Bitcoin was the first cryptocurrency on the market.Today, there are hundreds of cryptocurrencies and millions of cryptocurrency holders.Around $112 is traded in cryptocurrency every day through crypto exchanges. Such platforms allow clients to exchange cryptocurrency for other property, which includes fiat cash or different virtual currencies.In this newsletter, we’re searching into how to begin a cryptocurrency trade, why to begin it, and how to turn it right into a successful enterprise. You’ll research a variety of useful information to build a crypto exchange:
What is cryptocurrency change & how does it work?
Reason to build a crypto exchange?
Types of cryptocurrency exchange platforms
Features Of cryptocurrency exchange development
How to start a cryptocurrency exchange
How much does it cost to build a crypto exchange?
Dive right in if you want to know how to create a cryptocurrency exchange and how to get into the top 4 exchange locations where 63% of daily crypto tradings happen.
What is Cryptocurrency Exchange & How does it work?
A cryptocurrency exchange is a platform that allows cryptocurrency holders to exchange virtual currency for other assets. A crypto exchange acts as an intermediary between people looking to sell or buy cryptocurrencies.After users set up an account with a cryptocurrency exchange, they can buy and sell different cryptocurrencies, such as Bitcoin (BTC), Dogecoin (DOGE), Ether (ETH), and so on.
Fiat-to-crypto exchanges allow users to trade traditional money for cryptocurrencies and vice versa. Crypto-to-crypto exchanges allow users to trade different cryptocurrencies and exchange one cryptocurrency for another.
Types of Cryptocurrency Exchanges
There are four types of cryptocurrency exchanges:
- Centralized exchanges (CEX)
- Decentralized exchanges (DEX)
- Peer-to-peer exchanges
- Instant exchanges
Each of the types has its pros and cons. Let’s review each type for a more in-depth understanding of how to start a cryptocurrency.
Centralized Exchanges (CEX)
Centralized exchanges act as intermediaries between sellers and buyers. This is the most popular type of cryptocurrency exchange. Centralized exchanges are also called custodian exchanges since they store the digital assets of customers. Users can purchase or exchange cryptocurrencies for other digital assets or fiat currencies.
As centralized exchanges act like brokers, they charge a trading fee from 0.1% to 8%. In return, they provide customers with a secure environment for storing and selling cryptocurrencies.Coinbase, Binance, and Kraken are the most popular examples of centralized exchanges.
- Millions of operations per second
- Weaker protection against hackers
- Users have to keep their assets on the crypto exchange
- Fees up to 8% (bad for users, good for exchange’s owners)
Decentralized Exchanges (DEX)
Decentralized exchanges are non-custodial. It means the exchange doesn’t store the digital assets of customers. The funds are sent from one wallet to another directly on the blockchain. There is no third-party organization or server controlling cryptocurrency operations.Examples of DEXs include Pancake Swap, Binance DEX, and Uniswap.
- New users registration and verification
- Low fees up to 0.25% (good for users, bad for crypto exchange’s owners)
- Users don’t have to store assets on exchange accounts, which reduces the probability of losses
No third-party moderation
Traders can revoke payments by PayPal or bank cards
Users have to wait until other traders are ready to make operations
Peer-to-Peer Crypto Exchanges
A Peer-to-Peer (P2P) exchange is similar to a decentralized exchange. The platform provides the hardware and software infrastructure for direct transactions between two users with no intermediary.
Unlike DEXs, P2P crypto exchanges connect buyers and sellers using an escrow service. The service ensures every transaction is completed at an agreed price and payment method.
If you decide to build a crypto exchange of this type, you’ll be able to make money by charging a percentage of each completed transaction. P2P exchanges are popular in Africa and other countries where Bitcoin exchanges are banned.
LocalBitcoins and Paxful are examples of P2P crypto exchanges.
- Suitable for beginners as only two options are available – buying and selling
- The buyer doesn’t pay fees for the deposit, exchange, and withdrawal
- Seller ratings ensure user protection
- Exchanges may take some time
- Sending money to the wrong user may happen
- Difficult to dispute charges after transactions
How to Start a Cryptocurrency Exchange: Possible Options
There are a few ways available for those wondering how to create a cryptocurrency exchange.
You can use a white-label crypto exchange builder or code a crypto exchange from scratch.
Let’s find out the pros and cons of each option to make the right business decision.
How to Start a Cryptocurrency Exchange: 8-Step Guide
To build a cryptocurrency exchange, follow these steps:
- Choose countries for operation
- Define your target audience
- Adhere to legal requirements & get a crypto trading license
- Choose cryptocurrency exchange features
- Design a cryptocurrency exchange platform
- Strat cryptocurrency exchange development
- Launch and promote your crypto exchange
Let’s find out how to start a cryptocurrency exchange by exploring the key stages and processes involved.
Step 1: Choose Which Countries to Operate In
Your own country is a good place to start, as it would be much easier to understand the government regulations and policies regarding cryptocurrency exchanges. You can view scaling other countries as the next step of your business journey.
Global scaling is associated with higher risks. You need to comply with all local legislations and regulations within each jurisdiction. Your crypto exchange must also support multiple fiat currencies and work with different banks.
Step 2: Define your target audience
Now that you know where your platform will operate, you need to further explore your target audience. Understanding your potential customers is a vital process that can’t be skipped. You need to conduct due diligence and research the market.
Since cryptocurrency has a strong community, you can start with forums and social media groups where local crypto traders spend time. Try to find out what they expect from crypto exchange platforms and what features they’d like to see. For example, some may want to have the ability to earn some interest for storing crypto on your platform, while others might be interested in some exotic altcoin not listed on the already existing exchanges.
Step 3: Adhere to Legal Requirements & Obtain a Crypto Trading License
Each country has its own rules and regulations regarding cryptocurrency and exchange operations. Before you build a crypto exchange, hire a legal counsel or third-party legal team to understand the regulations where you plan to launch your crypto exchange. Failure to comply with regulations can result
If, by a country’s regulations, you must obtain a crypto trading license, get it before you invest in cryptocurrency exchange development.
Step 4: Choose Cryptocurrency Exchange Features License
While you’re exploring how to start a cryptocurrency exchange, let’s take a look at the features you’ll need to implement.You need to decide on the feature set before starting the development process. Otherwise, you’re risking losing time and money.