Cryptocurrency exchange is a marketplace where people can buy and sell cryptocurrencies. The exchange is a platform which acts as a middleman between buyers and sellers of crypto while combining liquidity. The main mean of getting and selling crypto, in general, is Cryptocurrency Exchange.
There are a few factors that are to be considered before building a cryptocurrency exchange:
What type of cryptocurrency exchange will it be?
Centralized Cryptocurrency Exchange
Decentralized Cryptocurrency Exchange
Centralized Cryptocurrency Exchange-
It allows for trading of crypto to fiat or other cryptocurrencies. The exchange has control over users’ funds and other matching takes place off the blockchain network. The exchange also controls funding and limits. These are easy to use, have high liquidity, and boosts advance charting and exchange features. However, trading fees may be high and trading activity will not be anonymous.
Decentralized Cryptocurrency Exchange
Via smart contract layer, through the peer-to-peer exchange, users directly send cryptocurrencies to one another. Since everything is on the blockchain, there is transparency
in the trade and lower chances of the hack. Sometimes these have less liquidity and volume, which means slower order matching and higher volatility. The exchange has no control over the user funds and the order matching takes place off the blockchain network.
Which areas do you want to operate and regulations?
Which are the countries you want to have your trade accepted in?
What is your total addressable market based on that area?
What do the guidelines say based on the scope that has been determined?
Certify, you have a large pool of crypto to ensure that the assets can be bought or sold without a radical change in price. There are a few methods, but one of them is integrating your cryptocurrency exchange’s liquidity position to with existing exchanges via API calls.
Which Cryptos Do You Want to Support?
There is a need to do market research on the cryptocurrency you’re looking to supporting and why. Are you supporting standard ERC-20 (Ethereum based) tokens or any other token? Just one type of token or any other, if so, why? What market advantage does the token you’re supporting have? Will it grow in popularity quickly? Etc.
At this point, we must make up our mind if we want to convert fiat (dollars) to crypto. If yes, you would need a payment processing partner like a bank. Always consider the country the trade you’re operating out of, and transaction times. With the help of an efficient payment processing partner and a payment gateway API, you can then give your users the authority of adding and withdrawing funds as they please.
Should You Use A White-Label Solution?
The next step would be to decide if we need to use a white label solution. Using white-labeled exchange software to start cryptocurrency exchange is fundamentally outsourcing parts of your cryptocurrency exchange. Many companies just specialize in selling software to kick-off their cryptocurrency exchange, although do due diligence because scams do exist in this space. White label is an advantage for an individual with less capital or when the trading engine or liquidity are long shots. Another advantage is that you can apply your branding on the solution.
What Will You Need To Build A Cryptocurrency Exchange From Scratch? If you are starting from scratch, what are the tools that are required?
The foundation of any cryptocurrency exchange is its trade engine. The core functions of the exchange are performed by the trade engine. It also handles the following:
The execution of transactions
Calculation of balances
Makes the calls to access order books
Matches the buy/sell transactions on an exchange
Unit and integration testing should be highly prioritized. Perhaps even consider test-driven-development
The Front-end UI should consist of the following:
Fund deposit and withdrawal
View order book, transactions, balance, statistics, charts, etc.
Cryptocurrency wallet is the key as the tokens are stored there. These are wallets that are prone to get hacked and result in billions lost or stolen cryptocurrency.
This provides to controllers and creators of the exchange a simple way to control configuration variables of the entire exchange to alter the operations as they see fit.
Options to consider are:
E. Potential Costs and Effort
It is basically, the cost of outsourcing and the effort that is put to hire the employees. It can be based on the experience of the individual or it can also be hourly based. How you will utilize your cost is in your hand.