Creating A Crypto-Exchange - The Types & The Steps
Cryptocurrency might have made a grand entry into the world of technology and finance as an alternative to the usual currency that we use. The earliest crypto enthusiasts used bitcoin mining as a technique to earn from this new craze.
However, it became known to them that the complexity of the mathematical problem increases with the addition of every node. It might not be sustainable for miners to employ the processing power and the electric power it takes to solve the maths problem to earn their crypto records through mining.
Adding to this, the extremely volatile nature of cryptocurrencies made it impossible for them to use the bitcoin and its kith and kin as valid instruments of transactions. The fact that the bitcoin was worth just $2900 in mid-September 2017 and its price skyrocketed to about $19,800 in December 2017, and again, plummeting down to $3300 in December 2018 speaks volumes about the volatility of even the most reputed and most recognized cryptocurrency.
Exploring alternative avenues of profit
This meant that crypto enthusiasts could no longer rely on cryptocurrency as a valid instrument of payment or more crypto coins through mining. There was a growing need for an alternate avenue for revenue.
Parallel to this, there were a lot of new cryptocurrencies that started to spring up because of the blockchain craze. As of this article being written, investing.com states that there are about 2945 cryptocurrencies operational.
What if the forex profit logic was applied to the crypto world? What if the volatility and the extreme degree of fluctuation in the value of different crypto coins could be used to conduct trading between coins to get a profit? The above questions are million-dollar questions. Literally! The answer to these questions lies in a cryptocurrency exchange.
What is a cryptocurrency exchange?
As the name implies, the cryptocurrency exchange is a platform where you can trade between cryptocurrencies based on their current value. The value is determined by the market, the demand, and the supply.
Based on the fluctuating prices, and using the science of probability and prediction, investors and traders can buy a certain crypto coin at a price and sell it later when the prices increase. Conversely, they can possibly lose money if the value of the coin drops. There are alternative schools of trading like short trading that involve selling a certain cryptocurrency at a specific rate and buying them later at lower prices.
The relevance of crypto exchange
In a crypto exchange, in addition to being an alternative avenue for income in the crypto world, it also presents a few marked advantages that further strengthen the stance of crypto and blockchain technology. Crypto exchanges are legally valid means of businesses, even in countries and jurisdictions where cryptocurrency might not be accepted as a valid payment method. This opens up an entirely new avenue for aspiring entrepreneurs to explore a new opportunity for business in the crypto realm.
Steps to develop your own crypto exchange
Crypto exchanges not only form a legally valid stream of business in the blockchain front but also present a lucrative opportunity with almost close to 0 possibilities of losses. Just like how the house always wins in a casino, crypto exchanges are bound to make a profit irrespective of the trader making a profit or a loss, and irrespective of them providing leverage/margin trading options.
However, putting together a cryptocurrency exchange software is no mean task. There are a lot of components that go into creating a perfectly functioning crypto exchange.
The legal aspects
The country and the jurisdiction in which your crypto exchange business will be incorporated as the legal entity place a major role in determining the success of your crypto exchange business. In some countries, crypto exchange businesses are completely illegal, and in some, it is legal provided it does not deal with investors present in that particular country. It is vital that your crypto exchange is legally compliant and does not face any trouble because of lapses in complying with the regulatory frameworks. In this pursuit, it is essential that you obtain your license that is required in the area of incorporation.
The commercial aspects
Creating a crypto exchange is a daunting task from a development and testing perspective. It does require quite a lot of talented professionals who know the trade and technology. Even outside the task of finding the right resources, there is an intense financial burden on the investors.
Therefore, you need to ensure that there are enough financial resources to support your crypto exchange endeavor.
Liquidity is one of the most important features for any exchange, leave alone crypto. Liquidity, by definition, is the measure of the ease with which you can convert your crypto assets into cash. In the context of an exchange, it is a measure of the intensity of activities on your exchange. The more intense your activities, the more liquid year exchanges! The liquidity in your exchange plays an important role in wooing prospective traders and investors.
There are multiple ways to enhance liquidity in a new exchange. You can emulate trading within the exchange, and the other is that you can connect your exchange to another third-party exchange using an API to showcase the transactions in that exchange.
Connecting with the bank
This is a critical step not because it is difficult but more because there is quite some meticulous thinking that goes into choosing the perfect payment partner for your exchange. Not every bank is comfortable in handling anything related to crypto, and your exchange falls into the same category. Therefore, you will need to find out with an uncompromising degree of precision if your bank supports crypto transactions.
Ensuring top-notch security
Crypto exchanges, in general, come with a degree of centralization, making it an easy and lucrative target for hackers and other malicious forces. Therefore, it is of paramount importance to ensure the security of your exchange by introducing features like two- factor authentication, and multi-signature wallets.
It is encouraged to keep the resources and funds of your traders locked away in cold wallets. The movement of funds between your hot and cold wallets should be simple, straightforward, and quick, so there is no compromise on the tradeability for want of security.
In addition to all of these, it is highly encouraged that you have a proper KYC/AML process in place, ensuring the interest of your traders.
Marketing your exchange
Cryptocurrency exchanges have started to present themselves as lucrative earning opportunities in the crypto space. Therefore there are a lot of exchanges that have been sprouting left right and center. To make your exchange stand out from the crowd, you will need to market it effectively. In addition to the classical marketing methods like search optimization, social media advertising, and content marketing, you can also talk about your exchange in places like crypto forums. These activities ensure that your exchange gets the right exposure and engagement.
At a time when almost all exchanges provide the same kind of service, customer support is what defines the difference between a good exchange and a great exchange. Customer support should be made available for your traders through multiple platforms, including but not limited to emails, phone, and chat.
Detailing on the technology
When it comes to developing a crypto exchange, technology is at its core. The matching engine or the trading engine is considered the heart and soul of the crypto exchange. When it comes to the technical part, there are multiple options for you to proceed with. One is that you can hire a team of dedicated developers or even partner with a crypto development company that specializes in exchanges. You can also consider using open-source exchange scripts that you can customize according to your business requirements.
However, more than the two listed above, one of the most preferred ways to develop your crypto exchange is to use a white label crypto exchange software. These white label exchanges are effective both from a temporal and a financial perspective – it will reduce the time taken to hit the market, and in a business like a crypto exchange, the quicker you hit the market, the better your possibilities of profit.
You can also be assured that your basic product is free from any bugs that might affect the core functions of your exchange.
A crypto exchange software is the confluence of multiple elements of technology and is a sure proof that even the most volatile cryptocurrency can still make an interesting option for making a profit through trading. With the presence of white label cryptocurrency exchange software, it only makes the possibility of getting into the crypto trading business easier and simpler.
All that you need to do is get in touch with a crypto exchange software development company, and they will take care to understand your requirements, create and customize the crypto exchange, and present it to you as a complete business tool.