There are several ways to generate revenue using cryptocurrencies. You can purchase some cryptocurrency and wait for it to rise in price. You can “mine” one or more cryptocurrencies using powerful graphics cards or specialized devices (ASICs). You can buy cloud mining power or invest in a cryptocurrency fund. And you can create a cryptocurrency exchange.
Binance, one of the largest cryptocurrency exchanges in the world and responsible for a volume of $7.7 trillion in 2021, inspired many market players to try their luck in creating a cryptocurrency exchange. But where to start? And what are the factors and features that make this sort of platform efficient?
What is a Cryptocurrency Exchange?
A cryptocurrency exchange is a platform that provides services for exchanging one digital currency to another, or fiat or national currency.
Their transaction speeds are high, and fees are low. These features make a crypto exchange a good choice for small and large investors. Once registered on one of these platforms, users can buy and sell digital money, track changes in their exchange rates, and achieve earnings from it.
A cryptocurrency exchange transaction usually occurs in the following order:
- Users visit the platform and create requests for exchange. They have to set the value and volume of a particular cryptocurrency.
- If there is already a registered relevant counter-offer on the platform, these users can conclude the deal.
- A service earns a percentage of the transaction. The amount depends on the exchange platform. For instance, Binance only charges 0.1% on every transaction.
What are the Success Factors of a Crypto Exchange?
The primary success factors for most crypto exchanges include:
Since the cryptocurrency market and transactions are almost unregulated, it is essential to ensure that customers trust you. Exchanges work so that the client must first transfer funds (fiat or cryptocurrency), and only then can they receive funds to their account. If there are doubts about the credibility of the exchanger, no one will be inclined to make transactions on the exchange. The only way to earn customer trust is to work honestly and always ask for
reviews. It is also critical to have round-the-clock support chat (or at least – working until late in the evening) available to promptly resolve any issues as they happen.
Your offer should be competitive, and the rate and size of commissions should be no worse than the average offer on the market. The average rate of a cryptocurrency can be checked on Coinmarketcap, but they also need to be compared with competitors’ rates. Some exchanges overstate the rate but take a lower commission, while others do the opposite.
The relevance of a crypto exchange is also determined by the:
- number of cryptocurrencies available for exchange
- number of payment methods (cards, electronic payment systems, and wallets)
- limit of funds
- quality of support service
Key Elements of Creating a Cryptocurrency Exchange
The core of a crypto exchange platform consists of the following features:
Authorization and verification. A simple onboarding process is one of the main points of user interaction with your platform. To ensure transparent transactions and eliminate fraud, it is critical to enable two-factor authentication and anti-bot verification. Make sure your cryptocurrency exchange platform has a good UX/UI design to make the registration process consistent and user-friendly.
Trading engine. This is the core of your platform, responsible for the functionality of your cryptocurrency exchange. The trading engine allows the system to verify the funds in user accounts. It guarantees the possibility for a transaction to take place, processes information about prices and commissions, creates schedules, matches offers with bids, and so on. At this level, it is vital to ensure a high rate of processing speed so that users can track real-time trading data and manage their investments.
Developing a trading engine is one of the most critical and challenging parts of creating a crypto exchange platform. To build an efficient architecture, you should work with an experienced team of blockchain developers.
User interface. The primary rule here is that the interface should be simple and straightforward. The user interface is how people see your exchange. With the admin panel, users should be able to easily place buy and sell orders, view the current order book, transactions, balances, statistics, etc. Include graphs to make information easier to read and interpret.
Wallet. A user should receive their wallet immediately after registration is completed. Ensure that wallets enable secure transactions and allow users to quickly replenish them and withdraw money to a card or account.
There are two types of wallets – cold and hot. A hot wallet is the primary medium used to credit a user’s money and withdraw funds. A cold wallet is used as a backup. It is not connected to the internet and is not protected from fraud. You can provide users with a hot wallet or both.
Order book and transaction history. An order book is the ledger containing the buy and sell orders of users. When an order finds an offer that matches its conditions, a crypto exchange concludes the deal between the users. In such cases, the executed orders disappear from the list.
Information about transactions is contained in the completed trades or trade history list. This helps users correctly track their activities.
Analytical tools for traders. An internal analytical system allows users to collect necessary information about market trends and, based on this, develop their strategies. It is essential to decide what technical indicators you want to use and implement them in your cryptocurrency exchange platform. Some of the indicators are the Relative Strength Index (RSI), Moving Average (MA), Moving Average Convergence Divergence (MACD), Stochastic RSI (StochRSI), and Bollinger Bands (BB).
Push notifications. These notifications will help you maintain communication with your users and ensure they take note of important events. With the help of alerts, your users receive critical updates about relevant promotions, news, and special offers. Traders can be notified about price changes, changes in market trends, track exchange listings, and so on.
Users should be able to choose which notifications they want to receive.
How to Create a Cryptocurrency Exchange
There are two technical ways to create a cryptocurrency exchange. The first is to write the code “from scratch.” To do so, you will need a qualified programmer who understands how the cryptocurrency market functions for these purposes. In the end, you will have an original design for your exchange platform and a system built to fit your needs. Since the code will be written according to your wishes (more precisely, according to client interests), you can expect flexible functionality within your exchange platform.
The second way is to purchase a ready-made exchange template. It will cost less and take less time to launch, but its flexibility may be lacking as you won’t be able to change the script yourself. Accordingly, the functionality of the exchange platform will be limited by what the developer of the script included in it.
In order to constantly develop and grow to satisfy ever-changing market trends, it’s better to stick to the first option. Get consistent consultation and support from a team of professionals so that you can be sure your cryptocurrency exchange makes its way into the hands of grateful users everywhere.