If you want to get into the cryptocurrency game, you’ll need to start a cryptocurrency exchange. This is where you sell other people’s coins or create new ones.
There are two main types of exchanges: centralized and decentralized. Decentralized exchanges (DEX) are similar to stock exchanges, whereas centralized exchanges (CEX) are more like banks.
There are several ways to start a cryptocurrency exchange, from building your own software to using an existing platform. The key thing to remember is that starting a cryptocurrency exchange is a long-term commitment.
The cryptocurrency exchange platform is a cryptocurrency market where users buy, sell, or exchange cryptocurrencies. You can compare a crypto exchange platform to a stock exchange or Forex platform for brokers trading stocks and fiat currencies.
If you’re looking to establish a cryptocurrency exchange platform like Binance, Houbi, Coinbase, Luno, etc., then this post will serve as a guide to setting up a successful crypto exchange platform.
How To Start A Cryptocurrency Exchange Platform
Determine your cryptocurrency audience
Will your exchange be limited to a localized or global audience scale? If the purpose of creating the exchange is to serve a specific country, then you will have to do the necessary paper works and obtain the licenses you need to establish an exchange from the cryptocurrency or financial regulatory bodies of your country.
Having a lawyer experienced in cryptocurrency on your team can save you from the troubles of licensing and other paper works.
Meet up with your jurisdiction’s regulations and KYC requirements
Irrespective of the fact that you will be operating at a global or local scale, you will need to meet all requirements needed to start an exchange as determined by the necessary regulatory bodies.
One such requirement is adherence to KYC regulation, which requires that an exchange verify its users’ identities, an act intended to discourage the use of exchange platforms as money laundering channels.
Therefore, to prevent having issues with enforcement bodies, you should integrate a KYC verification procedure that complies with your jurisdiction’s KYC requirements.
Set up payment platforms for deposits and withdrawals
If you plan to accept fiat currencies, you will need to partner with a payment processing platform to facilitate deposits and withdrawal of fiat currencies from your cryptocurrency exchange platform.
One of the criteria you might consider is faster payment processing to facilitate seamless trading activities.
Choose a cryptocurrency exchange software architecture
A cryptocurrency exchange software consists of four major components: the Trade Engine, User Interface, Admin Panel, and Wallet.
The trade engine is the backbone of the exchange platform; it accesses the order book, pair buyers to sellers, execute trades, and does checks and balances.
The User Interface is the part of the exchange software users interact with. It determines how the platform is displayed to the user on desktop and mobile devices and displays all the features the user is supposed to interact with.
Therefore, an ideal User Interface should be intuitive, with all features displayed in an easily accessible order for easy navigation.
Some commonly accessible features displayed by the User Interface should include
- Visible signing in or registration icon
- Visible Deposit, Withdraw, Send, and Receive requests for initiating transactions.
- Easily accessible balance, order book, transaction histories, statistics, etc
- Easily visible and interchangeable chart types
- Identifiable buy/sell icons
- Easily accessible customer support features.
The wallet is where the user holds his cryptocurrencies; it is likened to a physical wallet or a bank account that holds fiat currencies. A good exchange should have hot and cold wallets that support all cryptocurrencies exchanged on the platform.
The admin panel is where you manage the activities of the crypto exchange platform. The admin panel’s functionalities include:
- Changing liquidity ratio
- Adjusting spreads (difference between the buying and selling price referred to as bid and ask prices)
- Account approval
- Managing cryptocurrencies traded on the platform
- Fulfilling withdrawal or deposit requests
- Solving users and technical issues
There are three options for getting a cryptocurrency exchange software
- Build cryptocurrency exchange software from scratch using a team of experienced programmers. This takes time to complete, usually an average of one and half years. It requires huge capital expenditure and a team of highly skilled professionals.
- Use free source code. Although this is free, you will need an experienced professional to implement the source code. Also, the source code might contain bugs and malicious codes that can undermine the security of your exchange platform. Lastly, the open-source code project might be abandoned by the developers with no support whatsoever.
- Use white-label exchange software. This is the best option considering that you’re buying an already developed and tested cryptocurrency exchange software; hence, customizing it doesn’t go beyond a couple of months. More importantly, the cost of setting up a white-label exchange software is significantly lower since you wouldn’t be spending much hiring and maintaining a team of highly experienced developers.
Generate liquidity for your crypto exchange platform
Traders will hesitate to use your cryptocurrency exchange platform for trading if there is no evidence of trading activities taking place on your platform.
You can solve this liquidity problem using re-marketer software to copy liquidity from other trading platforms, join a cryptocurrency exchange network to access liquidity on the network, or simulate trading activities by buying and selling between multiple accounts on your exchange site.
Have a dedicated customer support team
You will need a dedicated customer support team to resolve customers’ issues and complaints, attend to KYC requests, process payment deposits, withdrawal requests, etc., and ensure that the exchange runs smoothly.
Starting a cryptocurrency exchange platform can be demanding in terms of time, energy, skills, and resources. It also requires that you set up robust security measures to prevent hacking and theft of cryptocurrencies and KYC information belonging to users.
There are several ways to start an exchange, from building your own software to using an existing platform. Build crypto exchange software from scratch using a team of experienced programmers. This takes time, usually an average of one and a half years.
Use white-label exchange software; customizing it doesn’t go beyond a couple of months. The cost is significantly lower since you won’t be spending much hiring and maintaining a team.
However, It is a very lucrative way of generating income from cryptocurrencies if you get everything right with the right support team.
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