If you want to develop a cryptocurrency exchange, the timing couldn’t be better with all the crypto craze:
- two leading cryptos, BTC and ETH, reaching all-time highs twice in 2021
- Robinhood, the most popular retail investing startup, adding crypto-trading options
- CoinBase, the most fell-funded crypto project, going public with a $100b valuation
When your revenue is transaction fees from investors trading volatile cryptos, even a bear market doesn’t look too gloomy. No wonder 5 of the 10 top-ranking decentralized apps on dapp.com are crypto exchanges.
This blog is a head start for business owners on how to build a cryptocurrency exchange platform and make a splash in the crypto space.
- You can build a centralized or decentralized cryptoasset exchange. The former is hosted on a central server (like any traditional software), and the latter works directly on a blockchain (like any dApp). Look for their pros and cons in the blog.
- A crypto exchange is a multi-layered solution that includes many components, e.g., a web interface for users, a dashboard for exchange administrators, a mobile app, a trading engine, and many other things we cover here.
- Starting a CEX (centralized cryptocurrency exchange) lifts any barriers to adding whatever functionality you envision. With DEXs (decentralized exchanges), your options are narrower due to natural blockchain technology limitations.
Table of Contents:
- Benefits of Starting a Crypto Exchange
- Types of Crypto Exchange Platforms
- Key Features of a Cryptocurrency Exchange
- Advanced Features of a Crypto Exchange
- Architecture of a Cryptocurrency Exchange
- Make Your Own Cryptocurrency Exchange in 5 Steps
- Pitfalls to Avoid During Crypto Exchange Development
- Cost to Build a Cryptocurrency Exchange
Benefits of Starting a Crypto Exchange
Crypto is turning into a colossal asset magnet as more and more people have to face inflation. And how do you on-ramp in crypto with fiat? That’s right, a cryptocurrency exchange is one of the most accessible routes.
In fact, crypto exchanges are the front runners of the decentralized finance revolution, bringing in more users than any other blockchain apps. That’s because exchanges usually include a crypto wallet for buying crypto with a fiat currency.
If you start an exchange for cryptocurrency, you’re likely to:
- get more customers than other decentralized apps
- make profits on commissions regardless of whether the market is going up or down
- branch out into offering other crypto-based services, e.g., payments
CoinBase is a shining example of a centralized crypto exchange. The company has over 68 million active users, rakes in billions in revenue ($2.2b in Q2 2021), and serves not only retail and institutional investors but also merchants and blockchain developers.
Types of Crypto Exchange Platforms
What kind of cryptoasset exchange do you want to make? There are just two options:
- Centralized crypto exchange (managed privately) — CEX
- Decentralized cryptoasset exchange (no central ownership) — DEX
You’ll sometimes hear something about a hybrid option or a peer-2-peer crypto exchange. Well, the hybrid one doesn’t really exist. There’s either an entity controlling an exchange, or it’s managed by smart contracts (decentralized blockchain software). And a p2p exchange can be interpreted as a DEX or a particular use case within a CEX. For example, Binance allows users to trade crypto p2p through an escrow account, which is a niche use case within an overall centrally owned cryptocurrency exchange.
CEX vs. DEX
What are the main differences between centralized and decentralized crypto exchanges? The most prominent contrast lies in how customers view them. With CEX, you trust a third party running an exchange to protect your funds. In contrast, trading on DEX, you bear full responsibility for your crypto. “Not your keys, not your coins” is mainly about CEXs.
That’s the major difference, but there are many others. Why don’t we sum up these other discrepancies in a table?
|Where do transactions happen?||On servers||On a blockchain network|
|Who has ultimate control over traded crypto?||Company||Customer|
|Where onboarding is simpler?||Anyone can onboard quickly. Includes a crypto wallet.||Used mainly by advanced crypto enthusiasts. Requires a crypto wallet.|
|Can customers on-ramp with fiat?||Yes||Usually no|
|Are transaction fees high or low?||Fees vary for different users and types of operations.||Fees are generally lower compared to CEX.|
|Can users maintain anonymity?||Onboarding includes thorough KYC/AML procedures.||Yes, customers can remain anonymous.|
|UI/UX user-friendliness||Intuitive graphical interface and tutorials.||Users are on their own; a steep learning curve.|
|Which exchange is more secure?||Provides less security due to a single point of failure.||More secure; everything happens on a chain.|
|Where do transactions take place faster?||Faster transactions||Slower transaction|
|Where can users expect to find more liquidity?||CEXs provide more liquidity||DEXs provide less liquidity|
|What’s the trading pairs availability?||CEXs generally have fewer pairs. However, users can buy crypto with fiat money.||DEXs often include rare coins and tokens, not found in CEX; but no fiat.|
|What is the revenue model?||Transaction fees, subscriptions, add-on services for institutional investors and merchants; listing fees; trading its own token; ads.||Transaction fees, trading its own crypto token, ads.|
|What is the biggest barrier to customer adoption?||CEXs are notorious for locking trading activity upon major market events, locking out retail investors.||A steep learning curve, complex UI. Not too many people know about DEXs.|
|Is there any customer support?||Support is available, even though slow at times.||Users are on their own and at the mercy of the community.|
|What is the most significant appeal for the customer?||Clean user interface; “everybody is trading there.”||“My keys, my coins”; plus lower fees.|
You should also know that CEXs often have to mimic trades with fake bot accounts to display their platform as a lively, viable solution with lots of liquidity. People are slowly becoming more aware of this fact. So you could probably base your marketing strategy on 100% transparency.
