The concept of investing in cryptocurrency is not an unknown and complicated process reserved for tech-savvy minds as it used to be a decade ago. Nowadays, due to the rising mainstream popularity and awareness of cryptocurrencies and their underlying blockchain technology, owning and trading your crypto coins has never been easier. The crypto exchange business market is booming, with numerous new exchanges launching yearly. If you are a blockchain and crypto aficionado and foresee value in creating your unique exchange, it is beneficial to understand what a crypto exchange is, how it works, and what steps you need to follow to create one.
What is a Crypto exchange platform?
A cryptocurrency exchange is an online platform where users can buy, sell and trade cryptocurrencies. On these platforms, users purchase crypto using fiat money or their existing cryptocurrency holdings. For instance, users can purchase bitcoin through fiat currency such as USD or other cryptocurrencies such as litecoin. Amongst the numerous cryptocurrency exchanges available today, the biggest reported marketplace as of 2022 in terms of twenty-four-hour trading volume are Binance, Deepcoin, and Biconomy Exchange.
How does a crypto exchange work?
There are several cryptocurrency exchanges, each having unique workings, functionalities, and user experiences. Some may be decentralized and more true to the nature of blockchain technology, while others are centralized and are more robust in terms of transactional efficiency. With the rise in crypto popularity and demand comes the race to provide traders with the most desirable and delightful exchange that is safe, efficient, and seamless. Let us explore cryptocurrency exchanges’ workings to help you make informed decisions at every stage of creating your platform.
Decentralized exchange (DEX)
A trust-free peer-to-peer system facilitates trades directly between buyers and sellers without the exchange acting as an intermediary. DEX follows the fundamental principle of blockchain to offer its userbase a completely decentralized experience. Decentralized exchanges do not operate on the requirement of third-party control and allow users to purchase cryptocurrency directly using their wallets. The significance of a DEX is that they don’t require authorization from banks or brokers to perform transactions. Decentralized exchanges such as Uniswap are becoming increasingly popular within the DeFi community because of the wide range of usable DeFi tools they offer to crypto user wallets. Uniswap, Tokenlon, Sushiswap, and Venus are currently some of the market leaders in decentralized exchanges.
Centralized exchange (CEX)
These centralized exchanges are run primarily by third-party organizations and are very similar to stock exchanges. CEX exchanges are often subject to attempted hacks and vulnerability exploitations. The exchange is a trust-based system that acts as an intermediary facilitating trades between buyers and sellers. Binance, Huobi Global, Coinbase, Bithumb, and Kraken are some notable centralized exchanges.
Hybrid exchange
Hybrid exchanges are a newer form of cryptocurrency exchange that tries to blend the best of both worlds using characteristic features of both CEX and DEX exchanges to offer a varied user experience. This model is beginning to show much promise of becoming one of the preferred exchange choices for users in the crypto market. Interestingly, the hybrid cryptocurrency exchange attempts to provide users with the security and privacy of a decentralized exchange while offering users all the features, transactional efficiency, and easy liquidity of a centralized exchange. Poloniex, BitFloor, and Mt. Gox are a few popular hybrid exchanges.
How much does it cost to create a crypto exchange platform?
The costs of a cryptocurrency exchange can be upwards of $135,000, depending on the fundamental functionalities you want to integrate into your system. The actual charges may go up or down depending on the features you wish to incorporate. For instance, all functional parts have additional costs, like an elaborate UI design, dashboard, search engine, integrated wallet, notification systems, transaction ledgers, and more. Another major cost center when creating your crypto exchange is your team. Before you go to the drawing board, you require a team of blockchain experts, UX and UI designers, marketing and SEO specialists, server engineers, and backend and frontend support, amongst others. Again, all these aspects may incur additional costs. An alternate and potentially cheaper approach worth considering is partnering up with a web3 studio with all the crypto platform-building groundwork and software tech stacks already in place to catalyze the creation of your vision.
How to start a crypto exchange
The most crucial first step toward creating your crypto exchange is acquiring good legal counsel. Building a crypto marketplace is a complex process that requires investor funding, guidance, KYC requirements, proper licenses, and regulatory compliance, all of which need adequate legal counsel. Once you have covered yourself from a legal standpoint, you can go ahead and follow these steps:
Define your target audience
Your target audience is those who not only will be trading in your new venture but are crucial deciders of its success. Your target audience will help you decide whether a DEX, CEX, or hybrid exchange is the right pathway for you. Consider this step carefully because each exchange type has unique associative costs and requirements.
Choose cryptocurrencies to trade
Not all cryptocurrency exchanges have access to all the available coins. It is not wise to attempt to house all known coins onto your platform. With a constantly growing list of coins varying in market desirability, we recommend selecting coins that could offer the most value to your user base.
