Modern technologies constantly develop as we move towards a more advanced digital lifestyle. As more and more people begin to do business in the digital world, there is a growing need for a new secure and anonymous form of payment. Using the blockchain concept invented by Bitcoin founder Satoshi Nakamoto, software engineers and other professionals have developed many innovative technologies that fulfill this function perfectly.
Bitcoin must be traded or exchanged somewhere. That's when some entrepreneurs thought it was time to create a crypto exchange. Since then, numerous businesses have started looking for options for setting up their own crypto business. There are currently numerous exchanges available on the market. Despite this, you still have a solid chance to start your own cryptocurrency exchange and shine in the expanding industry.
In this article, we will explain what a cryptocurrency exchange is, what features they have, what types of crypto exchanges are available as of today, what are its advantages and downsides, and how to use all the modern technologies to make your crypto exchange a reality.
What is a cryptocurrency exchange?
A cryptocurrency exchange is a digital platform that allows customers to buy, sell, and convert crypto together with fiat currencies. Every serious exchange should include robust security, transparency, and increased trading speed. The greater the platform's credibility, speed, and convenience, the wider community will engage and remain. This, in turn, leads to higher income.
Using exchanges, people can convert one crypto to another, say Bitcoin to Litecoin, or purchase crypto using ordinary currencies, such as the US dollar. Exchanges display the current market value of the cryptocurrencies they provide. You may also swap cryptocurrencies for US dollars or other currencies to keep them in your account or transfer them to your traditional bank account.
Think of it as a stock exchange, where a buyer makes an order for cryptocurrency at a specific price, and the deal is completed whenever a seller meets the buyer's price.
There are numerous cryptocurrency exchanges around the globe currently available, and each takes different forms of payment from others. Different cryptocurrency exchanges offer different features and options, with some allowing bank transfers, credit or debit cards, or currency contracts.
High-quality crypto exchanges have at least one of the following elements, which are required for a smooth operation.
Security
In comparison to traditional assets, there is no central authority that controls the cryptocurrency ecosystem, which brings new challenges.
Advanced and reliable exchanges must have all the necessary measures in place to secure the users' funds on the exchange against any cyberattacks that are quite common in the crypto industry.
Whether your users intend to maintain their crypto assets in an exchange or keep them there for a relatively short period of time before transferring them to their own wallet, the security of the exchange should be a primary consideration.
Liquidity
A large transaction volume on the exchange is essential to making sure clients' holdings are liquid, which means they can sell their assets or buy some whenever they wish. The size of the specific exchange might be a factor in this situation. The most renowned exchanges are frequently the ones with the highest transaction volumes.
When there are a lot of trades going on inside an exchange, it means there is a better chance of purchasing or selling the cryptocurrency fast and at the best price possible.
Since cryptocurrency prices move so frequently, using an exchange with little transaction volume may result in paying a higher price than an exchange with sufficient liquidity.
List of offered coins
Each exchange offers a different range of crypto assets. Bitcoin and
The owner of the exchange must pick wisely what coins to offer. Main coins and tokens are a must. Offering the most popular, utilized, and promising coins is the key to having an attractive list of assets.
Every crypto exchange offers different features, yet there are few most common types of crypto exchanges as of today.
Centralized exchanges (CEX)
CEX is the most used and popular type of crypto exchange in the industry because it is managed by a particular company, and it provides both crypto-to-crypto trade and a fiat-to-crypto gateway. CEX works on the order book principle. For traders using traditional brokerage platforms, this scheme is easily understood and familiar.
The most prominent benefit of this type of exchange is that CEX is simple to use, offers excellent UI and UX, and offers quick responses. Trading on CEX is often as simple as registering with an email address and logging in.
CEX exchanges have a good reputation, significant transaction volumes, and liquidity. CEXs frequently provide customer assistance, multiple trading pairs, and fiat gateways, and you can usually profit from extra services like staking, investment plan, initial exchange offers as well as
Decentralized Exchanges (DEX)
DEX is a non-centralized counterpart to CEX in which no entity is in control of the assets. Unlike traditional CEX, smart contracts and
Some people go with this method type as it is far safer due to the absence of a central authority, leaving minimum space for a cyberattack in case the smart contract is appropriately designed.
It is more difficult for state organs and legislators to close down DEX since no corporation is accountable for its operation. However, the cost of decentralization is that most DEXs may have low trade volume, low liquidity, lower frequency, and an unsuitable user interface, making them challenging for beginners.
Usually, DEXs are used by skilled users. There is no contacting customer service on DEX for assistance, and they do not offer a fiat gateway like CEX.
Hybrid cryptocurrency exchanges
The hybrid crypto exchange is a type that has both CEX and DEX features. Users still retain control over their private keys while benefiting from the speed and security of centralized systems.
Hybrid exchanges are a unique type of cryptocurrency trading platform currently "under development," which many expect might bring new opportunities in the crypto industry.
When you want to create your own crypto exchange, consider what type would be most suitable for your business model and where you see the biggest potential. However, bear in mind that every solution has its pros and cons.
