Cryptocurrencies have become increasingly popular, with many individuals and businesses seeking to buy, sell, and trade these digital assets. The revenue in the cryptocurrency segment is projected to grow and reach $37.87 billion in 2023.
Due to this growth, the crypto industry witnesses an increasing demand for crypto exchanges. Starting a crypto exchange is a lucrative business opportunity, but it requires careful planning and execution. This article will explore the key steps in starting a crypto exchange, from defining your business model and legal requirements to developing your crypto payment gateway and attracting users. Let's dive into it step by step!
What is a crypto exchange?
A crypto exchange is a digital platform where people buy, sell, and trade cryptocurrencies like Bitcoin, Ethereum, etc. It's like a stock exchange, but you buy and sell digital currencies instead of stocks.
On crypto exchanges, people create accounts, deposit money, and then use it to buy cryptocurrencies, sell at the current market price for a profit, or trade them for other digital assets. Some exchanges offer additional features like margin trading, lending, and staking, allowing users to earn more rewards from their crypto holdings.
What are the types of crypto exchanges?
With so many types of exchanges available, it can be difficult for aspiring entrepreneurs to choose the right type for their business needs and goals. We've got you covered. Here's an overview of the five most common types of cryptocurrency exchanges.
- Centralised exchanges (CEX) are operated by a centralised organisation that controls all operations, infrastructure, and user funds. They typically offer a wide range of trading pairs and advanced features but may be vulnerable to hacking attacks and other security risks.
- Decentralised exchanges (DEX) are based on blockchain technology and do not rely on a central organisation. Instead, users can trade cryptocurrencies directly, and the exchange facilitates transactions using smart contracts. DEXs offer greater security and privacy but may have lower liquidity and fewer trading pairs than centralised exchanges.
- Hybrid exchanges combine the features of centralised and decentralised exchanges. They may use a decentralised architecture to handle user funds and offer advanced trading features while maintaining a centralised organisation to manage the exchange's operations.
- Peer-to-peer (P2P) exchanges allow users to trade cryptocurrencies directly with each other without the need for a central organisation. They typically offer greater privacy and lower fees than centralised exchanges but may have limited liquidity and require users to find counterparties for their trades.
- Crypto brokerages allow users to buy and sell cryptocurrencies at a fixed price without advanced trading features. They may offer more user-friendly interfaces and support for fiat currencies but typically have higher fees than exchanges.
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8 must-have features of a cryptocurrency exchange
Developing a cryptocurrency exchange requires careful consideration of numerous features intended to provide a frictionless user experience. If you want your project to stand out among the competitors, it should be user-friendly, intuitive, and feature-rich. Here are the core functionalities that a cryptocurrency exchange should possess:
- User authorisation & verification. The exchange should allow users to register for an account, typically requiring an email address and a password. Some exchanges may require additional verification steps to comply with regulations and prevent fraud.
- Wallets for deposits and withdrawals. Providing users with a cryptocurrency wallet allows them to store, send, and receive digital assets. The wallet should support a range of cryptocurrencies and provide users with a unique wallet address for each asset.
- Trading engine. The exchange should have a robust trading engine that matches buy and sell orders from users. It should operate in real-time mode and ensure that orders are executed at the best price.
- Trading pairs. Supporting a range of trading pairs allows users to trade one cryptocurrency for another or exchange it for fiat currencies.
- User interface. A user-friendly interface lets your traders view their balances, place orders, or access other features. The interface should be easy to navigate and provide users with the necessary information to make informed trading decisions.
- Security. Implement robust security measures to protect users' funds and personal information. This may include two-factor authentication, SSL encryption, and cold storage of user funds.
- Order books. The exchange should maintain a real-time order book displaying current bids and asking for each trading pair. It allows users to view the current market conditions and place orders to buy or sell cryptocurrencies.
- Help & support. Provide FAQs, video tutorials, live chat, and additional channels to connect with customer service representatives. This will help users solve any inquiries or issues related to their accounts or trades on your platform and build trust in your brand.
Implementing the core features allows you to enter the crypto exchange market and gain your first clients. After that, you may start scaling and improving your crypto exchange by rolling out additional features, like creating your own tradable token, integrating NFTs and AI tools, or implementing crypto staking functionality.
Benefits of starting a crypto exchange
Like any business, the success of a crypto exchange depends on various factors, including market conditions, competition, regulatory environment, user adoption, and many more. Proper preparation and a competent approach to starting and running a cryptocurrency exchange enable a range of benefits for business owners.
Revenue generation is the main benefit for many aspiring entrepreneurs. Crypto exchanges typically charge processing fees for each transaction, which helps to keep the platform running. It can be a percentage of the transaction amount or a flat fee per trade, which range from 0.1% to 5% or more, depending on the exchange. But crypto exchanges can offer additional services such as margin trading, initial exchange offering (IEO) and staking, lending, and more. These services can provide additional income streams beyond just transaction fees.
