The cryptocurrency exchange business is among the most popular segments in the cryptocurrency industry. Not only does it bring in big money, but it also allows you to be your boss and set your hours.
While it isn't surprising considering the cryptocurrency industry's growth. Its popularity has grown exponentially in the past few years, with various digital currencies and exchanges developing worldwide. Creating a cryptocurrency exchange business is an exciting option for people trying to make funds through these coins.
However, if you are a novice, you may be confused why it's a lucrative business option?
Here’s Why You Should Develop a Cryptocurrency Exchange Business?
- It is big money, and it’s drawing big players. Bitcoin alone has crossed the $3 trillion market value in 2021. So if you want to develop a cryptocurrency exchange business, it’s never been easier or more profitable.
- Blockchain technology gets constantly updated with new developments, which means that its popularity will only increase over time. Establishing your own cryptocurrency exchange business now will help you stay ahead of the competition.
- It is just like how back in 2005, there was an increase in demand for housing and real estate, which caused home prices to go up. So what will happen is that as more people want to buy cryptocurrencies, transaction volume will increase. When transaction volume increases, the demand for cryptocurrency exchanges increases too. That’s why it would be ideal if you develop a cryptocurrency exchange business now because you’ll have a first-mover advantage.
- Cryptocurrencies are experiencing exponential growth right now. Even if you don’t need an active trading income stream, there are plenty of reasons to develop your own cryptocurrency exchange business. For example, it can help you identify up-and-coming cryptocurrencies with real potential. If nothing else, it can provide a passive income when you don’t need to trade currencies independently.
- Many cryptocurrency businesses require a significant investment to start, but an exchange business is different. All you need is a computer and internet connection to create one. Plus, you don’t need any other permission or license to operate your cryptocurrency exchange business. But again, it depends on the regulations of your country, so make sure to read about the rules of your country before investing money in order not to lose it.
If you're interested in starting your own cryptocurrency exchange business but don't know where to begin, keep reading to get a deeper understanding of the following aspects:
What is a cryptocurrency exchange business?
How many types of cryptocurrency exchanges are available out there?
What are the standard features of a cryptocurrency exchange business?
How to create a cryptocurrency exchange?
What is a Cryptocurrency Exchange Business?
People trade cryptocurrencies (e.g., Bitcoin) for fiat currencies (USD, EUR, GBP) in the exchange business. These are different from cryptocurrency ATMs and cryptocurrency brokerages. A cryptocurrency ATM allows users to convert cash into cryptocurrencies like Bitcoin.
The entire process works like converting cash into foreign currency at any bank or airport worldwide. Once your card gets verified, utilize scanning your fingerprint, you can purchase cryptocurrencies worth up to $2,500 daily per card.
A cryptocurrency brokerage is more similar to Coinbase, where individuals can invest their funds in Bitcoin via traditional payment methods like credit cards or bank accounts.
Here's a quick question for you: How many cryptocurrency coins are there worldwide?
Well, the answer is 7557 (as of November 2021, says Statista).
Types of Cryptocurrency Exchanges
Centralized: This type lets you buy & sell cryptocurrencies against their fiat currency. If a centralized exchange gets hacked, its users risk losing their cryptocurrency balances.
Decentralized: Here, you'll trade your cryptocurrency holdings with other people (peer-to-peer). You will also take possession of your private keys, and hence, funds on a decentralized exchange are secure. The excellent part is that if something goes wrong, there won't be any third party who can get your money.
However, decentralized exchanges cannot reach mainstream audiences because they lack essential features like trading against fiat currencies or stop-loss orders.
Hybrid: A hybrid of centralized and decentralized exchanges are semi-decentralized exchanges where users retain control over their funds while trading against other cryptocurrencies using a central order book hosted by an exchange platform itself.
Features of Cryptocurrency Exchange Business
Every business must have some key components to be successful. The same goes for the cryptocurrency exchange business. Here are four features you should take into account:
Security: No company exists that hasn't had any security issues. That said, a good crypto exchange will explain what they do internally to help ensure data and funds remain secure and that their workers are protected from hackers. If a deal seems too secretive about how they handle money or don't offer answers, it could be a red flag! Having your funds secured is essential for any company, but security is even more vital for digital currency.