Pros and Cons of Centralized Exchanges
Pros
User-friendly approach: Centralized exchanges provide novice and experienced investors with a comfortable and attractive environment for trading in cryptocurrencies, among other benefits. Customers of centralized exchanges have the opportunity to log into their accounts, examine their account balances, and conduct transactions using web or phone apps. Besides that, clients have the opportunity to contact client support. In most cases, they receive the answer within 24 hours.
Reliability: When it comes to operations and trading, centralized exchanges provide added safety and stability. Centralized exchanges offer more comfort by simplifying transactions through an established, centralized platform. Moreover, you can always rely on security due to additional security measures, such as KYC procedures or two-factor authentication.
Cons
Cyber threats: Businesses that run centralized exchanges are accountable for their client's assets. Large exchanges typically keep vast amounts of money in crypto, making them an attractive target for cybercriminals and threats.
Fees: Centralized exchanges sometimes charge significant transaction fees for their services, which can be especially noticeable when trading in large amounts.
Pros and Cons of Decentralized Exchanges
Pros
Minimized threat of hacking: Decentralized exchange users are not required to redirect their holdings to a third party. As a result, there is zero possibility of a business or organization being compromised by cyber attackers. Therefore, users are constantly protected against hacking and potential theft.
Anonymity: Users benefit from confidentiality and security since decentralized exchanges do not need clients to comply with know-your-customer (KYC) procedures.
Lacking market manipulation: Decentralized exchanges reduce market manipulation by ensuring peer-to-peer exchange of cryptocurrencies, preventing fraudulent transactions and laundering.
Cons
Sophisticated user experience: Those who utilize DEX must memorize and safely store their crypto wallet keys and passwords. Otherwise, their funds will be lost permanently without the option of returning them back. In contrast to centralized exchanges, which provide a more accessible and user-friendly procedure, on DEXs, users need to understand all the aspects of the platform and the exchange process.
Issues with liquidity: The vast majority of crypto transactions are conducted on centralized exchanges. This implies that they account for most of the trade volume. Decentralized exchanges frequently lack liquidity due to a lack of volume, and it can be hard to identify sellers and buyers during times of low trade volumes.
Now, when you are familiar with all the details, let's learn how to create your own crypto exchange.
Following these simple steps will make starting your own cryptocurrency exchange much easier:
Regulatory requirements
The crypto industry is now undergoing significant developments linked to the regulation of crypto assets. Digital assets have moved closer to broad usage, and regulatory standards may boost this industry into a new category. Legal norms and regulations must be considered when establishing a Bitcoin exchange. Form a business that complies with local legislation and obtain a crypto exchange license to ensure that traders' and investors' rights are fully protected. KYC and AML regulations are essential components of regulated cryptocurrency exchanges.
Find a technology solution provider
In order for your exchange to work, you need to build your platform. This can be done with the help of third-party solution providers. There are several solutions that offer complete customizable cryptocurrency exchanges for a one-time licensing price with no compensation arrangements. This means that there are no recurring fees, customers may maintain the exchange themselves, and clients receive the entire source code, which is vital for auditing purposes because some regulators seek to view the source code.
A white label exchange platform is one of the best and most effective solutions.
Payment gateway
On crypto platforms, investors usually exchange one digital asset for another. However, a new investor should also have the ability to use fiat cards. This means that company owners have to find reputable financial institutions or providers of specialized payment processing services in order to offer traders an option to deposit and withdraw fiat cash. Also, it is vital to consider the factors such as processing time, costs, and restrictions. It is worth noting that the easier features are provided to traders, the more new users are likely to join your platform.
Liquidity
Liquidity is the fundamental aspect of every effective exchange. Potential clients will be skeptical of your new enterprise if it lacks trading activity. To avoid these issues and avoid the need to imitate activity through false accounts inside the new exchange, you should find a solution where you can connect your exchange to a network of existing exchanges, increasing its liquidity. Remember that the broader the network of exchanges, the fewer liquidity problems your new exchange will face.
Security
For your exchange to qualify as one of the best and most respected, you need to offer robust protection. This could be done with offline cold storage crypto wallets, two-factor verification, encrypted databases, and much more. Security is a top priority for every serious crypto exchange. No matter the size of the exchange, every platform can become a target for cybercrime and hacking, so investing in security measures is crucial.
Customer support
Despite how easy it may seem, crypto exchange trading comes with different challenges and obstacles. That's why a reputable crypto exchange must provide non-stop customer service for its traders. Users should have various ways to contact client support, such as via email, live chat, or phone.
Marketing & PR
Once your exchange has gone live, you should market it through crypto news and publications that are respected among the trading communities. It is critical to properly organize your marketing initiatives, as well as their expenditures, to ensure that your debut does not leave you searching for further funds. Typically, exchanges do not have a marketing budget and instead rely on free social media promotion.
Conclusion
The crypto sector is seeing impressive growth, with the number of users constantly increasing. New participants enter the market, hoping to find a dependable platform to keep, trade, and transfer their money. There is always room for new crypto trading platforms, but entrepreneurs must consider all of the critical variables if they want their platforms to become a top solution in the industry.
You can't create a crypto exchange and make it successful without a significant amount of effort, time, and money. Therefore, it is necessary to do extensive market and user research, identify the key features, create effective UI/UX design solutions, choose an appropriate tech stack, and launch a successful marketing strategy.