Did you know that the total cryptocurrency market cap today is the equivalent of the 9th largest economy globally — Italy? Moreover, the volume of daily exchange is about $80 billion. Impressive, huh? So, the question of how to start a crypto exchange has never been more serious.
In this article, we will share valuable insights about our expertise in the cryptocurrency exchange business. These practical solutions will help you successfully step into the promising crypto exchange business right now.
Director of Business Development
Crypto Market: What Is It Like for Now?
So, what is the latest info about cryptocurrency? According to DataReportal, there was an impressive 37.8% rise in the number of crypto owners worldwide in January of 2022 compared to early 2021. Today about 1 in 10 internet users aged 16–64 years owns some type of crypto.
In the report by TripleA, we see that the number of cryptocurrency users reached over 300,000 million worldwide. Meanwhile, more than 18,000 businesses have already been working with crypto assets and processing payments in various cryptocurrencies.
But how many cryptocurrencies are there now? There are around 18,000 types of digital coins depending on the referenced source. Most of them are not that significant, and the top 20 take almost 90% of the crypto market.
Cryptocurrency Exchange Business — Front Runners
No wonder that the impressive number of cryptocurrencies and the constantly growing crypto adoption need a reliable crypto exchange system.
According to Forbes, there are almost 600 digital currency exchange platforms today. In the last quarter of 2021, cryptocurrency exchange websites received more than 1.7 billion visits. In early 2021, the 60 leading platforms generated an impressive volume of $100 billion in trading per day.
Let us have a look at today’s leaders among cryptocurrency exchanges. In the Statista top-hundred, the first place in April 2022 belongs to Binance with $24.27 billion in processed payments daily. Its followers are OKX with $6.17 billion, CoinFLEX ($5.24 billion), HitBTC ($4.9 billion), and Upbit ($4.45 billion).
So, we see that as of now the largest cryptocurrency exchange is Binance. What are the most notable features of this crypto trade engine?
Binance was founded in 2017 in China. Since that time, it is acknowledged as a relatively secure and versatile cryptocurrency trading platform with relatively low fees. You can trade over 365 digital currencies globally, but for US users there are only 65+ available options.
Moreover, the crypto exchange platform is under investigation in the USA and has some regulatory issues in other countries. Also, beginners may find this cryptocurrency exchange rather complicated. One more issue about Binance is that it doesn't have a built-in digital wallet.
Nevertheless, Binance is an extremely successful exchange payment provider. It offers a variety of trading tools and order types. For example, users get real-time charting tools where they can easily follow averages.
Cryptocurrency Exchanges: Our Comprehensive Guide
So, what should you focus on when starting a cryptocurrency exchange business to outsmart Binance and other competitors? We have created a complete guide for you.
Decide on the Type of Your Crypto Exchange Platform
The first and essential issue you will face is choosing what type of platform you will build. There are three approaches your cryptocurrency exchange process can follow — centralized, decentralized, and hybrid. Let us define their essential features.
Centralized Crypto Exchange. This type of exchange software implies that the platform owner is responsible for user funds. The clients get the advantages of a simple registration process, advanced UX/UI design, fiat currency gateways, and customer support.
But the users do not own private keys and have to provide personal data for the KYC process. Moreover, a centralized cryptocurrency exchange should ensure the security of the process as it is more vulnerable to cyberattacks compared to the other types.
Decentralized Crypto Exchange. With this platform, all transactions proceed in decentralized apps and smart contracts. It means that the company is not responsible for the user funds. But this approach provides the highest level of security due to decentralization.
However, such platforms have several disadvantages related to slower execution, low liquidity, worse UI, and customer support. Furthermore, decentralized exchange software does not offer fiat currency gateways.
Hybrid Crypto Exchange. The platform can combine the best advantages of centralized and decentralized approaches — high rates of execution and quality liquidity together with owning private keys.
Yet, we should notice that this type of cryptocurrency exchange is still emerging. So, it may take some time to find the best security practices and other solutions to fit into the competitive digital currencies market.
Choose the Regulation
The jurisdiction of the place to start a cryptocurrency exchange is one of the key issues for your business. It determines the trends and laws such as business management, accounting, and taxation.
The regulation conditions vary in different regions. Moreover, in some countries a bitcoin exchange, for instance, is strictly prohibited; while other regions have a clear set of regulations and assistance to promote digital currencies.
