Cryptocurrencies have become incredibly popular, and investors are exploring different ways to make money in this area. Someone mines bitcoins, someone else pitches ICOs, others trade digital assets, and another builds bitcoin exchange websites.
Not all of these methods are as profitable as they were at the very beginning. Today mining is more difficult, competition among ICOs is increasing, and high volatility makes cryptocurrency trading quite a risky business. This is why cryptocurrency exchanges are in the spotlight now.
Cryptocurrency trading platforms attract people for two main reasons. First, the number of altcoins is above 1600 and continues growing. Thus, there’s a demand for exchange services. Second, some countries have legally recognized bitcoin and people are more willing to use digital assets.
Exchanges usually earn money on transaction fees and initial coins listing charges. For instance, Huobi platform has about a $680 million daily turnover and its fees are 0.2%. This means that Huobi’s daily earnings on commissions only are a minimum of $1,360,000. Not bad!
In this article we explore how to build a cryptocurrency exchange website, what you should pay attention to, and how much it costs.
Cryptocurrency Exchanges Overview
Over 200 cryptocurrency exchanges are listed on coinmarketcap.com. Their total trading volume is over $14 billion. The most popular cryptocurrencies are Bitcoin, Tether and Etherium.
Top 10 exchanges on coinmarketcap.com
|Binance||Japan||Platform supports 1046 cryptocurrencies and claims to process 1.4 million orders per second.|
|bithumb||South Korea||It operates mainly in South Korea and fiat deposits are available to Korean residents only. 37 altcoins available.|
|bitFlyer||Japan||It has only 3 available coins. Beginner-friendly interface and good customer support are appreciated by its users.|
|OKEx||Hong Kong||It has a well-designed interface with lots of different trading options and views. Surprisingly, there is a lack of information on OKEx’s security mechanisms.|
|Huobi||China||Huobi's features include the ability to deposit and exchange 113 currencies, 0.2% trading fees and 24/7 customer service.|
|CoinBene||Singapore||Platform supports 97 coins and provides CONI token benefits. But fiat currency is not accepted and there’s no clear information about the company behind it.|
|Bitfinex||Hong Kong||One of the oldest platforms provides advanced trading features and order types. Unfortunately, USD payments have been blocked since April 2017.|
|Upbit||South Korea||Unlike others, this one does not charge fees on deposits. But it’s intended for South Koreans only.|
|Bit-Z||Hong Kong||Platform does not accept fiat currencies. Uncommon, but it doesn't have a mobile app.|
|HitBTC||Hong-Kong||It supports 416 coins and does not accept fiat transfers from most traders. Some suspect the platform of fake trading volume.|
As you can see, 10 out of 10 of the world’s biggest cryptocurrency exchanges are run by Asian-based companies. Thus, there might be a good chance to succeed on many other local markets. On top of that, existing trading platforms have weak points, that could be considered while thinking about how to start a cryptocurrency exchange business.
How to Start a Cryptocurrency Exchange
There are three different ways to build your own bitcoin exchange website. The first one is using white-label software. The second is modifying open-source solutions. And the third is developing a cryptocurrency exchange from scratch. Let’s take a look at the pros and cons of each variant.
White Label Solutions
The name derives from white vinyl records
A number of companies provide cryptocurrency exchange white label software. Even OKEx, one of the biggest cryptocurrency exchanges, has announced the launch of white label service. You have only to buy a ready-made solution, adapt its design, and start your own exchange platform.
- Rapid deployment. You don’t need to build anything from scratch. All the essential elements of a cryptocurrency exchange site are already developed. All you have to do is deploy, install and configure it in your own environment.
- High reliability. When you buy white label solutions you can be sure it will work reliably. The more popular the exchange software is, the more customers have tested it and the more bugs have been found and fixed.
- Reasonable price. Buying a ready-made solution is cheaper than developing it from scratch. Self-hosted solutions cost an average of €30,000-50,000 per year when in-house development costs about $200,000.
- Low flexibility. White label software providers rarely allow the customers to change the design and functionality significantly. This is why many exchange platforms look so similar to each other and offer completely the same features.
- Profit reduction. The price of white label exchange software usually involves a one-off activation fee and recurrent monthly/annual fees. In addition, vendors often consider commission splits or flat-rate fees based on exchange volume. You have to pay even if your profit is low.
- Difficulties with support. As vendors have many customers, it might be difficult for you to get support fast. It could take a long time to find an in-house developer to maintain your bitcoin exchange website because of the project’s specificity.
Open Source Solutions
Everyone is welcomed to study, change, and distribute this software
This type of software can be used for any purpose freely.