Considering many retail investors don’t know much about DEXs and look for simple ways to trade crypto, you’re most likely to start an exchange for cryptocurrency that’s centrally owned. Simply because you’re likely to onboard more users with less friction this way.
And if you decide to make a DEX, you’ll need to create a blockchain application and deploy it to a chain network.
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Key Features of a Cryptocurrency Exchange
When you start your own bitcoin exchange or any other crypto exchange for that matter, you need to include some typical features customers expect to find in such a product.
First of all, a customer needs to register. Unfortunately, you can’t get by with just a social login option. You will need to take the user through a thorough KYC (Know Your Customer) process and collect their ID and other info required by AML regulations.
An alternative is to let them in immediately with zero input required (maybe only email) and initialize the KYC process when the user attempts to complete a trade.
If you are working on a centralized cryptoasset exchange, you’ll need to create a crypto wallet for users to hold their coins and tokens. They will use the wallet to receive and transfer crypto to/from their account balances.
The challenge here is that different tokens will require separate wallets (or addresses), and you will need to be very explicit about which address to use for which altcoin.
Users will spend most of their time in your app looking up crypto prices, trends, and other charts that are usually included in the main dashboard.
An order book shows current buy and sell orders (aka bids and asks) from buyers and sellers. That’s where we can also see the market size (overall supply and demand) for every given price point.
I wouldn’t say that’s a super helpful feature for novice users. I remember I got scared away the first time I saw that chart in Kraken’s old interface. Still, many users need to learn their way through order books to become successful crypto traders.
Plain and simple — a list of all transactions, possibly broken down by the actual amount and applicable fees.
People love these pie charts showing how much crypto they have, which asset has appreciated in value the most, and all other analytics you can offer.
These are typical for practically any modern web and mobile apps. If something requires user action, there needs to be a visual clue constantly nagging users to take a look.
The usual scenario for notifications when you make a bitcoin exchange website is to nudge users to turn on more security features or unlock new account tiers by providing more info for verification.
Advanced security features
And last but not least, no cryptocurrency exchange can exist without advanced security options. That should go way beyond enabling bio and two-factor authentication. As you probably heard, CoinBase got serious issues with their multi-factor authentication, which got hacked through for 6,000 users.
Advanced Features of a Crypto Exchange
Now let’s go over some more sophisticated options you may want to include to develop a crypto exchange that really rises above the competition.
Like a bank deposit, staking crypto allows you to lock a certain amount of coins and start earning interest. The rates are nowhere near as lucrative as with other DeFi options. Still, it’s a great alternative that gives users peace of mind when they aren’t actively trading.
Cold wallets integration
Tech-savvy users would appreciate an option to connect their hot crypto wallets with hardware wallets that aren’t connected to the internet. Thus, they are more secure for storing large lumps of crypto.
As a crypto exchange owner, you should know that regardless of whether you provide this option to investors or not, it’s not really an option for you — it’s a must.
All staked and other dormant cryptos on your exchange will be sitting in cold crypto wallets, inaccessible to hackers even if they manage to breach through your defenses.
Credit card integration
Leading crypto exchanges like CoinBase and Crypto.com offer their customers credit cards to pay for their everyday expenses with crypto. As part of the deal, users get crypto cashback and other perks.
P2P crypto trading
Your exchange can also assume escrow responsibilities and intermediate direct crypto trading between users. If you think about it, the option makes sense for rare digital assets that users may hold in their private wallets. Your role will be to freeze funds until both parties acknowledge the exchange and provide a platform with user ratings, reviews, etc.
KYT stands for Know Your (cryptocurrency) Transaction and represents the next level of KYC required from companies dealing with crypto.
KYT procedures include analysis of all transactions and risk assessment of their involvement with money laundering or other criminal activities as per FATF and 5AMLD regulations.
Tradable exchange token
You can also issue your own token and incentivize users to purchase and trade it by offering lower fees or other options when they hold your crypto token on their accounts. Here are our recommendations on how you can create a crypto token.
