How to Start a Cryptocurrency Exchange: Steps & Processes Involved
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 customers to trade cryptocurrency for other assets, such as fiat money or other digital currencies.
In this article, we’re looking into how to start a cryptocurrency exchange, why to start it, and how to turn it into a successful business.
You’ll learn a lot of useful information to build a crypto exchange:
- What is cryptocurrency exchange & how does it work?
- Why build a crypto exchange?
- Most popular types of cryptocurrency exchange platforms
- Key options for 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.
Binance, Coinbase, FTX, Kraken, and KuCoin are examples of the most popular crypto exchanges in the world.
All exchanges differ in the number of supported cryptocurrencies and their services. For example, some platforms don’t allow their users to move cryptocurrency from the platform to their crypto wallets, while others allow it.
Below you can see an image showing how a cryptocurrency exchange works.
Why Build a Crypto Exchange?
Cryptocurrency is a multi-billion dollar, rapidly growing industry. Right now might be a great time to tap into the industry and capitalize on it. Since numbers speak louder than words, let’s take a look at some interesting industry statistics.
- The total cryptocurrency market cap was $2.17 trillion in 2021. Bitcoin alone has a market cap of about $600 million. Once it even reached over a trillion US dollars.
- Binance is the most popular cryptocurrency exchange in the world, with a daily trading volume of $18.84 billion. The second most popular exchange is MEXC, with a $4.57 daily trading volume, and Hotcoing Global is the third, with a trading volume of $3.95 billion.
- In 2021, Binance reported $20 billion in revenue.
- In 2021, there were over 300 million people around the world who owned or used cryptocurrency.
- By 2023, the global blockchain market will reach $23.3 billion.
The cryptocurrency market continues to grow, and there is no indication it will stop anytime soon. That’s why many businesses explore the idea of cryptocurrency exchange development in the hopes of becoming the next Binance or Coinbase.
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.
Decentralized cryptocurrency exchanges are less popular and don’t have high trading volumes and liquidity.
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
Instant crypto exchange is a swap service that acts as a middleman. It allows users to instantly exchange one cryptocurrency for another. Instant exchanges receive and deposit funds directly to the users’ accounts. Platforms of this type don’t store the cryptocurrency of customers.
- Highest transaction speed
- Support for large orders
- No responsibility for stored assets
- Difficulties to get refunds
- More difficult to use
Examples of instant cryptocurrency exchanges include such services as Letsexchange, Changelly, FixedFloat, and SwapZone.
As you can see, there are different types of cryptocurrency exchanges. You can create any of them or even try and come up with a unique idea to beat the competition.
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.
White Label Cryptocurrency Exchange Development Solution
White-label crypto exchange solutions offer everything you need to kick-start cryptocurrency exchange development. You get access to the trading engine, the simplest user interface, liquidity, and the wallet and admin panel. These components form the basis of your exchange.
The advantages of using a white-label cryptocurrency solution include:
- Faster time to market
- Lower cryptocurrency exchange development cost
- Instant access to the most basic features
However, using a ready-to-go solution also has a few disadvantages:
- Reliance on a third-party solution provider
- Limited functionality & customization capabilities
- Problems with platform scaling
- Security issues
Using a white label solution, you always risk losing access to your cryptocurrency exchange if the provider decides to stop supporting its software. As a result, you may save some money to jump-start your crypto exchange project but will lose a lot more if such a situation happens.
Custom Cryptocurrency Exchange Development
Creating a cryptocurrency exchange customly means you’ll develop everything from the ground up, such as the trading engine, the wallet, the admin panel, and other components of your platform.
The advantages of custom development are the following:
- No reliance on a third-party
- Unlimited customization capabilities
- Unlimited platform scalability
- Unique UX and UI design
Here’re a few downsides associated with this method of creating a cryptocurrency exchange:
- Longer time to market
- Higher development costs
Unlike using a white label solution, custom cryptocurrency exchange development opens you the world of unlimited possibilities. You don’t need to rely on a third-party provider, and there is no risk of losing your exchange because of someone else’s decision. Custom development allows you to create a unique user interface, set up your exchange for high performance and further scalability, and customize the platform as you want.
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
- Fina cryptocurrency exchange development company
- 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
How wide do you want to operate your company?
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.
Still, it’s possible to start with a few countries at once, but only if you have the required time and financial resources.
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 in the next solution. 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
Here comes the fun part – legal regulations.
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 in civil or criminal charges.
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 if you forget about some essential functionality and will need to add it in the middle of the process.
- Authorization & verification
User authorization and verification is a must-have feature that guarantees transaction transparency and minimizes the possibility of fraudulent actions. To exclude the risk of unauthorized access to accounts, there are a few verification methods to incorporate in the login process:
- Single sign-on (SSO)
- Multi-factor authentication (MFA)
- Passwordless and biometric authentication
By allowing users to choose the most suitable features will ensure the security of your crypto exchange while making your platform user-friendly.
