How to Start a Cryptocurrency Exchange
The cryptocurrency industry has grown rapidly over the past decade and is currently worth more than $1 trillion. If a business wants to enter this space, a cryptocurrency exchange is among the most important services they can provide to cryptocurrency users.
Implementing an exchange gives users the ability to trade their crypto assets in a secure and efficient manner. It is possible to build your own cryptocurrency exchange platform from the ground up. However, this option takes a considerable amount of time and money, which is why you might want to consider a white-label crypto exchange instead. Here's everything you need to know about how to start a cryptocurrency exchange.
What Is a Cryptocurrency Exchange?
A cryptocurrency exchange is a type of trading platform that allows people to sell, purchase or exchange various crypto assets with a simple and risk-free solution. A cryptocurrency exchange is considered to be the most important component of the crypto industry.
When a user enters a cryptocurrency exchange, they're typically able to pair a wallet with the exchange, which allows them to purchase, sell or trade cryptocurrencies and crypto assets with ease. If you want to start a business that includes a crypto exchange, you'll first need to know how to start one. The best exchanges include all of the most modern features and security protocols that users have come to expect when managing their crypto assets.
How Does a Cryptocurrency Exchange Work?
When someone creates an account on a crypto exchange, they gain the ability to purchase, sell or trade currencies such as BTC, DOT, LTC, ETH and DOGE. Some exchanges allow users to buy crypto with a fiat currency of their choice, which could be the U.S. dollar or the euro.
If you're looking to build a crypto exchange, it's important to understand that the largest and most established exchanges typically offer the most currencies. However, selecting a white-label solution allows you to partner with a crypto exchange business that can deliver a crypto trading platform that supports dozens or hundreds of different currencies.
On most crypto exchanges, investors are able to use fiat currency to purchase their crypto of choice. These investors can also trade their existing crypto holdings for another type of crypto. For instance, it's possible to trade Bitcoin for Ether. In some cases, crypto can be converted to a fiat currency. Many investors keep holdings in their accounts to make additional trades in the future. Each crypto exchange has its own set of services to which users can gain access.
While non-crypto exchanges have specific trading hours they must adhere to, cryptocurrency exchanges remain active 24/7. When a user wants to trade on an exchange, they first place money into their exchange account or wallet. Many crypto exchanges provide their own wallets, which are usually required on that specific platform.
Once a wallet has been created, a user can view prices that cryptocurrencies are trading at. Of course, these prices are determined by the wider crypto market, as opposed to the exchange itself. After a user selects the crypto they'd like to buy, they can create a buy order, which is added to an order book alongside any other sell and buy orders made on the exchange. The majority of crypto exchanges collect small fees whenever trades are made.
Types of Cryptocurrency Exchanges
Before you start a cryptocurrency exchange, it’s helpful to learn more about the numerous types of exchanges at your disposal including centralized exchanges, decentralized exchanges and P2P exchanges.
A centralized exchange exists as an intermediary between sellers and buyers. Nearly every crypto transaction occurs via centralized exchanges. This type of exchange provides users with the opportunity to purchase or sell cryptocurrencies for other digital assets or fiat currencies. These exchanges act as brokers for all trades and deals that occur. Many centralized exchanges safeguard crypto holdings that are kept on their platform.
Some of the more popular centralized exchanges include Bybit, Coinbase, Gemini, Kraken and Bitfinex. The main benefits of using a centralized exchange include user-friendly interfaces and an additional layer of security. However, a centralized exchange tends to charge service fees while also being vulnerable to hacks and other cybersecurity threats.
A decentralized crypto exchange is any crypto exchange that isn't centralized, which means that a single entity isn't in charge of all assets on the platform. Since a single entity doesn't control the platform, transactions and trades are automated with the use of decentralized applications (DApps) and smart contracts.
Decentralized exchanges are considered to be safer to use, since hacks and other cybersecurity threats won’t take place as long as the smart contract which runs the platform is well-designed. In general, decentralized crypto exchanges are meant to provide users with control over their own assets, as well as any transactions that transpire on the platform. There are multiple models that a decentralized exchange can use to handle orders and transactions, including the automated market maker (AMM) model and the order book model.
A few examples of popular decentralized exchanges include PancakeSwap, Uniswap and Matcha. Decentralized exchanges were built specifically to resolve the issues that crypto investors have had with centralized exchanges. By eliminating intermediaries, transaction fees are effectively reduced.