Liquidity: it is a term used in investing and financial management. Essentially, it refers to an asset’s ability to be quickly bought or sold for you to take advantage of a change in its price. A cryptocurrency with high liquidity can be quickly bought or sold without affecting its price.
It means that you should have little trouble exchanging your cryptocurrency for cash if necessary. However, it also means that if you have a large amount of money invested in a cryptocurrency with low liquidity, it may be harder and more expensive to offload it quickly when needed.
Trading Fees: You should be aware of different trading fees regarding cryptocurrency exchanges. The two most popular trading fees buyers encounter are market and limit orders. A market order is where you would automatically buy or sell your cryptocurrency at whatever price is currently on offer in the market.
It is also known as taker trades as it means someone has taken a transaction on your order and filled it against a set value. On the other hand, limit orders are where you place an order but specify a specific price above or below which you want your trade executed by a taker who takes those offers into their own hands. A typical fee charged for such orders would be around 0.25%.
Customer Support: All companies need customer support because people always need help with password issues or other technical problems. If a crypto exchange seems like they have zero interest in offering anything more than what their site offers, then you should consider moving on.
Stop-Loss Function: The stop-loss function is integral to any exchange's operation. It protects traders from significant losses due to sudden market downturns by automatically liquidating positions when certain conditions meet.
For example, if you bought 100 Ethereum tokens for $1,000, your stop-loss could be -5% which means that if Ethereum falls by 5%, your position will get automatically liquidated, and you'll lose $50. Crypto exchange businesses without stop-losses are gambling with your money because they take an unnecessary risk by not protecting you from significant losses.
Coin-pairs Availability & Exchange Rate: There are quite a few exchanges that operate in varying locations, but they all fall into three broad categories:
- US-based cryptocurrency exchanges,
- EU-based cryptocurrency exchanges, and
- Asia-based cryptocurrency exchanges.
Buyers look for a sufficient volume of desired coins on trade while choosing. Some currencies offer several coin trading pairs, while others provide only a handful of coins. Thus while developing your cryptocurrency exchange, you need to analyze the market. It will help you understand how many coin pairs you must make available to the users to attract a humongous crowd to your exchange business.
One of the vital factors affecting your cryptocurrency exchange business is the exchange rate. It attracts more customers, and they will use your platform in trading. If you have a proper analysis of your market, it will help you provide appropriate value to your coin pairs.
Your user’s interface should be so friendly that a beginner who has zero knowledge about cryptocurrency can understand it easily. Even an expert should be able to deal with everything efficiently and conveniently.
Convenient to Use: Decentralized Exchanges (DEXs) are all about making cryptocurrency exchange business more manageable and more convenient for users. If a crypto exchange you're looking at doesn't offer any unique advantages beyond what centralized exchanges already do, then DEXs could be your best bet for maximizing convenience and flexibility.
Decentralization is one of blockchain technology's key benefits, and part of that is being able to connect directly without working through an intermediary—like traditional financial institutions. Crypto exchange development company can integrate all these features in your project to ensure a viable market for your exchange business.
The future of the cryptocurrency exchange business lies in decentralization. And also on eliminating banks from cryptocurrency exchange business transactions if we want these businesses to succeed!
The future of the cryptocurrency exchange business lies in decentralization. And also on eliminating banks from cryptocurrency exchange business transactions if we want these businesses to succeed!
Steps to Build Crypto Exchange Business
Step-1: Research & Analyze
Before launching a cryptocurrency exchange:
- Do your homework.
- Look at what's out there, see what people are saying and get an idea of how they operate.
- If you're creating an online or app-based platform, ensure it integrates with most or all significant cryptocurrencies (bitcoin, Ethereum, Ripple, etc.).
And know that if you want to develop a competitive exchange, you'll have to dedicate serious resources (time and money) for that vision. That said - check out various other options available in the market.
Read detailed case studies of various cryptocurrency coins. Find out
- How they started,
- What they achieved at their zenith, and
- When & why things took an ugly turn for a particular cryptocurrency.
It's imperative to know about so-called pump-and-dump schemes in the cryptocurrencies market as well as about planned forks that could potentially impact or bring value changes to any coin's performance. Make sure you understand all those factors before diving into the development process of your cryptocurrency exchange platform.