Starting a crypto exchange gives you the opportunity to shape the industry and contribute to the growth and development of the cryptocurrency industry. By providing a reliable and secure platform for users to trade, you can help to build trust and confidence in the industry. Moreover, the technology of the crypto exchanges is highly flexible and scalable – such a business can be run from anywhere worldwide. As your user base grows, you can easily expand the platform to accommodate more users and trading volume.
How to create your own crypto business from scratch: 7-step guide
As a rough estimate, building a basic crypto exchange from scratch can take between 6 to 12 months with a team of at least 5-10 developers, designers, and project managers. However, more complex exchanges with advanced features and security measures may take longer and require a larger team.
Now let's define the main stages of this complex process, aside from the development itself.
Develop a business plan
Define your target audience, and research the competition to understand what makes your exchange unique. Consider your legal requirements, funding sources, and operational strategy. You must also determine your revenue model, including transaction fees, listing fees, or subscription-based services.
Learn about legal and regulatory approval for your geolocation
Cryptocurrency exchanges are subject to strict legal and regulatory compliance, which vary depending on the country or region of operation. You must obtain licenses and permits from the relevant regulatory bodies in your jurisdiction. The requirements may include background checks, financial audits, and compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations. Many countries have data protection laws that regulate the collection, storage, and use of personal data. Crypto exchanges may need to comply with these regulations, such as the European Union's General Data Protection Regulation (GDPR).
Starting a crypto exchange requires careful consideration of the legal and regulatory requirements in the exchange's jurisdiction. It's important to seek professional advice and consult with relevant regulatory authorities to ensure compliance with applicable laws and regulations.
Choose a technology platform
It is crucial for the success of your crypto exchange. You can build your platform from scratch or opt for a white-label solution. This approach is less costly and time-consuming than building a platform from scratch.
Integrate payment vendors
Integration of payment providers is a critical component of any crypto exchange. Providing users with multiple payment options for depositing and withdrawing funds will make your business stand out among the competitors.
Implement robust security measures
Security is a top priority for any crypto exchange – ensuring the safety of your users' funds and data is essential. Consider incorporating multi-factor authentication, SSL encryption, and cold storage solutions. Partnering with security experts to conduct regular security audits and penetration testing is also advisable.
Users may face difficulty trading cryptocurrencies without sufficient liquidity, leading to a negative user experience. It would be best to attract traders and market makers to your exchange to build liquidity. You can achieve this by offering competitive trading fees, incentivising market makers, and listing popular cryptocurrencies.
Market your exchange
Once you have completed the above steps, it's time to launch your crypto exchange. Market your business using various channels, including social media, PR, and targeted advertising. Ensure that you provide excellent customer support to retain users and establish a positive reputation in the market.
As you see, starting a crypto exchange requires a significant investment in terms of time and money. The costs are associated with assembling a team and building the platform, complying with regulatory requirements, attracting users, and maintaining the security of the exchange. Unless the future crypto business owner opts for a white label crypto exchange.
What is a white label crypto exchange?
A white label crypto exchange is a pre-built payment processing platform that allows other businesses to customise it to match their branding and preferences and use it as their own. Thus, one can start a crypto exchange quicker without building the platform from scratch.
This approach can be beneficial for businesses that want to offer cryptocurrency trading services but lack the expertise, resources, or time to develop their own solution. Opting for a white label crypto exchange allows business owners to focus on development and marketing. At the same time, the white label solution provider handles all the technical aspects of running an exchange.
How can Corefy help?
If you are determined to start a crypto exchange and don't want to spend a year on development or don't have enough resources to build a solution from scratch, you can opt for Corefy's comprehensive and scalable white label solution. It lets you focus entirely on your business development and client relations without getting distracted by the technical side of payment processing. Integrating with our payment orchestration platform allows you to accept payments in currencies and methods preferred by their clients and make payouts quickly and easily.
By choosing our out-of-the-box solution, you get the following:
- Payment orchestration platform for smooth payments processing;
- User-friendly payment dashboard for convenient monitoring, reconciliation, and analysis of transaction data;
- Smart routing & cascading for costs optimisation and diversification of risks;
- White label checkout with a customised design for frictionless user experience and trust due to the brand identity.
Contact our team to get an expert opinion and assistance to start your new crypto business efficiently or boost the existing one.
Use case from our practice
One of our clients – KUNA – represents the first public cryptocurrency exchange in Eastern Europe. The platform allows people to exchange fiat money for cryptocurrencies and vice versa.
The primary goal for Kuna was a flawless way to make payments and payouts. They partnered with a variety of payment processors and acquirers through direct integrations. But the more integrations they had, the more complex their payment handling became. And without smart routing schemes, the maintenance costs of all the connections almost eroded the value of having them.
Hiring a team of experts to develop Kuna's own processing solution could help. But considering this action plan, the business collided with specific challenges. See how we helped the company to fulfil all their business needs and acted as a technical partner in the launch of stablecoin Cryptohryvnia (UAX) in Kuna's success story.