The primary benefits of a decentralized exchange include full privacy and redistribution of fees to various liquidity providers. On the other hand, these exchanges don't accommodate fiat currency and tend to have low amounts of liquidity.
Peer-to-peer (P2P) crypto exchanges are platforms that provide users with the opportunity to exchange crypto directly with each other. Instead of implementing an order book that pairs sell and buy orders and takes control of assets, the P2P model provides users with the opportunity to perform direct transactions without any kind of intermediary involved in the process.
A user's identity must be verified before they’re able to purchase or sell on a P2P exchange. The main benefits of a P2P exchange include ample security, flexible payment options, reduced fees and better accessibility. A few of the more common issues with this type of exchange extend to poor speed and/or user interface, and lack of anonymity compared to other types of exchanges.
What Do Traders Look for in a Cryptocurrency Exchange?
When traders wish to use a cryptocurrency exchange, there are many features that they want to have access to. Because of the number of exchanges available, most crypto investors will use the trading platform that offers the best, most advanced features for their purposes. Let’s look at some of the primary considerations for users of crypto exchanges.
Accessibility is an important component for any exchange that wants long-term success. Not every exchange operates in the same region, which means that regulatory concerns may apply. Some of the top exchanges can be accessed almost anywhere.
Meanwhile, other platforms have different levels of accessibility, depending on the country or state from which they operate. By necessity, a cryptocurrency exchange that can be accessed by a majority of users will invariably be more popular than one that can't be accessed by a large portion of potential customers.
Security is of the utmost concern to traders and investors who are searching for the “best” crypto exchange. Trustworthy, secure exchanges are able to give traders confidence that their crypto assets will remain safe at all times. The best security features that a crypto exchange can implement include the ability to store assets offline via cold wallet, two-factor authentication and an insurance policy for custodial accounts.
For any cryptocurrency exchange, having great customer service is imperative. Customers need to be able to easily contact the exchange and receive quick replies to their queries. Because of the relative newness of the crypto market, many investors will have questions about how to perform transactions and create buy or sell orders. Since crypto exchanges and customers are located around the globe in numerous time zones, the best customer support solution is one that's available 24/7.
There are hundreds of different cryptocurrencies that a crypto exchange can support. Certain coins and tokens can only be purchased or sold on specific exchanges. When a user is interested in a token, they’ll need to locate an exchange that supports it. White-label crypto exchange platforms typically come with a lengthy list of supported currencies.
A large number of tokens that are available on the crypto market are ERC-20 tokens, which means that they can be used for smart contracts on the Ethereum network. A crypto exchange may provide users with access to all ERC-20 currencies.
Every crypto exchange has at least some fees, which could include withdrawal fees, spread fees and transaction fees. Many traders choose platforms with relatively low fees to ensure that profits aren't reduced substantially. If you're looking to build a crypto exchange, consider offering low fees at the start to improve your exchange’s chances of becoming successful in a crowded market.
When an investor wants to purchase or sell crypto, the exchange that they're using needs to be able to provide enough trading volume to support these transactions. If the exchange doesn't have much to trade, the user who makes the purchase may be tasked with paying higher prices. When a crypto exchange has more than enough liquidity, sellers and buyers will be able to receive the best prices.
When looking at how complex a cryptocurrency exchange is, investors and traders tend to gravitate toward the platform that has a friendly user interface, as well as easy onboarding. If the exchange is too complex to use, many investors will turn away. In fact, new investors require a simple user interface to gain a better understanding of how to conduct transactions. White-label crypto exchanges are usually very easy to set up.
How to Start a Crypto Exchange
Starting a crypto exchange requires a considerable amount of time and research. You or your team must have ample amounts of technical knowledge, expertise and resources to turn a concept into a fully functioning crypto exchange. The many steps that are required to build a crypto exchange include:
Performing exhaustive market research
Identifying which countries you would like your exchange to support
Making sure that your exchange adheres to all legal requirements and regulations that various countries maintain
Partnering with developers who are experienced and have built crypto exchanges before
Identifying whether you want your crypto exchange to include fiat currency
Making sure that the exchange you build is outfitted with strong security features
Focusing solely on your target audience
Providing great customer support that's available 24/7 and includes live chat, how-to-guides and a ticket system
If you want to start a cryptocurrency exchange, it's important to understand that doing so takes a large amount of time and money. While you can hire developers to help you create an exchange for your business, this option will require you to take a high percentage of funds out of your budget.
