How to Set Up a Cryptocurrency Exchange

A cryptocurrency exchange is a platform that allows users to buy/sell different tokens. It is like a stock exchange, but instead of stocks you buy or sell cryptocurrencies. In this article, we want to tell you how to create and open a cryptocurrency exchange in Europe.

Types of Cryptocurrency Exchanges

The first step to start to create crypto exchange is to choose the type of trading platform you plan to create. This is important because the choice of platform depends on the cryptocurrency trading mechanism, how they are stored, liquidity management, the ability to trade fiat currencies, and other features of cryptocurrency trading.

Centralized exchanges (CEX)

The most common type of trading platforms, the main feature of which is the presence of a centralized operator responsible for security, updates and trading functions. The main advantage of centralized sites is fast cryptocurrency trading and no liquidity problems. The main weakness is security, since centralized exchanges store user funds on their wallets, which, according to practice, are often hacked.

Possibility of earning money on CEX:

Spot trading: The user trades his funds on the platform. The owner of the cryptocurrency platform earns money through commissions.

Margin trading: Users have the opportunity to borrow money for trading. Usually, the loan can be x2 to x5 times the user's deposit. The platform owner earns money from bidding commissions, loan usage fees and liquidation of user funds.

Derivatives: Users can enter positions with leverage up to x100 or even higher. High risk brings high rewards, but statistics show that only 2% of users make money using this tool.

Decentralized Exchanges (DEX) 

Such platforms bring together sellers and buyers of cryptocurrencies, enabling them to automatically exchange assets without a middleman verifying the transaction. Smart platform contracts based on open source software play the role of a guarantor of transactions. This mechanism allows saving on commissions (no need to pay middlemen) and increasing the level of security (the exchange has no access to users' funds and private keys). The advantage is that when setting up a decentralized exchange, users are responsible for their own finances.

Instant exchange services: These platforms are very easy to use and act like regular exchange points. All a user needs to do is open a trade order and it will be executed instantly. This is possible because these platforms act as brokers that provide access to liquidity to many exchanges. The increase in speed is an increase in the number of middlemen, which leads to higher fees and lower security.

Hybrid platforms can also be found on the market, which combine features of centralized and decentralized exchanges. For example, services can be run by third-party operators and provide traders with more control over their funds. Orders and trades on these cryptocurrency exchanges are encrypted, time-fixed, and stored on the blockchain, while order negotiation is performed on a third-party host outside the blockchain.

Core and advanced features

At the next stage, you need to decide what features should be implemented in your cryptocurrency exchange. Usually it is divided into the following modules:

Identity verification and validation: The path of a typical user to trade on a stock exchange begins with registration via email or social network and Google account. But usually registration alone is not enough to start trading. For this, you need to undergo identification – verification. This review is done to ensure transparency of transactions and minimize the possibility of fraud, as verification is required by regulators.

The trading engine platform: It is responsible for the basic functions of the trading platform. For example, the trading engine checks the balance on the user's wallet to make sure he has enough funds to trade. It also compares trade orders and exchange rates in real time, executes trades, processes information about prices and commissions, creates charts, and much more.

User interface: Depending on the target audience, the user interface can be simple and intuitive, or relatively complex with many indicators, trading signals, customizable graphs and other tools for experienced traders. In any case, users should be able to place orders to buy and sell, view the current order book, past trades, balances, statistics, and more. It should also be possible to configure the functionality of the create cryptocurrency exchange to their own.

Admin panel of the exchange: Before creating your cryptocurrency exchange, you need to decide what kind of admin panel you want. Typically, it should have tools for tracking the current state of the exchange (traffic, volume, number of trades, commission income), traders, wallets, transactions, and content. In addition, tools for verifying users, modifying and deleting content, banning and deleting users, changing commissions, managing marketing and affiliate programs must be implemented.

Cryptocurrency wallets: If you are developing a centralized platform, you will need the functionality of an internal wallet. This is to provide faster access to funds, thus speeding up and simplifying the process, as well as ensuring liquidity on the exchange. In the case of decentralization and exchanges, there is usually no need to create an internal wallet.

You also need to consider how users will top up their wallets and withdraw funds from them to a card or your cryptocurrency account. 