- It’s free. Yes, you don’t have to pay for using open-source solutions.
- Short deployment time. As open-source software has all the working core functionality, you can deploy your exchange quite quickly.
- Insufficient reliability. One open-source solution might be brilliant, but many others have a lack of quality. And some of them have never been thoroughly tested.
- Weak security. It’s very unlikely that there are any highly secure open-source solutions with database encryption. Multiple code vulnerabilities might result in lack of money and business disruption.
- Lack of support. Bear in mind that open-souce platforms are rarely well-supported. Sometimes the owners stop further development and you have to solve all the problems on your own.
There are not many open-source cryptocurrency exchange solutions on the market yet, but you can find some:
Custom Software Development
Custom software solution is unique. Like masterpiece
The third way to build your own bitcoin exchange website is to develop it from scratch. It involves more effort, but leads to bigger profits.
- Valuable features. With your own development team you can offer the customers functionality they really want. For instance, OKEx supports a fully independent stand-alone desktop platform. That makes it easier to trade on a low-to-medium end hardware. And Binance grew extremely fast because of the large number of initial coin listings. Outstanding features attract and retain the customers.
- High security and reliability. A team with strong expertise in cryptocurrency exchange website development is able to deliver a software as secure as banking systems are. SoftMediaLab developers are experienced in private key security, DDoS attacks protection, 2-factor authentication and so on.
- All the profit is yours. You don’t have to share your profit with someone else. It means you earn more money, as well being able to set up lower trading fees for the customers. Success stories of OKEx and Binance show that small fees provide rapid growth.
- Long-term project. Building a cryptocurrency exchange website from scratch takes at least 6 months. Huge projects with a large number of features can take a year or even longer.
- Difficult to find experts. Cryptocurrency trading is relatively new business. The first exchange appeared in 2010 and now only about 200 platforms operate successfully. Thus, there are not so many experienced cryptocurrency exchange developers in the world.
- Significant costs. Hiring an outsource development company or dedicated development team costs about $200,000 to build a cryptocurrency exchange from scratch.
Comparison of white label, open source and custom cryptocurrency exchange solutions
Key Elements any Cryptocurrency Exchange Needs
Any cryptocurrency exchange is quite a complex structure. Here we’ll explore the main elements that are crucial for a trading platform operation.
1. User Management
Effective user management is vital for a cryptocurrency exchange website. In the beginning of 2018, some cryptocurrency exchanges had about 100,000 users a day. It led to significant delays in account creation, and platforms had to optimize the processes.
- Sign in/Sign up. Even though cryptocurrency exchanges require a lot of personal user data, their signups are very simple. This helps the users to register quickly and easily. In some cases SoftMediaLab developers use Google Authenticator for 2-step verification services implementation.
- User creation. The majority of exchanges let the users create accounts by themselves. But some platforms are intended for small groups of people, like clients or partners. In this case users are created by admin.
- User Verification. Identity verification procedures are necessary for Know Your Customer (KYC) compliance. Most cryptocurrency exchanges provide multiple types of verifications which determine account limits. The types of verifications might include phone number, personal details, photo ID, SSN and so on.
Top cryptocurrency exchanges signup forms
A cryptocurrency wallet is a software program that allows people to send and receive digital currencies. There’s no sense in an exchange platform without deposit and withdrawal options.
- User and system wallets. Different wallet types might be provided to the users: “hot” and “cold”, mobile and desktop, multi-currency wallets and so on. Platform’s crypto money are kept in system wallets.
- Deposit/Withdrawal. Users might deposit or withdraw by transfer, QR code, email, ATM, etc. Usually, deposits and trading of digital currencies are allowed without account verification. But to withdraw funds it’s necessary to verify your account.
- Transactions creation. Every user should be able to buy currency and sell it to other users. It’s important to focus on transaction speed and smoothness (without system errors). Possibilities for orders creation allow a user to choose the most convenient order at the moment.
3. User Interface (UI)
The site’s user interface should be attractive and quite simple to support great user experience. Its development might be challenging, taking into account that any trading interface is quite complex itself. It’s important to allow the users to create orders, see individual transaction history with filter options, have access to graphics and indicators, and explore all the activities on the dashboard.
Binance interface basic view
Application programming interface (API) is a set of functions and procedures that allow the external applications to access the features or data of an operating system – a cryptocurrency exchange system in our case.
- Public and private API. Private API is used inside the system. For instance, you can write a bot that will help you to trade. Public API can be used by third-party developers – for example, to build an analytical tool that shows current situation on different cryptocurrency exchanges.