If you’re building a centralized cryptocurrency exchange, you’ll need to create a built-in eWallet.
An electronic wallet is a place where users will store their cryptocurrency, check their balance, make transactions, withdraw virtual money or convert crypto to fiat currency.
If having an eWallet is not mandatory for your users, you can allow them to choose to create it if they want. Otherwise, to streamline the customer journey, you can assign each user an eWallet as soon as they sign up with your exchange platform.
- Trading engine
Trading engine is the backbone of your cryptocurrency exchange. It controls all cryptocurrency-related operations – from funds in user accounts to matching offers and rates to processing real-time prices and commissions and even creating charts.
Creating a trading engine is the most important part of the development process, as it will impact the success of your crypto exchange. Before you start creating a crypto exchange, decide on the exchange type and what trading operations it will perform.
- Dashboards & charts
Dashboards and charts are crucial for cryptocurrency traders. They provide users with the history of exchange rates and allow comparing cryptocurrency exchange rates in real-time.
- Order book & transaction history
Order books provide information about all open orders to buy or sell cryptocurrency. Crypto exchanges create such lists automatically, as soon as users create a new order. Once the order is completed, the platform moves it from the order book to the transaction history. This way, users can track the performance of their trades.
Push notifications alert users about important events happening on the exchange, such as changes in prices for selected trading pairs, successfully made trades, new coins added, and so on.
Users should be able to configure notifications or turn them off completely if they don’t want to receive any.
- Bank Cards Integration
If you plan to provide crypto to fiat and vice versa exchanges, you’ll need to integrate the ability to use credit cards on your platform.
Arbitration is quite a popular feature today, since it allows customers to trade at the best rates. This feature allows users to compare the current rates of different cryptocurrencies across different crypto exchanges and make money on the most profitable trades.
Cryptocurrency exchanges deal with sensitive information, financial operations, and personal data. It makes them extremely attractive to hackers and other criminals. That’s why developing a platform with the best security principles in mind is a must-have today. You need to provide users with safety and transparency, so they feel confident that no data or funds will be lost.
- Admin panel
Aside from features for end-users, you’ll also need to create an admin panel for yourself. The Admin panel is the place where the platform’s owners can control all traders, transactions, content, and so on. Integrated with the checking system, it will automatically notify you about unusual user actions for you to prevent fraudulent actions.
- Additional features
The above list includes some of the most popular and common features of cryptocurrency exchanges. If you’re interested in knowing how to start a cryptocurrency exchange and make it popular, you’ll need to develop some unique features that will make your exchange different from the competition and help you attract customers.
Step 5: Find a Cryptocurrency Exchange Development Company
Depending on your requirements, you may create an iOS or Android app or web version of the exchange.
Unless you know how to start a cryptocurrency exchange and are ready to take on the coding process, you’ll need to hire a software development company.
Clutch, GoodFirms, and Techreviewer are great places to start your research. Such platforms list development vendors from all over the world. You can read customer reviews, check portfolios and provided services. Shortlist a few companies that you like the most and set up calls with them to discuss your project. During the calls, pay attention to a few aspects:
- Strong portfolio of successful projects
- Positive customer reviews
- Time differences
- Communication process
- Technologies used
- Experience in the cryptocurrency sphere
During the screening process, communicate your idea, ask a lot of questions and try to understand how each company approaches the development process.
One of the mistakes businesses make is hiring the cheapest development agency. While it might help you save some money initially, financial losses may be significantly higher.
Professional vendors can’t charge low prices, as they offer the best developers on the market. While their services are more expensive, their expertise allows them to deliver projects faster and without unexpected delays. In the long run, you’ll save a lot of money, as you won’t need to redo anything or change a development vendor in the middle of the development process if the first one fails to deliver the expected results.
Step 6: Design a Cryptocurrency Exchange Platform
Design is the first thing your customers see even before they start using your exchange. Your platform will probably attract both professional crypto traders and inexperienced traders who are just exploring the world of cryptocurrency. Your task is to make a platform with a user-friendly UX/UI design, so that all types of users won’t have any problems using the exchange.
Let’s see how to start a cryptocurrency exchange that will serve all types of users well.
- When designing a cryptocurrency exchange, keep your users in mind
- Implement features wisely and for the sake of users’ convenience
- Ensure the user journey is clear and smooth
- Provide multiple sign-up options
- Offer a quick onboarding process
- Create user-friendly navigation
By following these principles, you will build a crypto exchange that provides a smooth user experience. If customers don’t understand the interface of your solution, something probably went wrong during the design process.
Step 7: Start Cryptocurrency Exchange Development
The development of a cryptocurrency exchange comes down to its architecture, technology stack, and APIs.
Crypto exchange architecture types
Choosing the architecture type should be the first step of cryptocurrency exchange development process. The platform’s architecture identifies how the cryptocurrency and all its components will work. The architecture of a crypto exchange usually consists of numerous components, such as databases, APIs, blockchain, security features, trading engine, etc.