Advanced trading options
Don’t forget about savvy investors who will be looking for all the tools they commonly find in traditional investment instruments, e.g., margin trading, limit orders, stop-loss orders, all the chart projecting tools, trading volume, etc.
You may also consider adding a separate platform for launching vetted crypto projects through IEO (Initial Exchange Offering) and a yield farming solution for extended crypto staking. The former add-on offers your users early access to promising tokens. The yield farming platform may serve as a liquidity provider.
Having an API tied to the user’s account gives your crypto exchange a second life outside its own boundaries. Using the API, your customers can make use of other crypto-focused applications by feeding them portfolio data and all additional information the API can relay.
Think about throwing in some engaging features based on socializing. Users would love to compete in different leagues to win bonuses and perks. For example, there can be a hall for top all-time high callers who get the exchange token for making accurate price predictions.
Besides, there’s no better and safer way to brag about mad gains than an anonymous platform on a crypto exchange.
Architecture of a Cryptocurrency Exchange
Of course, you can’t start your own cryptocurrency exchange without thinking through its architecture. To an average business owner, software architecture may sound too technical and intimidating. At the same time, without going into depth, the subject is not much scarier than, say, thinking about the architecture of your house.
It’s not scary, I promise
In practice, sketching the architecture of a cryptoasset exchange will be the responsibility of your crypto exchange developers, but you’ll find they base their assumptions on simple things like:
- do you want a CEX or DEX?
- how many users do you expect to serve concurrently?
- how quickly should they be able to transact?
- what should the uptime be?
- how much processing will the exchange host behind the scenes?
- what front ends do you envision (web/mobile/desktop/etc.)?
As you help answer these questions, the crypto exchange development team starts to juggle various building blocks of your product, orchestrating them into a solid, robust trading platform.
Whether you make your own crypto exchange as CEX or DEX, you’ll need to stick with a microservice architecture. Your crypto is a complex product (although it may look straightforward and intuitive to your customers) consisting of multiple elements.
When you build each element independently and then interconnect them, you can easily update each block without adjusting the other parts in the future. Moreso, different developers can work on separate chunks of the exchange simultaneously, which guarantees faster time to market.
Bird’s-eye view of crypto exchange architecture
What building blocks do you need to assemble to build your own bitcoin exchange?
- Trading engine
The heart and soul of your product. That’s where all trading logic resides. Typically, this block would also include an order-matching engine that matches sellers’ asks with buyers’ bids.
- Multi-cryptocurrency wallet generator
Every customer gets a wallet, remember. You need a mechanism for doing that automatically.
In fact, every customer receives multiple wallets (for different crypto), and they are all in concert with your internal wallets for the most efficient funds movement.
- Admin dashboard
An admin panel is a place for your operators to manage the platform, typically role-based and protected with hardware security keys.
- Authentication server
A server for KYCing and authenticating your customers.
- Front ends: mobile/web
The eye candy for the customer.
- API layer
As you already know, APIs serve to connect building blocks together. They also help to connect your exchange with third-party solutions. And believe me, there are quite a few things to link to: liquidity providers, payment gateways, various blockchain explorers, trading bots, analytics, logging, etc.
As you can see, it’s not that complicated, but bear in mind that I’m giving you a high-level overview of an exchange’s architecture here.
Make Your Own Cryptocurrency Exchange in 5 Steps
Ok, it’s high time we discuss how to create a crypto exchange platform. What are the steps you need to take to launch such a product?
Step 1: Build from scratch or pick an off-the-shelf solution
The first question you’ll need to ask yourself is whether you want to build your own crypto exchange website or stick with a ready-made solution. The market has a few options like OpenDAX cryptocurrency exchange software or Alphapoint, but as you’d expect, they come with their own pros and cons.
- Faster time to market
- Mild customization
That’s about it, for real. You get the rest of the benefits like scalability, infinite customization, and unique features, among others, with a custom-built exchange. Now to the cons of using an off-the-shelf platform.
- Stock, non-upgradable functionality (unable to add unique features)
- Time for your team to get acquainted with code (or you’re stuck with the team that made the canned solution)
- Full security audit from a third party is required (to make sure existing code is 100% safe)
- High upfront costs
Building your own crypto exchange, you can be sure it’s safe and secure. Plus, you literally watch how your investment turns into a workable product that you can start testing.
Anyways, if you choose to go with an off-the-shelf option, consider this step as a final one. If you need a custom-built exchange, please follow along.
Step 2: Investigate legalities and create partnerships
Making sure your CEX operates according to local legislation is critical, whereas a DEX doesn’t necessarily have to comply as it runs on a blockchain, and governments have little control over that yet.
Anyways, you’ll need a lawyer experienced in crypto to make sure your product is fully compliant with AML/KYC and other local regulations.
