How To Create Your Own Cryptocurrency Exchange Platform
Although it sounds like a far-fetched idea, building and operating your own cryptocurrency exchange platform is easier than it sounds. Today we will dive into what components are needed to create a cryptocurrency exchange and how to use one legally and efficiently.
Cryptocurrency continues to evolve and thrive in today’s market. The recent IPO of Coinbase solidifies the importance of robust and efficient systems as the demand for cryptocurrency acceptance grows.
However, Coinbase is one of many online exchanges that allow users to buy and sell Bitcoin and other cryptocurrencies.
So what if you had your own cryptocurrency exchange?
Benefits of Opening a Cryptocurrency Exchange
Before we describe how to build a crypto-currency exchange, it’s essential to understand why owning an efficient exchange is beneficial.
Successful cryptocurrency exchanges are very profitable for their owners, even if they are not very large. Exchanges make money on trading commissions which is the price paid from a buyer to a seller and the percentage the exchange takes out to link the two parties.
When you own exchange, you decide the rates charged per trade. Some exchanges have a cut-off where orders over a certain threshold are 2% of the trade, and anything below that threshold is 3%.
Access to Blockchain
Blockchain technology continues to gain traction with a broader audience than ever before. By operating your own cryptocurrency exchange, you have access to the latest updates in Blockchain technology, and your customers are assured that their transactions are securely on the Block Ledger.
Building a Business
A cryptocurrency exchange is an online business, and the owner is an entrepreneur. Once you have your exchange up and running, it’s up to you to build your business and create a digital legacy.
Running a business is not easy, but it is gratifying because you get out of it what you put into it. You will meet many interesting customers and find fulfilment in smooth operation.
Technical Components of Creating an Exchange
We have discussed why building a crypto-currency Exchange is immensely beneficial, and now we will discuss how to make it.
Building the Exchange
Blockchain and financial software are pretty intricate, and you need to decide how you want to tackle the initial development.
If you want to develop your software in-house, you should have some technical and programming knowledge and experience. You should also assemble a team of highly skilled engineers and developers who have experience with financial transactions and/or blockchain application development.
However, if you do not have a technical background and want to get your exchange off the ground as quickly and safely as possible, you may want to consider white labels and open-source solutions.
Some companies have software for sale that will allow you to open an exchange that you can brand and use however you want to, which is called white labelling.
If you have some technical experience, but you do not want to go through the hassle of building your exchange from scratch, consider open-source solutions like GitHub, where you can find code that will help you get to where you want to go that’s already been written by another developer. If you choose to go this route, you may wish to audit the software and code to ensure no malicious data may steal money or user information.
Much like a car, your online crypto-currency exchange will not move without a sophisticated trade engine. The trade engine is integral to any online exchange because it matches buy and sell orders, accesses the order book, calculates investor balances, and finally, executes the transactions between buyers and sellers.
When you are assembling your development team and getting your software ready, your trade engine should be your top priority.
The front end of your website is where your customers and users will interface with your exchange. You want your user interface to be seamless, intuitive, and easy to use.
Ensure that you have a clean and beautiful design that is attractive to new customers and that signing up for the platform is very straightforward. You probably want to include features like online registration, a clearly marked area to deposit and maintain account balances in both Fiat and cryptocurrencies, price charts, and intuitive trading controls.
You want your exchange to be sustainable and manageable for an extended period. To help ensure your cryptocurrency exchange is viable for the long term, you should develop your API so that it is simple, straightforward, and developer-friendly if you need to do additional backtesting or bring on new engineers to optimize your software.
Customer communication tools are vital to your cryptocurrency exchange because they can report bugs and features that are not working correctly.
Running an online crypto-currency exchange means that you need to offer some crucial functionalities that your users will enjoy.
Digital wallets are where cryptocurrencies are stored until they are either withdrawn, invested, or sold. When you’re building your exchange, Make sure you offer support for hot and cold wallets.
Hot wallets are where customers have their cryptocurrency online within the exchange, and a cold wallet is an offline solution such as a USB drive or similar static tool that cannot be hacked because it is not connected to the internet.
Customers want transaction speeds to be fast. The average for Bitcoin transactions is seven transactions per second, anything more than that runs up the queue, and you can sell priority for orders to fill the fastest.
Your reputation is built on how fast trades go through, and if you are consistently filling orders quickly, your customers will be happy, but if you struggle to handle your volume, you may lose users.
Operating a Cryptocurrency Exchange
Finally, once you have your cryptocurrency exchange up to and running, you need to follow all of the necessary laws and facilitate a smooth user experience.
Security is vital to ensure that your user data and operational credentials are secure. KYC (Know Your Customer) laws stipulate what data and security are required for transactions to occur on your platform.
Two-factor Authentication, verified accounts, and strong passwords help maintain a secure exchange and encourage your users’ confidence in the platform.
Different countries have different rules about who can trade crypto-currencies online. Cultivating a solid target audience will require some legal leg work and will most likely need the assistance of lawyers.
If you have users in different countries, different exchange laws apply. So before you advertise for service as a global exchange, make sure you meet all of the regulations of each country you operate in.
Banking and Liquidity
Developing a relationship with a reputable bank will make processing payments and depositing funds much more straightforward than working with a small bank that does not have the resources to support and scale your business.
When you are finding a financial partner, you may want to look for banks and countries where cryptocurrency is an accepted form of payment, such as Scandinavia or the United States.
Maintaining liquidity is vital to developing a solid reputation in the cryptocurrency market. One way to incentivize trading is to buy and sell cryptocurrency with profiles that you manage so that outsiders can see trading volume on your platform. Another is to work with a network of other exchanges to get liquidity from all of the services within that network.
Finally, if you want your venture to succeed, you need strong customer service that is very responsive.
Ultimately, your business is sustained by your users, and if they’re happy, they will continue to use your exchange and recommend it to their nNetwork.