Because of how lengthy and arduous this process can be, it's highly recommended that you look into a white-label crypto exchange software provider. By partnering with one, you don't need to know exactly how to create a crypto exchange.
Using a White-Label Crypto Exchange Software Provider
There are numerous steps you must follow to start a cryptocurrency exchange. Using a white-label crypto exchange solution is considerably easier than building one of these platforms from scratch. When partnering with a crypto exchange solution provider like Bybit Cloud, the process is simple and straightforward.
Bybit Cloud makes it easy for businesses to start a cryptocurrency exchange by using our powerful crypto cloud solution that allows partners to obtain digital asset services and white-label solutions. The main partners Bybit Cloud works with include digital asset holders and platforms, trading brokers and blockchain enterprises. So even if you’re a stock trading company looking to enter the crypto sphere, or an existing crypto exchange on the hunt for stronger solutions, Bybit Cloud has got you covered.
Every process that an exchange must perform is automated, simplified and standardized with Bybit Cloud. We offer extensive data analytics functionality as well as a considerable amount of market knowledge. The process that's required to start a cryptocurrency exchange with Bybit Cloud can be performed in three simple steps.
Step 1: Contact Bybit Cloud
First, contact Bybit Cloud and speak with our team about your current business needs and goals. The team at Bybit Cloud will then assist you in delivering a crypto exchange that adheres to these goals.
Step 2: Preparation
The initial solutions available to you are fully customizable, and can be delivered in around five working days. Primary details for this exchange will also be provided, which include your domain name, developer account and logo.
Step 3: Final delivery
Once the final product is ready to roll out, the Bybit Cloud team will assist you throughout every step associated with launching the platform. This assistance extends to operational guidance and comprehensive training to support your business growth.
Advantages of Using Bybit Cloud
From stability to top-level integration, many tangible benefits come with using Bybit Cloud to start a cryptocurrency exchange.
Bybit Cloud maintains a lengthy track record of approximately four years without any downtime. This level of stability can't be found with most white-label crypto exchange solutions.
Time-Saving & Cost Effective
Obtaining a white-label crypto exchange means that you don't need to waste time building your trading platform from scratch. Once you start a cryptocurrency exchange with Bybit Cloud, you'll gain access to full customization of services and products, as well as modular management of daily operations and any new assets.
The crypto exchange you obtain with Bybit Cloud can be customized to meet your needs, which means that the end result will be based entirely on your business model and current requirements.
Your exchange will have access to a considerable amount of liquidity and we currently maintain best-in-class derivatives trading depth. When you start a cryptocurrency exchange, having access to liquidity is essential for easy growth.
Our solution provides third-party integration of custom payment gateway, data analytics providers, KYC/AML providers and many more.
Bybit Cloud provides our partners with comprehensive data analysis tools that allow for quick and seamless performance assessments.
Control of Market Fluctuations
When you develop a crypto exchange with Bybit Cloud, you'll find that market fluctuations can be effectively controlled, since background data is automatically updated and early warnings are sent on the front end.
Bybit Cloud delivers full support for your crypto exchange operation and development with features like dedicated technical support, user behavior analysis and operational data analysis.
Once you've created a crypto exchange with Bybit Cloud, the support you receive doesn't end there. Whenever you want to add new features or services to your exchange, our comprehensive white-label solution provides support for future development services.
The entire Bybit Cloud solution is supported by industry experts who will provide guidance for operational planning, which should allow you to keep mistakes at bay once your exchange is brought online.
Should You Use Bybit Cloud?
When your company is looking to start a cryptocurrency exchange, it's highly recommended that you opt for a white-label solution like Bybit Cloud. This can serve as your one-stop solution for any crypto products you require. These products allow you to integrate transactions and asset payments into the products you offer with the Bybit Cloud API.
As mentioned previously, Bybit Cloud offers a substantial amount of asset management and data analysis tools for you to take advantage of. These tools help you easily manage your platform, leverage data analytics for better performance and build applications in a more efficient manner.
New entrants to the crypto exchange industry usually have a difficult time creating an exchange that meets the high standards most investors have. With the Bybit Cloud solution, you'll be able to develop a robust crypto exchange that exceeds your user expectations and attracts new users.
Cryptocurrency exchanges are the lifeblood of the crypto industry, providing investors with the means to trade their assets. Even though it's possible to build an exchange from scratch, it would be more effective to partner with a white-label crypto exchange solution provider like Bybit Cloud that can quickly deliver a platform to meet your every need. Contact us directly to get started.