Step-2: Select an Appropriate Region
The primary factor for determining your business's location is whether or not local regulations allow for cryptocurrency exchanges. A few large countries like Japan, Singapore, and South Korea have accepted crypto businesses in their territories, offering crypto companies legal protection. However, these policies and laws are constantly changing at a breakneck pace as governments attempt to understand cryptocurrencies as new technologies.
On the other hand, many developing and developed nations openly oppose cryptocurrency business. Countries like China, India, the USA, and Australia have made it clear that they do not support cryptocurrencies by restricting their transactions through governmental policies.
Thus if you want to start an exchange business in any of these countries, you need to apply for your business through proper channels and face challenges of convincing regulatory authorities about your concept and model.
Step-3: Determine the Type of Exchange for your Cryptocoin
There are many crypto exchanges, including centralized, decentralized, and semi-decentralized. Each has its advantages and disadvantages, but one that stands out is Decentralized Exchanges(DEX) due to the lack of high transaction fees and third-party risk. Choosing one that best fits your needs is key to success in a cryptocurrency exchange business platform.
It also means more power over your coins as no company controls your funds. No single point of failure makes DEX immune from being hacked or shut down by government interference (which happens in other types of exchanges). They give users more control than any different kind of cryptocurrency exchange platform online today.
With many coins available for trade with instant transactions, there is no lag time for deposits and withdrawals, making trading very efficient!
Step-4: Start with an MVP
A Minimum Viable Product (MVP) has enough features to satisfy early customers and create learning. Sometimes called v1 or version 1.0 in software development, an MVP helps you answer critical questions about your target market and product fit before you go too far down the wrong path. So, if you can't build it all at once, make just enough for now!
It is vital for cryptocurrency exchanges because their services are so new that there's no clear-cut market leader to study or a pattern of best practices to follow. Instead, please take what you know about cryptocurrency adoption and use it as an opportunity to experiment with your ideas around user acquisition and onboarding strategies.
After all, customers using your MVP will be some of the first people using your platform—give them a great experience from day one! MVPs should be designed and built iteratively. If it takes you a year to build your MVP, then so be it. You want to make sure that what you're building solves real-world problems for users.
And as you build, tweak, improve and scale over time, don't forget about product-market fit—an ever-evolving concept.
Step-5: Test MVP with Early Adopters
Your idea for cryptocurrency exchange may resonate with lots of people. The ideal way to learn whether you have an audience for your vision is to share it with potential users and early adopters. Running beta tests, selling early access, or having a landing page are all excellent ways of doing that.
Your goal here is not just validating your business idea by seeing how many people like it but also learning how they use it, what they don't like about it, and so on. It helps you make sure you deliver something people want and can be part of their lives (and make their money). If you fail at this step, we highly recommend that you go back here as quickly as possible!
Step-6: Build on Success with Beta Versions
Beta version releases are your first step in ensuring that your cryptocurrency trading platform is ready for launch. Once you have built and tested one beta version, you will be able to make changes and work out any bugs before starting your final release.
The entire process of building a successful beta version release can take around eight weeks, though some teams opt for releasing several betas before pushing their project live. There are many ways to approach development; it depends on what type of product you want to create and how much time you're willing to put into perfecting each aspect.
Step-7: Market the Exchanges
When they create an exchange, most people will only focus on developing and developing strategies to attract users. The reality is that you must also focus on growing your business after launch. Promote your site across your social media channels such as Twitter and Facebook, where appropriate, and take advantage of emerging forums on Reddit.
Also, consider running competitions and participating in industry events – both are great ways to get your brand noticed by significant influencers within the cryptocurrency community. You can also build trust with critical members of your community offline through crucial business relationships with other leading businesses.
Final Words
Cryptocurrency exchanges will continue to grow in popularity and value. There is so much potential for these exchanges, especially as awareness of cryptocurrencies continues to rise.
The cryptocurrency market also seems to experience more growth as new coins develop and others get added. In 2022, we expect there will be much more than cryptos listed on exchanges.
Many investors have already started investing in Bitcoin and other cryptocurrencies. However, it's still pretty early days, and potentially very lucrative investment opportunities await those who get in at just the right time or even near the right time with some due diligence.
Connect with a Cryptocurrency Exchange Development Company to leverage this flourishing market.