/ flat-rate fees based on exchange volume. You are needed to pay even if your profit is not up to the mark.
  • Difficulties with support :- As vendors have many customers, it might be difficult for you to get fast access to support.

Open Source solutions can be used for any purpose freely. We can use it as our base modified it as per our project requirement.

Pros

  • It’s free :- No need to pay for using open-source solutions!

Cons

  • Insufficient reliability :- Some open-source software might be first-rate, but there are several that have a lack of code quality and never been thoroughly tested.
  • Weak security :- We may need to introduce our own security layer. It’s a rarity that there are any open-source solutions with database encryption for higher security.
  • Lack of support :- As they are open-source platforms, they are rarely well-supported.

It involves more efforts to build your own exchange website from scratch but definitely leads to sky-high profits.

Pros

  • Brilliant features :- With your own development team, you can offer your customers the exact functionality they really want.
  • High security & reliability :- A team with in-depth knowledge and expertise in cryptocurrency exchange development is able to craft software as secure as the top-rated banking systems are.
  • You’ll make some serious profits, and all of it will be yours :- Yes- you don’t have to share your profit with someone else.

Cons

  • Long-term project :- Building a cryptocurrency exchange website from scratch will take somewhere between 6–8 months. Expansive projects with numerous unique features can take a year or even longer.
  • Difficult to find experts :- As Cryptocurrency trading is a relatively new affair, it’s quite difficult to find dependable cryptocurrency exchange developers with hands-on experience.
  • Significant costs :- Cost of creating cryptocurrency exchange from scratch is can be high, but you can rest assured that it will bring along profits in long run.

After deciding the solution from the aforesaid options, our next step to create an architecture for our Cryptocurrency Exchange. Our architecture has the following components:

  1. Trading Engine
  2. User Interface (UI)
  3. Cryptocurrency Wallet
  4. User Management
  5. API

Trading Engine

Trading engine is the core of every cryptocurrency exchange. It matches all buy & sell orders, executes transactions, and also calculates balances. They are processed automatically and instantly to speed up these operations.

User Interface (UI)

The site’s UI should be impressive and quite simple to deliver seamless user experience. The user interface can be created in ReactJs, Android / IOS or React native for hybrid application. It allows the users to monitor the market on exchanges, create orders, see individual transaction history with filter options, have access to graphics and indicators, and explore all the activities on the dashboard.

Cryptocurrency Wallet

A cryptocurrency wallet can be understood as a secure digital wallet that allows people to send and receive digital currencies.

  • User and system wallets :- There are different types of wallets like mobile and Desktop, “hot” and “cold”, multi-currency wallets etc. that can be offered to users. Platform’s cryptocurrency is kept in system wallets.
  • Deposit/Withdrawal :- Users might deposit or withdraw by transfer, email, QR code, ATM, and other options. Usually, one can proceed with depositing and trading of cryptocurrencies without account verification. Howbeit, if one wants to withdraw their assets, they ought to verify their account.
  • Transactions creation. Every user of the website should be able to buy and sell digital currencies. It’s imperative to emphasise transaction speed and smoothness (making sure there’s no room for system errors).

User Management

It contains the following functionalities-

  • Sign in / Sign up.
  • User creation, Verification and Deletion.

API

Application Programming Interface (API) is a set of functions & procedures that enable the external apps to access the features or data of an operating system — a cryptocurrency exchange system in our case. UI will consume the APIs to perform operations.

  • Public and private API :- Private API is used inside the system for the trading purpose (Like buy/sell). A public API can be used by third-party developers — for instance, to develop an analytical tool that shows the current situation on other cryptocurrency exchange platforms.
  • Websockets :- It allows receiving event-driven responses from a server without having to poll the server for a reply. It’s primarily used to send information about market moves, trades changes etc.
  • FIX protocol :- This is the strict standard for every exchange, regardless of the assets it trades (crypto or fiat). FIX allows external developers to integrate with many trading platforms faster and with much ease, as there is no need to dive into particular API specificities.

Apart from the above components, we also need to add Database, Analytics(Logs and Charts) etc.

Systango’s dedicated venture lab Studio FinTech has all the expertise that is must to create a remarkable and profit-yielding Cryptocurrency exchange. We can incorporate all standard and much sought-after features and also add some unique modules which you think can benefit your venture. To know further, contact us now!

This article was originally published by Studio Fintech, a Blockchain and Fintech venture of Systango.

London’s leading digital agency Systango offers full service from strategy, scoping to launch & maintenance, innovative campaigns to enterprise infrastructure.