How To Build A Crypto Exchange From Scratch?


The cryptocurrency market continues to evolve in 2021. Taking into account the recent IPO of Coinbase, there’s a strong demand in creating a robust platform that can keep up with market competitors. Though Coinbase remains one of the most popular cryptocurrency trading platforms, why not build your cryptocurrency exchange platform?

It may sound like something complicated, but it’s easier than it sounds. Today we’ll look into the main components and technical things you need to consider before building a development team to start your project.

How Does Trading Cryptocurrency Work?

Any cryptocurrency is based on blockchain principles and is built as a string of non-changing code (‘’token’’) that makes a block of information consisting of separate sets of code. When the funds are transferred, the transaction takes place and is recorded in a public ledger. The distinctive feature of the blockchain architecture is that the copy of each transaction is added to every node. Thus, nothing can be changed on a single side, making the entire process secure and transparent for all peers.

There are different types of exchanges, including centralized, decentralized, and hybrid exchanges. Centralized exchanges, known as traditional, are governed by a company offering different gateways such as crypto-to-crypto or fiat-to-crypto. The decentralized exchange has no central point operation, and there’s no company in charge of the assets. The operations of this exchange are automated by smart contracts and decentralized applications. Hybrid exchanges are the combination of the first two types: fast and secure transactions yet private keys are held by you.

How to Build Cryptocurrency Exchange: Technical Things to Consider

Before we provide you with specific technical tips on how to create a cryptocurrency exchange, you need to be aware of the ways you can do it. There are three approaches to cryptocurrency exchange software development.

Building Software from Scratch

The cryptocurrency market is competitive enough, and it’s no easy task to stand out when you first release your cryptocurrency exchange platform. If a quick time to market is not your primary objective, you should build a custom platform from scratch. Many IT outsourcing companies help their customers face this  challenge. For example, the software development company Scand is among such companies that offer the development of cryptocurrency trading platforms.

However, considering this development option, you need to understand the challenges of this model. Firstly, in comparison with purchasing an off-the-shelf solution, it typically takes more time to develop the platform and prepare for the launch. Secondly, you’ll have to invest large sums in recruiting experienced R&D teams.

Obtaining an Off-The-Shelf Solution

If you are interested in a cheaper and faster launch of your crypto exchange, an off-the-shelf solution is a better development approach. By ordering a software package from a reliable vendor, you get a turnkey solution with the architecture every crypto exchange should have. For example, the above-mentioned software development company Scand also provides customers with OEM-white-labeled crypto exchanges based on MetaTrader.

What you need to keep in mind is that any off-the-shelf solution is basic enough by its nature and less flexible than the one built from scratch. Still, if the time to market and reduced costs are the main factors for you, it would be reasonable to choose this option.

Customizing an Off-The-Shelf Solution

This model is a reasonable compromise between resource optimization and a customized solution that will meet your specific business needs and allow you not to delay the release date by at least a year. Reliable software vendors often let customers customize their solutions and assist with the development process. It will be a great approach if you need a more tailored software solution but can’t afford to spend your budget on the project built from scratch.

No matter if you decide on creating a cryptocurrency from scratch or customize an off-the-shelf solution, you need to know about some technical basics. Below are several practical tips to consider before launching a crypto exchange development project.

The Cryptocurrency Exchange Software Architecture

Every cryptocurrency exchange platform has a typical software architecture that includes a trading engine, front-end, wallet, and admin panel. Let’s take a closer look at each component required to set up a cryptocurrency trading platform.

–      A trading engine. It’s the core component of any crypto exchange software and allows it to function properly. It helps access an order book, match orders, execute transactions, and calculate a balance.

–      A front-end interface. It’s the way your traders will see the crypto exchange platform when visiting its website. The user interface (UI) should be intuitive, user-friendly, and optimized for mobile devices.

–      A wallet. This is the place on the server where bitcoins are stored. A cryptocurrency exchange should run two wallet systems., including a hot wallet and a cold storage wallet. The former allows you to instantly withdraw bitcoins to an external wallet without approval, while the latter one is used for keeping all the rest of bitcoins.

–      An admin panel. The last component isused to manage the software by approving user accounts, crediting fiat deposits, solving support requests, and other functions available.

Security and Transparency Measures

Ensuring security is a must for any cryptocurrency exchange platform. This is the essential approach to follow as it’s reported that about half of cryptocurrency businesses are closed because of hacking. As a cryptocurrency business owner, you must ensure the security of transactions, Initial Coin Offerings (ICO), and money withdrawals. Pay special attention to personal information about your clients and make sure it’s protected at the highest level.

Finally, it’s vital to ensure the transparency of all operations on your platform. While running a cryptocurrency exchange website, you need to follow the Know Your Customer (KYC) policy, which means checking their personality through a passport or ID card to avoid potential hackers or scammers accessing your website.

Cryptocurrency Support and Transaction Speed Optimization

Another technical thing you should consider when building a cryptocurrency trading platform is the capability to support multiple cryptocurrencies. Make sure your exchange platform supports at least popular cryptocurrencies such as BTC, ETH, etc. The last yet not the least thing is transaction speed optimization. Customers expect fast transactions, so it’s crucial to optimize their processing.

Final Notes

In our article, we shared a quick checklist of technical things you need to be aware of when you start a cryptocurrency exchange. It’s up to you to decide what type of exchange to build and what approach to development to choose. It all depends on your business goals and the budget available. However, you need to understand that the cryptocurrency market is competitive enough, and you must weigh all pros and cons before launching the project. Anyway, if you don’t have in-house expertise in cryptocurrency, it would be a better idea to partner with a reliable cryptocurrency exchange developer.