Cryptocurrency Exchange Software Development: From Zero to Hero
Millions of people today mine and trade cryptocurrencies for both financial gain and enjoyment. Virtual currencies continue to be embraced by consumers and financial institutions alike, despite predictions from sceptics that cryptocurrencies will fail. Even in the face of ban threats from the EU, the position of Bitcoin and other cryptocurrencies has not seemed to sway much.
In 2021, cryptocurrency is booming, presenting an opportunity for startups and trading operations to establish themselves in this new market.
Source: S&P Global
As banks and investment firms cannot currently sell crypto, there is a need for high-quality crypto exchanges such as Kraken, Gemini, and Binance. By creating a crypto exchange platform, you help facilitate trading and earn profits by charging fees for your platform’s services.
The rivalry in this industry may be pretty fierce, so creating a unique cryptocurrency website or app is essential. And to compete with existing services, your product must be outstanding and reliable. Real-time data, user-friendly design and a high level of security with biometric authentication are the ingredients to a good start.
As an experienced development team, MadAppGang is here to give you the lowdown on making products that stand out from the crowd. For starters, let's take a closer look at cryptocurrency exchanges and a few distinct exchange types.
How do crypto-exchange platforms work?
A crypto exchange platform is a marketplace where people trade cryptocurrencies such as Ether or Bitcoin. Platforms are not cryptocurrency market players, rather, they facilitate the buying and selling cryptocurrencies, and/or the exchange of digital coins to fiat currencies (USD, EUR, GBP etc.) and vice versa.
Not all crypto exchanges are the same. Some exchanges simply let users trade, and others, via their order book, provide open and transparent trading data within the exchange. The latter offer more advanced functionality, for instance, users can set a specific price for their orders. Before you create a cryptocurrency exchange platform, decide how much data you are willing to provide.
Then, decide which level of scalability you need for your platform. You have three options as there are three ways to set up data communication in crypto exchange platform:
- Asynchronous – Here, requests and subsequent responses pass independently, between separate layers thanks to message broker technologies such as Kafka that act as a mediator. Asynchronous inter-service communication allows separate services for every significant feature in a crypto exchange platform. This ensures platform stability and means a larger amount of data can be processed. Asynchronous platforms offer better scalability as they allow larger trading volumes.
- Distributed – This kind of exchange is based on groups of services that split customer requests and process them separately. If you use this type of architecture, your cryptocurrency platform can process a huge amount of data without losing stability. Also, as a distributed type of platform architecture that uses cloud technology, it has infinite growth capacity.
Types of crypto exchanges
Your next step in crypto exchange development is to choose the type of exchange you’re going to provide. This will give you a clearer idea of the final product, and help define the platform’s key features. There are four main types of crypto exchanges:
- Centralised – Security, functionality, and updates are handled by a centralised operator. An exchange of this type normally manages order books that record all transactions and store coins; one weakness of centralised exchanges because funds may be easily lost in the event of a hack. If you do choose this type of exchange, security is of the utmost importance; thorough security audits such as our Security Ninja service should be used as soon as you create a crypto exchange MVP.
- Decentralised – Transfers funds between users' wallets directly. As the platform doesn't store cryptocurrencies, there is a lower risk of cyberattacks. However, the lack of a moderating third party in decentralised exchanges shifts all responsibility for errors to users.
- Peer-to-peer (P2P) – P2P exchanges let users trade crypto directly or exchange coins for fiat currency. Much like a bulletin board, traders can post their offers and other participants respond and negotiate terms. If you built a P2P crypto exchange, your primary focus should be security; the world still remembers how Binance lost $40 million in a 2019 phishing attack.
- Instant – These easy-to-use exchanges offer instant cryptocurrency exchanges. As with CoinSwitch, ChangeNow, and others of this type, trades are immediately executed as instant exchanges aggregate offers and liquidity from other exchanges. If you decide to build an instant cryptocurrency exchange, remember that it should be ready for high-load days.
Beside the four main types of crypto exchanges detailed above, there are hybrid platforms such as Mt. Gox, BitFloor, and Poloniex. These combine the usability and liquidity of centralised platforms with the anonymity and security of decentralised exchanges.
With hybrid exchanges, users maintain complete control over their funds and needn’t give any to third parties. Digital assets earmarked for trade are accessible from users’ wallets while tokens are deposited into robust smart contracts. For many commentators, hybrid cryptocurrency exchanges represent the future of crypto trading.
Key features of a crypto exchange platform
When you create a crypto exchange platform, you need to carefully consider its intended functionality. While the number and the list of features vary according to the type of exchange you build, several core features form the basis of all cryptocurrency exchanges.
By way of an example, let’s take a closer look at the standard user flow and the features needed:
- Registers in the crypto exchange system and indicates their cryptocurrencies of choice
- Verifies account according to Anti-Money Laundering (AML) and Know Your Customer (KYC) standards
- Funds the account
- Enters the value and volume of a cryptocurrency to be exchanged
- Concludes a deal if there is already a counter-offer available on the site
- Withdraws the funds to their credit card or to an in-app cryptocurrency wallet
By looking at the user flow, it’s clear that a cryptocurrency exchange platform’s features should cover:
User authorisation and verification – User authorisation is the first step in onboarding, so provide a simple and easy process. Users do, however, expect other trading participants to be trustworthy and have good intentions, meaning verification is very important at this stage. Proper verification enables transactional transparency, reduces the risk of fraud, and shows that your cryptocurrency exchange adheres to international standards. Based on MadAppGang’s experience, we recommend enabling two-factor authentication (2FA) for users and verifying their IDs and photos.