As for partnerships, you will need to partner with companies offering fiat-crypto on-ramp solutions, payment gateways, and crypto liquidity provisioning. That may involve partnering with banks, credit unions, other crypto exchanges, and other financial institutions.
Step 3: Create and verify UX/UI
Back to the actual product. Since we want to create a cryptocurrency exchange website or mobile app that is super engaging and easy to use, we need to spend enough time on its design.
The typical routine here is to:
- create a prototype
- test the prototype with users
- update the UX/UI according to the feedback
- verify design feasibility with blockchain developers
- hand-off the UX/UI to a development team
Step 4: Develop the front ends and back end
Nothing interesting here, just developers putting code together for your platform’s back-end and front ends.
Programming only gets exciting when you start receiving the first builds that you can play with. It’s crucial that you won’t miss this step and begin providing feedback because it’s easier to fix things in the making than when the whole thing is ready.
Please note that you will need two teams of developers when you create a bitcoin exchange site:
- traditional app developers
- blockchain developers
Step 5: Run QA and release
Once your crypto exchange site (or/and a mobile app) has been developed, it’s time to test it thoroughly, imitating massive user inflow, and then release it.
Two things to keep in mind here:
- testing really starts during development, and this QA step is like a single major effort to verify everything works as designed
- release and deployment include setting up DevOps processes so that you can continually improve a working product without interruptions for users
This step ensures that your solution won’t go offline because that’s not an option for such businesses.
Pitfalls to Avoid During Crypto Exchange Development
You may hit a brick wall a few times while building a CEX or DEX, and we’ll be happy if these ramblings below will help you navigate towards a successful product faster.
Every product has its target audience, right? But what do you do when your target audience is highly versatile? Today, it seems, everybody is willing to take part in the crypto hype.
So you can either pick a specific demographic and work on growing this audience together with other market players. Or you can appeal to as wide a group as possible and find a way to include advanced features for more crypto-savvy users. Think the Robinhood app that can also turn into Interactive Brokers on crypto steroids upon request.
Building the right development team
Just a heads-up about putting together a team for creating a cryptoasset exchange.
Blockchain developers with hands-on experience are in high demand these days. Now think that you need them to work fruitfully with skillful UX/UI designers, QA engineers, other app developers, and project managers.
Some of these roles will be involved only part-time, but everybody still needs to work as a team.
Mobile vs. web
Where do you expect to onboard more users? Will you start with a mobile or web app, or do you want to release both simultaneously? If you go with a mobile app first — does it mean you need to adjust the mobile-first design to the web app later on, or vice versa? We provide answers in a separate blog: Mobile-First Web Design.
Here, I’ll just note that your mobile app and the browser-based exchange need to resonate with each other. It’s not like you build a web app and then optimize the UI for the mobile. Ideally, you work on both simultaneously (even if one is slated for later development).
Security is your everything
That doesn’t exactly happen left and right, but quite a few crypto exchanges do get hacked now and then. Therefore, you can hardly overperform on this front: take every measure you and your team are aware of:
- use machine learning to detect fraudulent transactions
- lock-down immediate fund movements before withdrawals
- require more proactive actions from users based on how much money they invest/trade
- use bio authentication
- use 2-factor authentication that’s hard to hack (read: not via text messages)
- implement multi-signature crypto wallets
Believe it or not, this list barely scratches the surface of what really goes into securing a crypto currency exchange. We’ll be happy to share more if you want to learn how to start a crypto exchange.
Cost to Build a Cryptocurrency Exchange
The price, as always, depends on lots and lots of things:
- are you building a DEX or CEX?
- will you need a mobile app?
- do you want to use an open-source trading engine?
And a myriad of other factors. I’d say the minimum marketable version of a CEX would require a $300,000-400,000 investment.
You can schedule a free consultation with our experts to learn more.
Frequently Asked Questions
Can I have a fiat-crypto on-ramp in decentralized cryptoasset exchange?
Yes. You can integrate with a payment gateway of your choice, like MoonPay or Mercury.
What's the biggest bottleneck to onboarding users to a crypto exchange?
Having enough liquidity and showing active trading/investing activity on the platform. Some exchange businesses solve that issue by integrating with other exchanges and market makers for liquidity and using bots to emulate transactions.
You didn't mention anything about tech stack. Any recommendations?
Stick with whatever technologies the team you trust is experienced in. There are many variants and no universal stack that will work for every project in this industry.
Do I have to comply with any regulations if I build a DEX?
No, but it’s recommended to err on the right side and include easy controls for switching the solution off for different geographies if you hear such official requests. Users will be able to circumvent that by using VPN anyways.
How long does it take to build a cryptocurrency exchange?
6 to 9 months for a deployable MVP.
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