Cryptocurrency is more than just a buzzword today! It is a demonstrator of technology and is challenging almost every aspect of traditional finance and Fiat money. It is not a thing of wonder that cryptocurrency exchanges have started to become prominent and rise steadily in numbers.
The concept of multi-currency exchange has been there in the Fiat world for quite a while. However, unlike the Fiat currency system, where people ‘actually ‘ want to exchange money for transactional purposes, the crypto exchange is basically built as a forex trading platform. The person might not have an intention to exchange bitcoins for litecoins – they only want to make a profit because of the fluctuating prices.
The relevance of a crypto exchange
Crypto exchanges are an outcome of a growing number of cryptocurrencies. Investor.com lists more than 2500 cryptocurrencies that are active today. With so much diversity, it is only natural that people want to exchange one currency for another, and in that process, make a profit.
In addition to the lucrativeness, there is also the growing acceptance for the concept of cryptocurrencies across multiple governments. Governments have even gone to create an official central bank digital coin that is likely to replace their currency in the future. Given all these changes, crypto exchanges become increasingly relevant with every passing day.
What will you need to know before setting a crypto exchange?
The legal limitations
Although acceptance is growing, it has not fully grown yet! There are legal restrictions that differ region by region, and country by country. It is important to survey the country’s legal policies on cryptocurrency, and you will need the advice of crypto law experts to ensure that you do not slip into any legal turmoil.
In addition, there is also a need for you to complete your KYC/AML formalities for your customers through government-issued identity cards. These practices will ensure that there are minimal instances of tax evasion and money-laundering.
Connecting fiat with your exchange
You will need to partner with a reliable payment processor or a bank to process the payments that are made to your exchange through Fiat currency. This step falls in line with the previous one because not a lot of banks might have the facility or the necessary rules that govern their link with the crypto exchange. In addition, the bank also should have instant online transaction facilities. It should have space to quickly settle the balances to the clients, so they stay in a territory of comfort.
The bank should also facilitate both manual and automatic withdrawal and deposit by means of a robust payment gateway.
The possibility of success or in the same tune, failure is determined by the liquidity of your exchange. Your exchange needs to have shown a transaction record because that alone can introduce trust with your clients. A full order book and trading history mean that your exchange is highly liquid and has quite a lot of transactions happening, keeping the entire exchange abuzz.
There are two ways to bring up liquidity. One of them is that you can make exchange activities within your cryptocurrency trade. The other way is to use an API to link your exchange to another active exchange, so the transactions in that exchange are reflected to be yours.
Ensure security and support
Your customers would love to be assured that their money in your exchange is beyond any security breaches. You should ensure that not just their money but even their personal information stays safe and does not get into the hands of malicious forces. At the same time, the customer should be able to avail the support of your exchange at all the time. They should be able to redress their grievances and get all the issues sorted out. The support has to be provided through multiple channels like phone chat, and even personal messaging platforms like Telegram.
The components of a crypto exchange
If a crypto exchange has to be fully functional, they need to be a few components in place.
The first of them is the training engine. It can be considered the heart of the exchange because it accesses the order book, matches the buying and selling orders, and executes transactions. An effective trading engine ensures that your crypto exchange is all set to perform at its best.
The wallet is a daemon where all your cryptocurrency is stored. The customers should have both hot and cold wallets. Hot wallets, in essence, are used for transactions and are relatively less secure. Cold wallets, on the other hand, are used for storing cryptocurrencies for extended periods of time. Hot wallets need to have a positive priority to facilitate instant withdrawals. A hot wallet is mostly a web or a mobile app that facilitates transactions. Cold wallets, on the other hand, can be either piece of paper or USB drives where your public and private key information is stored. There should be flawless communication and transaction between the hot and cold wallet that you use.
The interface of the exchange should be intuitive and interactive. Even people who are not technologically sound should be able to access the exchange and perform transactions. In that way, you can ensure that you earn the trust and clientele of amateur investors which will result in a greater volume of transactions. In addition to the process itself, the auxiliary activities like registration and the accessing of customer support should be more simple and easy.
Creating a crypto exchange
There are multiple ways to create a crypto exchange. The two of the most prominent ones are you choosing to hire a team of dedicated developers and you purchasing a white label cryptocurrency exchange software.
While building your exchange from scratch might seem like an adventurous idea, it should be understood that it cost a lot of time and money. It requires a team with expertise in a field that is relatively new. There are also possibilities of lapses in legal compliance and even in the most basic components of the exchange. These lapses might cost quite a lot… A lot more than building the exchange itself!
White label crypto exchanges present themselves as the most viable option when it comes to creating your own exchange business. The White label crypto exchange software presents a host of advantages, not the least of which is a humongous saving in terms of both time and money.
If you would like to create a business out of crypto-exchange software, all you need to do is get in touch with a white label crypto exchange development company. Blockchain App Factory will take care to understand your requirements and also create the exchange software in line with what you require.