Architecture, Technology Stack, and API

Exchange architecture: This concept generally refers to the structure of a platform, which helps to logically and visually define how all components of an exchange relate to and interact with each other: login screens, trading engines, user interfaces, security features, APIs, databases, and so on.

Technology stack: This is a set of development tools such as programming languages, libraries, frameworks, database management systems, compilers, APIs, and so on, used to create backend and frontend platforms.

Cryptocurrency exchanges should only be launched with custom designs, as only in this way can the proper quality and security of the software be ensured. Ready-made solutions (scripts) are available, but they are often created by amateurs and/or carry the risk of having many security holes in the code, intentionally or unintentionally. Considering the many breaches of cryptocurrency exchanges, the risk in this case is too great.

Cryptocurrency Exchange Development

Once you have chosen your developer, the process of creating a cryptocurrency exchange will be as follows:

1. Signing of a contract. You and the developer discuss the general concept of the cryptocurrency exchange and create a technical description of the project based on it. After that, you agree on the terms of the cooperation agreement, costs, KPIs, and communication channels and sign the cooperation agreement.

2. Platform Prototype. In the next phase, designers, business analysts, and/or clients create a design framework for the cryptocurrency exchange, which is then negotiated and agreed upon.

3. Create an interface design. Then, based on the framework, the designer develops a layout and/or prototype of the platform interface, showing how it will look to traders and administrators.

4. Straight to coding. After the design and technical description are created, it is handed over to the programmers who implement all of this in code. This is the responsibility of the front-end, back-end, blockchain, and mobile developers.

5. Product testing. Almost immediately after coding begins, QA engineers take over the case, they check for bugs in the fresh code, and so on until the software is written.

6. Deployment and support. Once the cryptocurrency exchange software is ready, a marketing company is launched to attract traders. The website is entered into business listings and social networks.

It is worth paying attention to providing liquidity and portfolio. In the initial stages, registered users will see an empty trading glass, which significantly slows down the progress of the project. Therefore, we propose to develop an additional robot marketer that can generate trading easy.

How to Start a Cryptocurrency Startup

Launching a cryptocurrency startup in today’s fintech world is a venture fraught with both the potential for significant growth and risks. Below is a detailed plan on how to launch a cryptocurrency startup that will help entrepreneurs avoid common pitfalls and increase their chances of success.

Step 1: Define the concept and target market

The first step is to identify the unique idea or solution your startup will offer. It is important to conduct a deep market analysis, understand the needs and problems of potential users, as well as research your competitors. Determine how your product or service will be different and what benefits it will provide.

Step 2: Write a business plan

Create a detailed business plan that includes your company mission, product description, market analysis, marketing strategy, financial projections, and product development plans. The business plan will serve as a guide for your team and will also serve as a document to attract investors.

Step 3: Build a team

Building a strong team is a key success factor for any startup. You will need experts in blockchain technology, programming, finance, marketing, and management. Find those who share your passion for the project and have the right skills and experience.

Step 4: Product Development

At this stage, you need to start developing your product or service. This may involve creating a prototype or minimum viable product (MVP) to help gather feedback from early users and ensure you are heading in the right direction.

Step 5: Legal formalization and regulation

The cryptocurrency market is heavily regulated in many countries, so it is crucial to ensure that your startup complies with all requirements and regulations. This may include registering your company, obtaining the necessary licenses and developing privacy and data security policies.

Step 6: Financing

Cryptocurrency startups need capital to launch and expand. Consider different sources of financing, including venture capital, crowdfunding, ICOs (initial coin offerings) or STOs (security token offerings). It is important to be clear about the terms of the offer you are willing to accept and how it will affect the long-term development of your startup.

Step 7: Marketing and Promotion

Develop a marketing strategy to attract users and investors. Use channels such as social media, content marketing, SEO, etc. to increase the visibility of your product. Building a community around your startup can play a key role in its success.

Step 8: Startup and Expansion

After developing your product and building a user base, it’s time to launch your startup. Follow the feedback from your users and keep improving your product. Gradually scale your business by expanding your market and launching new features.

Conclusion

Launching a cryptocurrency exchange development company startup requires careful planning, a deep understanding of the market and technology, and a willingness to overcome numerous challenges. However, with the right approach and perseverance, your startup can succeed and bring about significant change to the world of digital finance.