For example, among the most attractive places to start a crypto exchange business today, we can recommend such countries as Gibraltar, Malta, Singapore, and Switzerland.
But the common trend of investing in cryptocurrencies and tokenization continues expanding and legislation tends to change. That is why you should keep abreast of the latest developments.
Determine the Crypto Exchange Structure
The turnkey solution you have to make when you start a bitcoin exchange business is to build a robust platform with the prospect of sustainability. The software development process should include creating a system of wallet operations, execution of transactions, withdrawals, deposits, etc.
Meanwhile, when you set up a cryptocurrency exchange, you have to concentrate on the following compulsory components:
- Trading Platform. It allows your users to place orders and manage their accounts. The efficient user interface will contribute to the popularity of your platform.
- Trading Engine. It combines opposite orders of buyers and sellers. That is, in simple words, the core of the cryptocurrency exchange website or application. It is responsible for order registering, matching, and the execution of transactions.
- Wallets. A cryptocurrency wallet or a multi-currency wallet allows your users to transfer and store crypto assets or fiat currencies. Meanwhile, it requires fiat gateways and an omnichannel security system to protect the funds.
- Admin Panel. It helps monitor all the services of the system, its wallets, and transactions. The portal can be used for the platform’s configurations and further scaling.
Additionally, your online platform may include advanced options for secure verification with two-factor authentication, options for funds deposit and withdrawal, or innovative analytics and reporting tools.
Solve the Software Development Challenge
The development process for setting up a crypto exchange business can be established with three main approaches. You can develop your exchange software from scratch, purchase white-label exchange software, or customize the latter to meet your requirements.
Let us review every method with all its pros and cons, so you can make an informed decision.
Develop from Scratch. This approach gives you complete control of the software development process. Also, you can be sure that all the rights to the source code belong to you.
At the same time, developing from scratch is a complicated and long marathon. You will have to recruit specialists with relevant experience and invest in R&D and security. Moreover, it can take you a year or even more to prepare for the launch. Another year can be spent on debugging and fixing security breaches.
Purchase White Label Software. This ready-for-launch software pack includes all the essential components of a cryptocurrency exchange. Meanwhile, choosing a reliable vendor in banking and financial software development has pivotal importance for the future success of your project.
A white-label solution will cost you substantially less. Moreover, you won't have to wait for a couple of years to complete the development process. At the same time, this feature has only the supplied options and lacks flexibility in comparison to a proprietary project.
Customize White Label Software. This approach can be a golden medium if you want a cost-effective solution tailored to your specific needs. An experienced software vendor will customize its white label solution and add required additional services.
Find a Liquidity Provider
The keystone of a cryptocurrency exchange platform is liquidity. It will be impossible to step into competitive business processes with just an image of trading activity, order books, and dummy accounts.
That is why you should connect your exchange business to a network of reliable exchanges and enhance its liquidity.
So, start with evaluating popular providers. Compare their instruments, trading conditions, and protocols used — Fix API, Socket API, or Web REST API.
Meantime, liquidity aggregation can be established in two ways:
- The PoP (Prime of Prime) method is when you partner with a company that collects liquidity itself or distributes liquidity from high-quality providers.
- A liquidity aggregator is a software component that combines orders from different sources and sends them to executors.
What are the main distinctive features of these methods? Well, PoP clients get the advantage of large liquidity volumes, while the connection to a liquidity aggregator gives your cryptocurrency exchange more independence and flexibility.
The harsh reality is that cryptocurrency exchanges are heat spots for hacker attacks. Make sure your platform is a safe place for transactions, ICO, clients' personal data, money withdrawals, etc.
So, you should pay primary concern to the essential security measures.
- Employ proactive mitigation of any security breach or vulnerability like broken authentication, injection, etc.
- Use advanced techniques and tools for encryption, multifactor authentication, threat intelligence, next-gen firewalls, and others.
- Develop protected APIs with a digital signature, authentication tokens, secure gateways, encryption, throttling, etc.
- Consider deploying your crypto exchange workloads with sensitive information to a private cloud.
So, we have made every effort to help you make a preliminary action plan for constructing a successful cryptocurrency exchange business. You choose a type, a regulation, and a liquidity provider for your future platform. And it is vital to focus on delivering the best security practices and software solutions to your customers.
As always, Qulix Systems is here to help you in the journey to building your own crypto exchange platform. Please, feel free to contact our professionals to clear any additional questions.