User interface – It's the face of your exchange platform, so make sure its design is simple, clear, and user-friendly. An intuitive interface ensures that transactions are executed efficiently, reducing trading time. The dashboard should provide quick access to features such as order management, order history, fund withdrawals and deposits, statistics, and so on.
Trade engine – The heart of your platform, the trade engine finds and connects traders. In addition, the trade engine’s quality greatly influences the speed and performance of the crypto exchange. The faster it is, the better service you provide to customers. Remember that users need real-time access to their trading data to effectively manage their investments.
So, place a special focus on developing your trading engine. The integration of blockchain technology can be a solution here, not only is it a guarantee of total security and transparency but it also offers a way of speeding up your trading engine. Just be sure that you hire an experienced SaaS and blockchain development team such as MadAppGang for this job.
Wallet – Provide your users with e-wallets to store and transfer digital money. Providing two types of wallets (cold and hot) is a good idea. Hot wallets allow users to transfer money into their balance and withdraw it. Cold ones serve as a backup since they're not connected to the internet and are therefore protected from fraud.
Transaction history and order book – An order book is a list of open orders that allows users to navigate the current bids. Transaction history enables users to track their activities. It's an overview of completed trades with transaction information such as the trade rate and time of the operation.
Analytical tools – A must if you want to build an advanced cryptocurrency app or website. Provide users with real-time data and additional information about market trends. There is a whole list of indicators that help traders develop their game strategies: Moving Average Convergence Divergence (MACD), Relative Strength Index (RSI), Bollinger Bands (BB), and more.
Push notifications – The best way to keep users updated on price changes, volatility, trends, news, and, platform updates. Notifications can also help users track exchange listings. Just remember that users should be able to choose what notifications they wish to receive. Push notifications are easy, fast, and affordable to set up. Costs vary, but push notifications are cheaper than other automated marketing tools, for example, chatbots.
How do exchange platforms make money?
Popular crypto exchanges like Bitz, Binance, Coinbase, and Kraken make money by charging a fee for every concealed deal or withdrawal happening on the exchange. However, there are more monetization strategies you can employ in your cryptocurrency exchange. Let's have a look:
Deposit fees – Lots of exchanges charge users to deposit money into the cryptocurrency exchange. Deposit fees are separate from the transaction fees you charge for any sale or purchase on your platform.
Withdrawal fees – You can charge a fee every time users withdraw cryptocurrency or fiat currency to their wallets. Choose between a flat fee or a percentage depending on what works best for you.
Trading commission – A service fee you charge for brokering a trade. Even if a standard commission is less than 0.01%, giants like Binance, with its multimillion daily trading volume, make good money using this monetization strategy. Add transaction commissions to your monetization strategy even if this won't bring much money at first. As your platform grows, so will your revenue.
Listing fees – This is a good strategy for beginners. Smaller exchanges cannot rely on commission-based revenue alone. Instead, they can charge for listing tokens and coins on their platform.
Market making – A monetization strategy that uses bid and ask limit orders to provide liquidity for a defined cryptocurrency on a crypto exchange. Market makers profit from the spread between bids and offers across multiple trades.
In addition, you may consider Initial Exchange Offering (IEO), Security Token Offerings (STO), and Initial Coin Offering (ICO) funding. You just need to add a corresponding module while creating your exchange platform.
Using this method, you can raise money by allowing contributors to receive Ethereum and Bitcoin in exchange for the platform’s financial asset (be it a cryptocurrency or utility token) before these hit exchanges. In return for accumulating funds on behalf of the company, fundraisers charge a percentage of the total proceeds. If the total amount raised is significant, the hosting exchange receives a substantial payout.
How much does it cost to build a crypto exchange?
The cost of cryptocurrency exchange development depends on the list of features to include, the number of coins and tokens to be integrated, the level of security, and so on. Therefore, you will be able to calculate the estimated cost after sharing your idea and vision with our experts.
A clone of an existing platform normally costs over $7,000. It's a cheap and affordable option for many startups, but with a clone platform, there’s always the risk of being ignored by your target audience. After all, why use a clone when the well-known and reliable original platform exists?
To compete in the crypto exchange market, a full-featured solution with connected cryptocurrency exchange apps, a high level of security, and good scalability is best. This level of platform costs much more to develop because you need a team of real pros. In theory, it's possible to build a crypto exchange platform and launch it through your own efforts. Though, it is very challenging as you need excellent tech skills to create even the simplest of tokens and websites. That's not to mention coding, designing, and testing the MVP and the final product.
Cryptocurrency mining, farming, and trading are now even more popular than ever. The price of Bitcoin and other cryptocurrencies rises every day, bringing huge payouts for investors. You can benefit from the changing face of the world’s financial systems too. Creating a cryptocurrency exchange is a savvy business idea if it’s executed well. Hire professionals to develop a secure crypto exchange platform and it could be your golden goose for the next few decades.
As a full-cycle software development company, MadAppGang is the right team to have on your side to build a full-featured crypto exchange solution that people will trust and use. Decide on the type of crypto exchange you want to build, the level of scalability you need, and the features you want to integrate. Then share your ideas with us. The rest is our job: create a safe and reliable cryptocurrency exchange to win the hearts and minds of crypto traders.
MadAppGang has extensive experience building web and mobile solutions for fintech, healthcare, and industries that require the highest level of security. We develop enterprise-grade systems that are both secure and handle millions of requests every second. By choosing the right technologies and tools, we make our development process fast, develop better apps, and provide easy support after the product is launched.