The impressive development of the cryptocurrency industry and the increasing number of cryptocurrency holders encourage more and more businesses to invest in blockchain development services.
According to Statista, the number of global cryptocurrency users has grown by nearly 190% between 2018 and 2020, rising from 35 to 101 million users, and in 2021 it reached 221 million. Meanwhile, Grand View Research predicts that the market for cryptocurrency exchange platforms will expand significantly between 2021 and 2028.
The rapid spread of crypto exchange platforms is already evident today. For example, the crypto startup Binance started in 2017 has gone viral in just several years, attracting 28.6 mln crypto traders by 2022. This fast growth in active users helped the platform reach the trading volume peak of $76 bln in 2021.
Apart from Binance, a wide range of other cryptocurrency exchanges have ramped up extensive user bases and registered big trading volumes on their platforms, including Bicomony Exchange, Coinbase, and others. Observing the remarkable advances of exchange platforms in the crypto market, there appear startups that attempt to repeat their success.
If you’re also planning to invest in building your own crypto exchange platform, then here is a detailed guide that explains how cryptocurrency exchanges work and what aspects are important to consider when launching your own crypto exchange platform.
What Is a Cryptocurrency Exchange?
The emergence of a great variety of cryptocurrencies has led to the establishment of cryptocurrency exchange.
A cryptocurrency exchange is a brokerage service providing tools and instruments to exchange or trade digital assets, crypto derivatives and fiat currencies.
The creation of a Cryptocurrency Exchange may be implemented in several ways, depending on your goals, the needs of your users, and the technology you are going to use.
Main Types of Cryptocurrency Exchanges
A Centralized Crypto Exchange (CEX) has many similarities with a ForEx or a Stock Trading system where participants search for opportunities to gain profit based on asset price differences at different times. It also usually allows a non-speculative assets exchange, as well as trading operations with futures and other instruments.
The way CEX functions will be familiar to any trader, such as stock or commodity traders.
Moreover, nowadays Forex platforms provide cryptocurrency-based instruments or other products for crypto trading.
OTC trading provides a service that basically connects sellers and buyers by matching their requests for trades. Normally an OTC platform or broker is not directly involved in trading.
While it may sound easy to build an OTC desk, it still requires putting sufficient effort into risk management, security, and other vital system components.
Decentralized Exchange (DEX) is an application or system which allows peer-to-peer crypto exchange based on a blockchain. It automatically handles exchange propositions of one crypto asset to another by utilizing smart contracts from the corresponding crypto networks.
In this article, we will focus on the development of a Centralized Crypto Exchange, as the most common type of a cryptocurrency exchange platform in the market.
Main Steps to Build a Cryptocurrency Exchange
For building a successful cryptocurrency exchange platform, software developers and project stakeholders should create and follow a detailed project roadmap. Below are the main steps that can help project participants organize the development process and keep it up with the timeline.
Conduct Market Research
Before starting the development process, it’s important to do exhaustive market research and define the most prominent crypto trends that could attract more crypto users.
Apart from following the latest trends, a detailed market analysis can provide businesses with insights into when it’s the right time to launch the exchange platform to the market, which cryptocurrencies to list on their platforms, and many others.
Consider Legal Aspects
Investigating the local cryptocurrency legislation is as important as doing market research. Cryptocurrency regulatory frameworks vary from country to country and may require additional security standards and licensing, e.g. adhering to the Know Your Customer (KYC) policies in Europe, Bank Security Act (BSA), and Travel Rule in the US, and many others.
Meanwhile, in China, Bolivia, Ecuador, Nepal, and Russia cryptocurrencies and their trading is prohibited. Thus, it’s important for a business to make sure that the location they choose is crypto-friendly and it doesn’t violate any laws.
A convenient user interface is vital when it comes to the engagement of users, traders, and investors as well as the expansion of the customer base. When developing user interfaces for the crypto exchange platforms, software developers have to consider all the participants in the exchange process.
For example, for traders, it’s essential to establish a smooth onboarding process whereas managers, brokers, and dealers require a trading management space to control trading settings, trading accounts, communication channels with customers, and other configurations.
Design the Architecture
Choosing the right architecture is an important step when building a crypto exchange platform. There are several types of architectures: monolithic, microservices, etc.
When opting for monolithic architecture, software developers create a large codebase that consists of front and back-end code and configuration files. Monoliths have a wide range of advantages – they are simpler to develop and deploy, easier to test, and provide enhanced security.
Meanwhile, microservices architecture represents a codebase split into separate modules that are combined together into a single digital solution. Many crypto developers choose microservice architecture for simple scalability, easiness to add/remove new technologies or additional functionality to the developed solution.
Select the Right Technology Stack
At this point, software developers have to carefully select the stack of technologies they’re going to use for building crypto exchange. Based on the crypto exchange type, software developers have to select the appropriate technologies, programming languages, frameworks and tools for building front-end and back-end, decide on the right databases to use, storage solutions, and integrations they are going to make.
Perform Software Testing
Product testing is another means to strengthen data protection and configuration security. For this, software developers should perform white-box testing throughout the project implementation and penetration testing at the latest stages of the project deployment.
Software testing procedures will ensure that the resulting solution doesn’t have any critical or major errors, providing a better platform and user protection.
Further Maintenance and Support
Cryptocurrency Exchanges run 24/7 every day with no weekends or holidays. To ensure high availability of the Cryptocurrency Exchange services, it is needed to configure tools and establish processes for infrastructure monitoring, anomaly detection, DDoS protection, alerting, and incident management.
Best practices should be utilized for redundancy, scalability, and security of all system components and software environments, including the ones required for development and delivery purposes.
Launching a cryptocurrency exchange platform can become a lucrative and successful startup once everything is in its place and works right. Though for this cryptocurrency exchange creators have to consider a wide range of aspects they need to include in their platforms as well as elaborate on a detailed project development plan.
If you’re also searching for ways to invest in cryptocurrency exchange platform development, then you’ll need a team of software specialists with expertise in crypto. Scand is a software development company that offers teams of professionals who have much experience in the creation of diverse crypto solutions for local and foreign businesses. Our specialists provide cryptocurrency solutions development with customer requirements and needs in mind.