A thorough outlook on cryptocurrency exchanges!
Cryptocurrencies need no introduction. In this digitally evolving world, cryptocurrencies alongside blockchain technology are making a mountainous revolution in the business sphere. Ever since the advent of the first cryptocurrency, Bitcoin in the year 2009, cryptocurrencies have widely evolved. They have been gaining huge traction constantly among potential investors all around the globe. This is because cryptocurrencies and blockchain together bring in enormous benefits to the investors compared to the traditional business.
With this ever-growing demand and popularity, cryptocurrencies and crypto exchanges are expected to be the future of the payment industry and they are set to change the pace of the business world completely. If you are one among many entrepreneurs, aspiring to start a profitable business with a promising future, starting your own cryptocurrency exchange is the applicable choice. If you are confused about where to begin and how to go about developing your exchange, this blog is for you. If you are a beginner, let’s start by discussing what cryptocurrency exchanges are and how they function.
Table Of Contents
- What are cryptocurrency exchanges?
- How do cryptocurrency exchanges function?
- What does the term “ cryptocurrency pairs” mean?
- How to commence trade in a crypto exchange?
- Types of crypto exchanges
- How to create your own crypto exchange?
- Common Key features for a crypto exchange
- What is the cost of building a crypto exchange?
Cryptocurrency exchanges are platforms that allow traders to exchange their cryptocurrencies for other cryptocurrencies and digital assets based on their market value. Some crypto exchanges allow their traders to exchange their digital assets only in exchange for another digital asset. But with the wide acceptance, a few exchanges have started allowing their customers to trade their digital assets for fiat currencies, such as dollars, euros, pounds, etc.
Cryptocurrency exchanges are underpinned by blockchain technology, which is a distributed ledger. Blockchain helps control, secure, and verify transactions that happen on the exchange, with a chain of blocks encrypted with strong cryptography.
The working of crypto exchanges is almost similar to stock exchanges, but the difference is that, with stock exchanges, traders buy and sell assets, shares, or derivations in order to gain profit from their constant change in the rates. Whereas, crypto exchanges use cryptocurrency pairs to gain profit from the extremely volatile crypto prices.
In simple terms, “cryptocurrency pair” means a trade that happens between one type of cryptocurrency and another, i.e., BTC/ETH is a cryptocurrency pair for example. It means you can buy Bitcoin with Ethereum or sell Bitcoin for Ethereum.
As discussed earlier, even though some exchanges allow trading cryptos for fiat money, the majority of exchanges only allow exchanging crypto for crypto. Therefore, it is essential to understand the working of crypto pairs to expand your holdings and bring in huge benefits for your business. Also, trading one crypto for another is taxable. So learning how to trade using crypto pairs and the tax implications behind, will help you gain better profit results.
In order to begin a trade in the exchange,
- You need to first set up an account and transfer an initial amount into the account.
- In most exchanges, the initial domestic currency you deposit into the account should always be crypto and not USD or any other fiat money. So, you should buy some cryptos on the exchange and transfer them into the wallet address provided by the exchange.
- Once it is transferred, you can place your order with the order type (buy/sell) and the value of the cryptos you want to exchange.
- The exchange then connects your order with a matching order type and commences the trade.
- Every order, every transaction is verified by the blockchain network.
This is how a trade begins in the blockchain exchange platform. Even though most exchanges allow domestic currency for crypto, there are a few platforms you can find that also accept USD, credit cards, and other payment methods.
Before going into the development, you need to know that there are different types of cryptocurrency exchanges. And it is essential to have an idea about them to create a fitting business model. Let’s take a quick look at the type of exchanges.
Centralized exchanges are platforms that function like stock exchanges. The exchange is controlled by a third party who manages all the transactions and the user funds. In centralized exchanges, the users do not get to access their private keys. The most trending centralized exchanges are leverage exchanges. What are the leverage exchanges?
A leverage exchange is where a user can borrow a sum, larger than the initial deposit, to expand their position and boost their profits. Because of the efficiency it provides and the opportunity for small-time investors to participate, this exchange is widely trending among potential investors.
Decentralized exchanges do not depend on any third party for the control or management of the exchange. Transactions occur directly peer-to-peer between the users, and they have entire control over their funds.
Decentralized exchanges are currently making huge rounds among investors because of their enhanced security nature, among which, the top trending exchanges are p2p exchanges and What is a p2p exchange? Here is a quick glance.
P2P exchanges are the best example for decentralized exchanges because, in this platform, traders can conduct global transactions directly peer-to-peer in a highly-secure, quick, efficient, seamless manner. The exchange ensures transparency and high-end security for the users.
To build a crypto exchange, there are several ways to go about it. The first one is building an exchange from scratch. It involves going through several processes such as,
- Deciding the location
- Obtaining license
- Generating funds
- Collaborating with a technological partner
- Partnering with a bank/payment processor
- Connecting the exchange with other external exchanges for liquidity
- Integration of security features
- Testing the working of the exchange
- Implementing Marketing strategies
- Constant maintenance and customer support
To be done with all these steps will end up with the consumption of your time and money to a great extent and needs qualified technical assistance. If you are looking to get your exchange up to speed among your competitors, this is not a viable option.
The second option is obtaining white label cryptocurrency exchange solutions. Whitelabel solutions are ready-made solutions that come with every necessary integration required for the exchange to function seamlessly. Also, they come along with your desired name, logo, brand, UX/UI, and other customization preferences. There is a multitude of companies offering white label solutions. All you have to do is conduct research, pick the right one, buy and install to kickstart your exchange. They can be launched within weeks and are cost-effective.
The third option is to develop a cryptocurrency exchange script. Crypto exchange scripts are also ready-made solutions that come with 100% source codes, features, etc., required for the exchange. They are quick to launch and cost-effective. You can also get your exchange script developed for popular exchanges like Binance.
- Multi-currency support
- Multi-language support
- Automated KYC/AML
- Powerful trade matching engine
- Secure, multi-currency wallet
- Payment gateway integration
- Admin Panel
- High-volume liquidity
- High-volume TPS
- Advanced blockchain technology and smart contracts
- Two Factor Authentication
- Integrated referral program
- Mobile applications support
- Multi-layered security protocols
Crypto exchange costs vary from user to user and depend upon several factors such as the type of exchange you choose to build, your requirements for the features, other integrations for the exchange, and your personal customization preferences. However, as mentioned earlier, obtaining white label trading platform solutions will cost way less when compared to building an exchange from the ground up.
If you want to know more in specific about the development and costs for your exchange, reach out to our experts from Blockchain App Factory. Their experience and knowledge in the field are unmatched, and they will offer you the most reliable services with round-the-clock customer support, at the best available market prices. So, get in touch, and we have a million-dollar business opportunity waiting for you!