You can choose among a few types of architectures:
- Monolithic architecture is built on a single server. The scalability and request processing speed are quite limited. A crypto exchange with a monolithic architecture is cheaper to develop, but you’ll hit the ceiling pretty fast. Monolithic architecture will limit the growth potential of your platform in the future.
- Microservices architecture is also called a modular system. All components are located on separate servers, resulting in higher scalability and faster speed. While developing such a crypto exchange is more expensive, it will save you a lot of money in the long perspective. Microservices architecture allows changing some blocks without effecting all other blocks.
Consequently, the microservices architecture can be divided into three main types:
- Synchronous architecture requires a response for every sent request and processes every order streamlines. Synchronous architecture is better suited for small crypto exchanges with no potential for scalability.
- Asynchronous architecture involves many separate layers that pass their own requests without waiting for responses. As a result, the user interface receives status updates and users don’t have to wait for responses. Asynchronous architecture provides unlimited scalability, which makes it a perfect choice for ambitious projects.
- Distributed architecture splits customers’ requests into shards and processes them individually. The components can interact with each other for achieving the common goal, and each user gets a single logically built environment. Distributed architecture is best suited for complex cloud-based crypto exchanges requiring unlimited scalability.
The choice of a technology stack depends on the type of exchange you’re building and the platforms you’re targeting. Let’s explore some of the most popular solutions for iOS, Android and web development.
|Programming language||Swift, Objective C||Kotlin, Java|
|Development kit||iOS SDK, CocoaTouch||Android SDK, Android Jetpack|
|In-app analytics||Firebase, AppsFlyer, Amplitude|
|Languages||Java, PHP, Laravel|
|Databases||MongoDB, MySQL, Redis|
|Cloud||AWS, Microsoft Azure, Google Cloud Platform|
|APIs||Binance API, CoinBase API, KuCoin API, Cryptocompare API, Nomics API, Coin Market Cap API|
Step 8: Launch & Promote Your Cryptocurrency Exchange
The launch of your cryptocurrency exchange means the end of the first phase of its development. However, your work just begins.
Even before launch, you should start working on its promotion among the target audience.
Here are a few marketing strategies you can use:
- Social media marketing – it’s great to create your own community of potential users and for supporting relationships with existing customers. You can create accounts on different platforms, including but not limited to Twitter, Facebook, Instagram, Reddit, etc.
- Influencer marketing – when you’re nearing the point of cryptocurrency exchange launch, you can partner with influencers in the niche to promote your platform among their audience. Influencer marketing is extremely effective, as the audience is more loyal and ready to explore new things the influencer recommends.
- Partnerships – you can also partner with various crypto-related services and communities for promotion among their clients.
- PR – start building relationships with the media as soon as possible. You can publish press releases, give interviews or share some insights into the crypto sphere. The main goal is to work on brand awareness.
To ensure that customers will love your crypto exchange, you need to meet their expectations:
- High level of security
- Wide choice of coins
- High liquidity
- Phenomenal customer support
After you launch your platform, you need to work on gathering user feedback. It’ll help you better understand your audience, their experience with your cryptocurrency exchange, and what they want to get when they are using it. The collected information will help you with further platform development and support.
How Much Does It Cost to Build a Crypto Exchange?
The average cost to build a cryptocurrency exchange ranges between $130,000 – $200,000. The development process usually takes around 6 to 9 months, depending on the project scope.
The final cost and timelines will depend on several factors, such as the type of platform you’re building, the features, the number of integrations and APIs you need, and so on.
The table below helps better understand how the processes influence the final cost of building a crypto exchange.
|Testing||$25,000-$30,000 (with or without auto tests)|
*Please note that the above costs are very approximate. It’s impossible to provide you with the final cost to develop a cryptocurrency exchange without knowing all the requirements. Get in touch with us for a more detailed cost calculation.
Build a Crypto Exchange: Summing Up
Let’s wrap the article up by quickly summarizing the cryptocurrency exchange development process:
- Define your target audience
- Choose countries for operation
- Obtain a crypto trading license
- Choose cryptocurrency exchange type and features
- Find a crypto exchange development company
- Design an exchange
- Develop the first version of the cryptocurrency exchange
- Launch and promote your crypto exchange platform
The answer depends on the country you’re planning for your crypto exchange to operate in. After you decide on the location, get legal counseling to learn how to make your platform fully legal in the country. This will help you avoid serious in the future or even criminal charges.
The cost to build a cryptocurrency exchange ranges between $150,000-$200,000. Depending on the project scope, the cost may be slightly lower or significantly higher if you create a complex solution with many integrations and features.
In the United States, crypto-related activities are considered legal. That’s why if your business is registered in the USA will have to pay taxes. Crypto stored for up to a year and gradually growing in price is taxed 10%-37%. Crypto stored for over a year and gradually growing in price is taxed at 24%.
Usually, cryptocurrency exchange development takes from 6 to 9 months depending on the project’s scope.