Partner with a trustworthy payment processor
When making this consideration, it would be worthwhile to remember that your exchange will face its fair share of competition. In some cases, it may also be subject to vulnerability exploitations by bad actors. Thus, choosing a payment service provider that can offer your users a seamless and instantaneous payment system that is also secure from potentially malicious attacks is vital. A good payment service processor can increase customer satisfaction and promote a positive brand image.
Find a crypto exchange software solution provider
Some may feel this is a complicated process that is easier said than done. An easy and effective way to downplay some of the complexities and costs of creating your exchange is to consult with a professional web3 studio. They should be able to provide you with the professional support you need to start your exchange from drawing board to implementation. Kreaterverse is one such market-proven web3 studio that can give you in-depth guidance on what you require to make your crypto exchange dream come to fruition.
Build the exchange engine
One of the most fundamental components of a crypto exchange is its Order Matching Engine (OME). The crypto matching engine is simply an engine that uses a complex algorithm to match user offers and bids and is what makes trading on your exchange possible. An OME software records all open market orders and facilitates trading features such as limit orders. Without an OME, trading on your platform would be simply impossible.
Frontend
To increase your user base, you should prioritize designing an excellent frontend user interface that offers a seamless and delightful experience to both novice and professional crypto traders. Other invaluable frontend features include cross-platform and mobile compatibility, customizable widgets, customizable dashboards, interactive menus, standardized color schemes, FAQ pages, and others. Offering a simplified, convenient, and user-friendly experience can significantly distinguish your exchange from competitors.
Wallet
This is an integral component of the crypto trading process. A crypto wallet allows users to deposit and house fiat money and their crypto holdings to buy, sell, and trade with other users. Your exchange must accommodate an integrated wallet if you are creating a centralized exchange or facilitate the possibility of integration with external wallets if you’re making a decentralized exchange. Most hybrid platforms offer users the ability to integrate their wallets or use the native exchange wallet. Whatever direction you decide to take, it is worth remembering that the crypto wallet makes trading possible and keeps users feeling secure with their digital money.
Admin panel
The admin panel is an automatic checking system that keeps tabs on the status of current traders, transactions, wallets, and content for anomalies, suspicious activity, and fraud. This crucial component allows your administrative team to leverage analytical tools to ensure that all transactions and activities are above board and on par with all legal requirements.
Set up security and transparency
Research suggests that between 2011 and 2022, platforms lacking adequate security measures and verification tools constituted thirty-seven percent of USD$15.6 billion worth of crypto stolen by malicious actors. Hence, to avoid your platform suffering a similar fate, implementing state-of-the-art security measures for your crypto exchange must be one of your biggest priorities. Remember, most blockchain and cryptocurrency adopters favor platforms based on the increased privacy and security offerings for their digital currency. Compromising suitable security measures can leave your exchange vulnerable to data breaches, hacks, and reputational damage. So tighten all security measures and consider using distributed ledger technology for user data to protect your clients and yourself from internal and external malicious actors and offer your users a reliable and secure exchange.
Provide liquidity
A low liquidity platform means that your exchange struggles to match user purchase and sale orders with prospective purchase or sale orders, increasing the likelihood of a drop in user base numbers. Integrating cross-exchange compatibility allowing users to place purchase or sale orders on other platforms, is a great way to increase your liquidity. It also allows users to purchase and sell crypto that is not available on your platform. A high liquidity platform is bound to draw a larger user base.
Organize customer support
The heart and center of any business, crypto or otherwise, is stellar support. The importance is especially so in crypto exchanges where there are always possibilities of users suffering technical issues, fraud, or theft. A sound customer support system can allow you to identify and rectify issues early before the problem becomes severe. The main criteria for setting up your customer support should be to hire experienced financial service operators and provide multi-device and multi-language support. An excellent customer support division is a great way to ensure your exchange maintains a positive brand image and consistently amasses a growing user base.
In conclusion, if you still feel like these steps are hard to follow and you need further assistance, contact a web3 studio for assistance. An experienced web3 studio like Kreatorverse will be able to solve all your crypto-related doubts and queries and help you get started right away in creating your cryptocurrency exchange.
Kreatorverse as a solution for crypto exchange development
We at Kreatorverse are dedicated to helping our clients create the best cryptocurrency exchange. Our dedicated web3 product studio specializes in everything on the decentralized web. Suppose you have a vision of creating a cryptocurrency exchange but have trouble navigating some of the complexities. Don’t worry, and contact us today. We will guide you through all the steps necessary to create a secure and efficient exchange that digitally embodies your crypto visions.