- Websockets. This is a technology that allows receiving event-driven responses from a server without having to poll the server for a reply. It’s used mainly to send information about trades changes, markets moves, etc.
- FIX protocol is the strict standard for every trading platform, regardless of the assets it trades (crypto or fiat). FIX allows external developers to integrate with many trading platforms quickly, because there is no need to dive into particular API specificities.
5. Trading Engine
Trading engine is the heart of a cryptocurrency exchange. It matches buy and sell orders, executes transactions, and calculates balances. To speed up these operations, they are processed instantly and automatically.
Developing your own trading engine from scratch requires deep domain knowledge. If you want to make this task easier, search for open-source solutions or hire an experienced development company.
Cryptocurrency exchange trading engine (source)
6. Market Making
Market making is necessary to provide internal exchange liquidity. Integration with other exchanges through the API connection allows drawing external orders to the local order book. In addition there is usually a special role – market maker – who manually drives the liquidity.
7. Admin UI
Cryptocurrency exchange admins are responsible for trades monitoring and user management. Depending on their access level they might see user information like ID, name, email, etc., and transaction details, like transaction ID, time stamp, amount, description and so on. Thus, the admin panel interface should be quite simple but functional.
- Logs. Full log history helps to analyze activities on your cryptocurrency exchange.
- Charts. This useful feature allows creating various charts for better visibility.
Usually there are two databases behind a cryptocurrency exchange website. For example, SQL and REDIS databases. One is a persistent storage that is very reliable, but quite slow. The other is an operative storage that is fast enough, but not intended for secret data storage.
These are the key elements of any cryptocurrency exchange. The list of valuable features that might be implemented is much longer. Contact the team to get detailed information.
You have to consider all the menaces
As cryptocurrency exchanges keep personal user data and operate with large amounts of money, they have to meet extremely high security standards. Let’s take a look at the security issues you have to consider when building a cryptocurrency exchange system.
DDoS Attacks Protection
Distributed Denial of Service attack means overwhelming a website with traffic from multiple sources in order to disrupt its service. Like banks and online shopping platforms, coin exchanges have to deal with the threat of DDoS attacks.
Bitfinex is currently under extreme load. We are investigating the issue and will keep you all up to date as we learn more.
— Bitfinex (@bitfinex) June 5, 2018
DDOS attack was detected and being mitigated right now. Sorry for the inconvenience.
— Bittrex (@BittrexExchange) November 24, 2017
We've been under continuous DDoS attack which inevitably affects other areas of operations. We're mitigating as fast as we can.
— Poloniex Exchange (@Poloniex) May 13, 2017
These DDoS attacks have led to users losing money either through margin orders that were not filled, or by panic sale of holdings. This is why it is important to automatically detect and mitigate attacks.
Private Key Security
Private key is a secret number that allows cryptocurrency to be spent. When a user private key is compromised, one can transfer all the coins to someone else’s wallet. The private key security is essential for a cryptocurrency exchange, and there are several ways to store them.
- Hot wallets are stored by the cryptocurrency exchange itself and can be accessed from anywhere in a web portal. Hot wallets are the easiest to hack and are suitable for frequently accessed funds.
- Cold wallets are offline and more secure. It is strongly recommended for a cryptocurrency exchange to provide cold wallets option. When users keep a greater part of coins offline, the risk of hacking decreases.
- Hierarchical Deterministic (HD) wallets allow creation of multiple private keys. This means avoiding backups after every single transaction, and they provide a high security level.
- Paper wallet is a paper with a private key printed, often in the form of a QR-code. It is stored out of anyone’s reach except its owner (i.e. in a safe). This wallet type is the most secure among the others.
- Multisignature means that multiple private keys are required to authorize a transaction. For instance, one of the Bitfinex wallets is a 3-of-6 multisig address.
As admins have privileged access to the system, their responsibilities and account limits should be defined clearly. It’s recommended to let every person manage only one small part of the system.
There is more than one way to build your own cryptocurrency exchange. White label software needs relatively low initial costs and shortens deployment time significantly, but decreases your profit because of the constant payments and fees. Open-source solutions are free, but might be unreliable and difficult to support. Building your own exchange from scratch with experienced software developers costs more, but allows you to get higher profit and implement special features that would attract customers.
The key exchange site elements include user management, database, trade engine, market making system, admin console, reporting, API, websockets, FIX, wallets, and the website itself. DDoS attacks protection, cold wallets, multisignature, and admin account limits are necessary to meet basic security requirements.
If you want to build your own bitcoin exchange website, feel free to contact our team and ask any questions. Get one step closer to your new highly profitable business.