Like many others, are you also planning to launch your cryptocurrency exchange, but have no clue where to start? Well, you have arrived at the right place. This article will clarify the pointers that need to be kept in mind before you begin with it. We will also shed light on the appropriate internal architecture required by an exchange software and how to get the exchange software.
Establishing a Cryptocurrency Exchange
1) Determining the operational scope of your exchange
Have a clear idea, if you want to operate on a global scale or you want to confine it to a specific region. As you proceed you will require Licences and approvals in accordance with your operational scope. Laws will vary location-wise. It is thus necessary to consult with a legal expert regarding local laws and regulations.
2) Reviewing the country’s regulations and compliance requirements
Almost all governments require those involved in currency exchange business to fulfill the Know Your Customer (KYC) norms. The primary purpose of KYC is the discouragement of money laundering and terrorism financing. So, it is critical to follow your country’s KYC norms religiously.
3) Partnering with a Bank or Payment Processor
For operating an exchange, you would be required to partner with a bank or payment provider for processing payments via fiat currency. It will be an excellent choice to partner with a bank providing fast clearance and settlement of funds. This is an essential factor in ensuring that your exchange is convenient for potential customers.
4) Creating Liquidity on Your Exchange
For any exchange to be fruitful, it requires liquidity. Customers will think twice about placing orders or even depositing funds until they see flourishing trade activity. There are two ways to boost liquidity-
An API interface can be implemented by connecting your crypto exchange to another existing exchange. A network of cryptocurrency exchanges such as Trust-Deposit can be joined. It will help in tying together the liquidity of all exchanges within the system.
5) Ensuring High-Grade Security for Transactions and Customer Data
It is vital for exchanges to provide tamper-proof security for both their operators and traders. This point should also be kept in mind when storing the customer’s KYC details. Several incidences of security breaches have made privacy and data safety a pressing concern for exchanges. According to a Reuters report, 33% of all bitcoin exchanges were hacked during 2009-2015.
6) Establishing Customer Support Channels
A swift customer support mechanism will ensure that your customers get retained and remain loyal to your platform. A dedicated staff will be required for answering customer complaints, approving KYC requests, processing deposits and withdrawal of fiat currency.
Architecture Of A Cryptocurrency Exchange Software
Any exchange software should have the following components working together-
Trade engine is at the core of any exchange. Its functions include accessing the order book, matching buying/selling orders, executing transactions and calculating balances.
The user interface decides how your exchange appears and interacts with traders (e.g. trading platform and the design of your website). A user interface must be user-friendly and intuitive. It needs to be mobile friendly too. By developing an app for mobile devices, the exchange would be more easily accessible. This would further enhance trading engagements. The UI be should be able to perform the following functions
- Registering and accessing an account
- Depositing, maintaining and withdrawing crypto and fiat currencies
- Viewing the current order book, past transactions, balances, statistics etc
- Viewing charts
- Placing buy and sell orders
- Accessing the support mechanism
An exchange should implement the hot/cold wallet system to minimize risk. The hot wallet allows the customer to withdraw cryptocurrency to their external wallet instantly. This doesn’t require the approval of an exchange operator. It just needs to have a positive balance for instant withdrawals.
A cold storage wallet is entirely offline. More importantly, it guarantees that nobody can access your leftover cryptocurrencies even if your hot wallet gets hacked. Splitting the bitcoins into hot/cold wallet system will provide the perfect balance between convenience and security for instant withdrawals.
The admin panel helps the exchange operator control and manage his exchange. Its functions include altering liquidity, managing cryptocurrencies and approving user accounts after verifying KYC. The group will also provide support in crediting fiat deposits and addressing the support requests raised by users.
Where to obtain Exchange Software?
There are three options when it comes to acquiring (and maintaining) Cryptocurrency Exchange Software:
Building the exchange software in-house
Collaborate with a team of developers for building and exchanging your software. Make sure they possess a sound understanding of how an exchange operates and the workings of cryptocurrencies. The choice of an appropriate programming language is necessary. It depends on the cryptocurrency you want to implement for your exchange. Also, ensure that the software is compatible with various payment processing platforms. This is to safeguard payment transactions within your exchange. Last but not least, it is advisable to have funds enough to cover the costs.
Using free/open source scripts
Someone possessing a sound technical knowledge to implement the lines of code within the open-source script is a prerequisite resource for an exchange. There can be no guarantee of the script being secure and reliable. In the worst case, it is prone to hacking. More importantly, the amount of support on an open source system is somewhat less. That’s when a skilled professional can help in crisis management or simply in prevention.
White label exchange software
White label exchange software allows you to alter and customize the software for matching individual requirements. Additionally, it saves the hassle of dealing with technical specifications.
By following these steps one can successfully build a cryptocurrency exchange. The success of the cryptocurrency exchange depends on the liquidity and trust the exchange will build over time.